Planning for Incapacity
The Center for Disease Control statistics show that the average life expectancy for males in the U.S. is 76 years and for females it is 81 years. In 1917 the average life expectancy of males was 48.4 years and for females it was 54 years. As a nation we live 33% longer than 100 years ago with life expectancies expected to continue to increase. Increased longevity has come with a price as diagnosed chronic diseases associated with aging are becoming more prevalent. The sixth leading cause of death in the U.S. population is Alzheimer’s disease.
The broad legal definition of mental incapacity is a person’s inability to make rational decisions or engage in responsible actions. Mental and/or physical deficiency, disability, illness, or drug use causing temporary or permanent impairment. The legal definition of mental incapacity will vary significantly from this broad definition depending upon the jurisdiction and the type of situation or transaction where legal capacity must be defined.
Questions of medical and legal capacity of individuals continue to rise with the increased aging population. Lack of cognitive functioning diagnosed as incapacity affects an individual’s ability to carry on the everyday affairs of life or care for one’s person or property with reasonable discretion. Also, mental capacity or incapacity is a key element in many areas of law including criminal law, torts, trusts and estates, contracts and various other areas of law.
The estate planning process should include preemptive legal documents to address problems that may arise due to a decline in cognitive skills. Fortunately, there are a number of legal vehicles to prospectively address future cognitive decline.
Common estate plan documents and remedies that should be considered to address declining capacity include the following:
Durable Financial/Legal Power of Attorney - A durable power of attorney allows a person to designate an agent to manage your personal and financial matters (e.g., paying bills, managing bank accounts, property and investments, filing income returns) should you become incapacitated. It is important to note that a power of attorney must be completed when a person is mentally competent, otherwise it may be deemed invalid by the court. The reason the term “durable” is used is that the person designated as an attorney in fact (the agent who will manage your finances) will “endure” and continue when a person is declared mentally incapacitated.
Health Care Power of Attorney - This legal document provides a vehicle for an individual to name someone to act as his or her agent and coordinate medical care with health care providers in the event of temporary or permanent incapacity. For example, if a person sustains a catastrophic injury in a car accident, a spouse, parent, adult child or other appointed health surrogate decisions maker can step in and make medical decisions on behalf of the incapacitated individual.
Without a Health Care Proxy in place, someone (typically a family member) will have to ask the court for permission to act as a healthcare agent, which can be especially difficult during a medical emergency. In short, creating a healthcare proxy will relieve family members of this burden and ensure that decisions are made related to the incapacitated person’s medical care. Additionally, most Health Care Power of Attorney documents often include advanced directives as to the incapacitated person’s preference for life sustaining procedure. The document will provide direction as to how long life sustaining procedures should be administered. Frequently
the document makes provisions for HIPAA authorization that allows health care providers to share information with the health care surrogate designated to make decisions on behalf of the incapacitated person.
Revocable Living Trust - A revocable living trust allows a person to continue to manage their own property while they have full mental capacity A person can create and fund a trust with their legal counsel, transfer their assets into the trust and serve as their own trustee. If that person becomes incapacitated, the trust will have a clause that allows a successor trustee to step into the shoes of the incapacitated person and seamlessly manage their assets for their benefit whether the incapacity is temporary or permanent.
Conservatorships and Guardianships - Conservator refers to someone appointed by the court who manages the finances and assets of an incapacitated person. Guardian refers to someone appointed by the court to make the personal decisions for the protected person. The guardian may be given authority to make decisions on behalf of the protected person about such things as where to live, medical decisions, training and education, etc. These type of legal arrangements technically are not “planning” in the traditional sense of incapacity planning. A conservatorship and guardianship is the legal process overseen by a probate court that becomes
necessary in the event that the other planning vehicles have not been initiated. The previously mentioned planning tools that do not require judicial oversight are typically much more desirable and economical means to assure continuity of care and finances as opposed to court appointed guardian and conservators.
The time to plan for when a person might be incapacitated is before cognitive decline. Preemptive preparation and planning for possible inability to make personal decisions and manage finances can alleviate stress on family members and friends and assure continuity of care for the protected person. The first step in assuring this occurs is seeking legal advice of an experienced estate planning attorney.
