Building a retirement strategy often involves years of careful planning, consistent contributions, and ongoing portfolio management.
But Vanguard is raising a concern that most investors overlook, and it’s one that has nothing to do with market returns or allocation strategy.
Illness, a serious accident, or cognitive decline can strip an investor of decision-making ability at any age
The gap has real consequences. Without legally binding documents in place before that moment arrives, courts, not your family or advisors, step in to control your finances and health care.
What Vanguard says investors stand to lose without a plan
Incapacity planning is a set of legal and financial tools that document your preferences and designate trusted individuals to act on your behalf, according to Vanguard’s incapacity planning guide.
Without a plan, the legal default is court involvement, where a judge appoints a guardian who may not be the person you would have chosen.
That guardian then operates without the instructions you would have given, managing your assets and health care according to their own judgment, not yours.
Matthew S. Raphan, a partner at Raphan Law Partners, wrote for the Alzheimer’s Foundation of America that guardianship proceedings often involve people who failed to plan for incapacity.
As a result, they have not authorized anyone to make decisions or act on their behalf when needed.
The four documents Vanguard says every investor needs
Vanguard’s incapacity planning guide highlights several legal tools designed to address common gaps in financial planning. Among these instruments, four are particularly important.
- Durable power of attorney: This document authorizes a named agent to manage financial decisions on your behalf and remains valid even after you become incapacitated. A standard power of attorney becomes unenforceable the moment incapacity occurs, which is precisely when it would be needed most, the guide explained.
- A revocable living trust: This trust lets you control your assets during your lifetime while naming a successor trustee who steps in if you lose capacity. Assets held in the trust pass outside the court process, avoiding costly delays and preserving your privacy, two key advantages Vanguard highlighted in the guide.
- An advance directive: This document records your medical treatment preferences and provides health care providers with documented instructions to follow, rather than defaulting to court authority.
- A Health Insurance Portability and Accountability Act (HIPAA) release: It authorizes named individuals to access your medical records, since without one, an appointed agent may be blocked from discussing your care.
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Waiting until after incapacity occurs is the real danger
All incapacity planning documents must be executed before incapacity occurs, because legal capacity is required to sign them, Vanguard stated in the guide.
Documents signed after capacity is lost may not hold up, and the window to act closes at the moment a crisis arrives, Vanguard’s guide cautioned.
Dementia affects tens of millions worldwide, progresses gradually, and often goes unrecognized in its early stages, making planning critical well before any symptoms emerge, Vanguard noted.
Bernard Krooks, chair of the Elder Law and Special Needs Department at Littman Krooks LLP, argued that a power of attorney is one of the most consequential documents an investor can execute.
A power of attorney is the single most important estate document that you can sign. In fact, I like to think it’s a gift you can give to your family and loved ones. Something that will make their lives easier in the event that something happens to you.
The Centers for Disease Control and Prevention (CDC) reports that more than 795,000 Americans experience a stroke each year, and the legal window to sign incapacity documents can close quickly in those situations, Ford + Bergner LLP noted.
Court-supervised conservatorship proceedings can cost a family $5,000 to $10,000 or more to establish, take months to complete, and require ongoing oversight, Opelon noted.
Raphan, writing for the Alzheimer’s Foundation of America, warned that guardianship proceedings “sometimes result in a court deciding to take away someone’s legal ability to make their own decisions and appointing a third party to act on their behalf, potentially someone they do not want, like, or even know.”
How Vanguard accounts work under incapacity planning
An attorney-drafted durable power of attorney may not be sufficient at Vanguard. The firm encourages investors to use its own Full Agent Authorization form, according to Vanguard.
This requirement is important because many investors assume a durable power of attorney automatically applies across all financial institutions. In reality, each institution often requires its own authorization forms.
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Investors who want a trusted person to access their Vanguard accounts before incapacity must also complete the Full Agent Authorization Form.
For investors who lack a family member capable of serving as trustee, Vanguard National Trust Company can step in as a professional trustee.
That service is available through Vanguard Personal Advisor Wealth Management, with advisory fees starting at 0.30% and stepping down at higher asset levels, plus an additional trustee charge, if applicable.
Steps Vanguard recommends for building an incapacity plan
The steps include defining your wishes, consulting advisors, and appointing trusted decision-makers to guide your planning process.
They also involve documenting the plan, securely storing key documents, communicating with loved ones, and regularly reviewing and updating it.
State laws governing incapacity planning vary, so documents must comply with the requirements of the state where the investor lives, Vanguard confirmed.
Vanguard’s guide recommends integrating financial planning, health care preferences, and family considerations into one coordinated plan, rather than treating each as a separate project.
Related: Vanguard drops playbook on retirement income
