If a Loved One Is Slipping, Act Quickly
Written by Jacque Mingle
When a loved one’s ability to handle his or her own affairs starts to decline, it’s wise to take action – before it’s too late. Whether due to dementia, illness, or advancing age, many adults will face diminished capacity and need assistance with their finances or health decisions, probably both. Having the appropriate documents in place – before capacity required to execute them is lost — can make a big difference, in both convenience and expense.
An estate plan is intended not only to determine where your stuff goes when you die, but also who handles your affairs when you are alive but incapacitated. Documents that are needed to provide a plan for incapacity include financial and health care powers of attorney and perhaps a revocable trust. These documents require a higher level of capacity than a Will to create. A Will requires testamentary capacity, which means a person knows the natural objects of his or her bounty, understands the nature and extent of his or her property, and can interrelate those two concepts sufficiently to dispose of the property via a rational plan. Powers of attorney and trusts require contractual capacity, which requires an understanding of the nature and effect of the act and the business being transacted. Changes to a power of attorney or trust must be made while the person can understand the implications of the agreement.
Both types of capacity are evaluated at the moment a person signs them. It is entirely possible for a person with dementia or other type of diminished capacity to have a moment of clarity and understanding – often referred to as a “lucid moment” — when such documents can be executed, but be severely diminished in the hours or days both before and after. It is best, however, to execute these documents when there is no question a person has the ability to understand them.
It should be noted that these are levels of legal capacity, and are distinctly different from practical capacity to, say, pay bills. A person may be somewhat forgetful and unable to keep up with daily tasks, but still have both testamentary and contractual capacity to designate an agent to step in to help and determine where their property should go at death.
The following considerations are useful in evaluating anyone’s estate plan, but are of particular importance if someone is declining.
1. Update Documents. It’s best to update powers of attorney every five years or so. Institutions can decline to honor them, and powers that are “too old” are often rejected. Don’t provide an institution with an automatic reason to decline your powers.
2. Complete Institutions’ Proprietary Forms. Some institutions (such as Ameriprise) have their own forms and will honor only their own forms. Check to ensure the powers you have executed are acceptable to the institutions that hold your accounts. If they aren’t, execute necessary documents or move your accounts.
3. Evaluate Types of Powers of Attorney. There are what’s called “springing” and immediately effective financial powers of attorney. “Springing” requires a doctor to declare a person incapacitated before it “springs” into effect. Immediately effective powers may be used immediately upon signing. “Springing” creates what some people see as an extra hassle of having a doctor’s evaluation. Although that can be a drawback in an emergency, it also can be crucial if you do not want your Agent to be able to act until absolutely needed.
4. Evaluate Agents. Are the people named still appropriate? Are there alternates named in the vent the primary Agent is not able to serve? Would Co-Agents be useful? Co-Agents can be given the authority to act independently, and can then tag-team and cover for one another when one Agent is unavailable. On the other hand, Co-Agents who must act together have a check and balance on one another.
5. Evaluate Terms. Is everything there that might be needed? Does the health care power include mental health? In Arizona, it must be specifically addressed. Do the financial powers include digital assets?
6. If There’s a Trust.
- Consider who you have named as successor trustees. (See No. 4.) Check the terms to see if there is a mechanism to add more trustees without court involvement.
- Review the terms for determining incapacity. Who makes the call? Is that person easily accessible in a crisis?
- Review revocation and amendment provisions. If you are married, does your spouse continue to have the power to revoke or amend the trust during your incapacity? Do you want him or her to be able to?
If new documents can be executed, be mindful of the timing. Even though the legal standard of “incapacity” is different than a diagnosis of dementia or the capacity necessary to handle finances, institutions do not always appreciate these distinctions, and you might run into trouble with powers of attorney executed after any kind of incapacity declaration. Consider having documents done before an official diagnosis is made and/or have your doctor attest to your capacity to make certain decisions.
If powers of attorney are found to be invalid, an expensive, time-consuming guardianship and/or conservatorship may be required, which typically involves continued court oversight in the form of annual reports and accountings. If your trust succession fails, and there is no way to appoint another trustee, a court proceeding may be necessary to appoint another one. Taking some time to review your plan, even when the world seems to be falling apart, may help you pull things together more quickly and more efficiently in the long run.