Any estate planning or elder law attorney will tell you how important it is to have power of attorney documents, but they won’t always tell you that these documents can still fall short—especially for individuals with Alzheimer’s disease or dementia.
A Power of Attorney is a document that gives someone the legal authority to make decisions for you if you cannot make decisions for yourself.
A Health Care Power of Attorney allows someone to make decisions for you concerning doctors, hospitals, medication, etc. [To read more about Health Care Powers of Attorney and Health Care Directives, see our article series on Health Care Directives.]
A Durable Power of Attorney (also sometimes referred to as a Financial Power of Attorney or General Power of Attorney) allows someone to make legal and financial decisions on your behalf. [To read more about Powers of Attorney, see our article series on Durable Powers of Attorney, Incapacity, & Adult Guardianship.]
If you do not have a Durable Power of Attorney and you experience a cognitive decline and need a trusted family member or friend to help you manage your finances, then the next step is usually Adult Guardianship. A family member, such as your spouse or an adult child, will file a court proceeding asking the court to declare you legally unfit to manage your own finances. Your family member will then ask the court to appoint them as your Guardian to manage your affairs on your behalf. It’s often referred to as “living probate” because just like probate—it’s time-consuming, stressful, and it can be costly.
If you have a Durable Power of Attorney, the agent that you appointed in the document (generally your spouse or an adult child) can help you manage your financial affairs without needing court intervention first.
We have previously written about the numerous issues that we encounter with poorly drafted power of attorney documents that do not have adequate powers and provisions for common issues that arise for individuals with Alzheimer’s disease or dementia. In sum, if your Durable Power of Attorney is a statutory form, online form, came from the bank, a general practice attorney, or your real estate attorney, then it is probably insufficient to tackle the common issues that arise for individuals with Alzheimer’s disease or dementia.
A powerful Durable Power of Attorney is a great tool to have in your Memory Safeguard Planning arsenal, but alas, it does have some shortcomings that are important to understand.
Adult Guardianship May Still Be Needed!
Alas, what a lot of people don’t understand is that a Durable Power of Attorney allows you to appoint someone to act on your behalf, BUT, it doesn’t stop you from acting for yourself! Of course, if you’re healthy, that’s a good thing, because you wouldn’t want to part with control of your own affairs. However, if you experience a cognitive decline due to Alzheimer’s disease or dementia, it can quickly become a bad thing.
We’ve seen many instances of a loved one with Alzheimer’s disease or dementia making a mess of their finances. Whether it’s mismanaging the bills, ‘investing’ in poor investments in penny stocks or get rich schemes, falling victim to senior scams, individuals with cognitive impairment are particularly vulnerable.
Unfortunately, when this happens, our only alternative at that point is generally Adult Guardianship so that we can obtain court documents declaring that the person does not have the legal authority to manage their own financial affairs any longer.
A Trust Can Reduce the Likelihood of Guardianship Being Needed
A well-designed Trust can greatly increase the likelihood of being able to avoid needing an Adult Guardianship in the future.
A Trust is a legal document in which you, as the Trustmaker, appoint a Trustee to carry out your instructions regarding the management of your assets for the benefit of the Trust’s beneficiaries. A Revocable Living Trust is a common estate planning tool. When you first establish the trust, it’s common to appoint yourself as the Trustee so that you’re still in control of your assets and you are also the primary beneficiary of the trust.
While Trusts often garner a lot of attention for their ability to keep assets out of probate and to provide certain levels of asset protection to you or your heirs, a Trust also can include guidance about how to proceed in the event that you become incapacitated or experience a cognitive decline in the future.
As part of our Memory Safeguard Trusts, our clients nominate a Disability Panel to vote on whether they are cognitively impaired and no longer fit to manage the finances. Generally, this Disability Panel consists of trusted close family members or friends, which allows this to be a private family conversation without the need for court involvement. If your Disability Panel agrees (either by majority vote or unanimous vote, depending on your instructions), then your Disability Panel is authorized to remove you as Trustee of the Trust and turn things offer to your Successor Trustee (that you named within in the Trust document). Your Successor Trustee then informs your bank and financial institutions that they are now handling all financial transactions and avoids the need to seek out Adult Guardianship.