A Well-Rounded Estate Plan Addresses Cognitive Decline

Estate planning is a roadmap for transferring a person’s assets upon their death. It preserves their value and lays out the distribution of assets to the beneficiaries. One overlooked but essential aspect of estate planning is a strategy to manage and maintain an estate’s assets if the owner loses cognitive functioning and cannot make sound decisions.  This is generally referred to as incapacity planning.

A recent case highlighted by Alan Feigenbaum in J.D. Supra’s article “Confronting Cognitive Abilities in Well-Rounded Estate Planning” reminds us of the complexities and challenges that can arise when cognitive decline is not adequately addressed in estate planning.

The case involves an 80-year-old retired advertising executive, referred to as K.K., who suffered from severe delusions. Influenced by a fraudulent business associate, K.K.’s delusions led to misguided investments that resulted in a significant financial loss. Despite the clear signs of cognitive impairment, K.K. continued to engage in financial decisions that jeopardized his estate’s financial well-being.

K.K.’s son filed a petition to appoint him guardian of his father’s estate to prevent further loss. This situation underscores the need for an estate plan that includes managing the assets and protecting the estate’s value, if the individual is cognitively or mentally impaired.

Key Takeaways

  • Plan Early and Consider Cognitive Decline: Begin estate planning early and include provisions to carry out plan directives, if cognitive functioning is impaired.  This may include purchasing long-term care insurance, or discussing your concerns with trusted loved ones who can watch for signs of decline.
  • Incorporate Safeguards: Estate plans should have safeguards, such as durable powers of attorney and trusts, which empower trusted individuals to manage your affairs if you become incapacitated.  It is also important to update these documents as you suspect decline, the issues in a simple estate plan when you are 30 are different than the issues in a plan considering cognitive decline in your 80’s.
  • Regular Reviews and Updates: Review and update your estate plan regularly to reflect changes in circumstances, including health status.
  • Professional Guidance is Key: Navigate the complexities of estate planning with an experienced estate planning attorney. An attorney will structure your estate plan to address potential cognitive decline.

Conclusion

K.K.’s court case underscores why a well-rounded estate plan includes a strategy to protect and manage assets when an individual lacks the cognitive capacity to make decisions. Proactive strategies prevent financial loss and reduce the emotional turmoil when caring for a cognitively impaired loved one. Estate planning gives you the peace of mind that your wishes will be honored, even in mental decline.

Reference: JD Supra, (March 2024), Confronting Cognitive Abilities in Well-Rounded Estate Planning

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Planning for a Loved One with Dementia

Having the conversation about dementia with a loved one is never easy says The Tribune-Democrat’s recent article entitled, “Dealing with dementia | Planning ahead: ‘Have the conversation.’” But, it is important to discuss the future and ensure your loved one is well-cared for.

First, it is important not to wait too long to have this conversation.  Once there is a diagnosis or symptoms, it’s time to act.  Dementia and similar diseases are degenerative so they won’t get better on their own.  Delay in confronting this issue won’t make things better, and can limit your options on how to address it.

Plus, you want to get as much input from your loved one with dementia as you can.  As the disease progresses, they will have a harder time making their own choices, considering their situation and offering direction and preferences for their own welfare.  This could be everything from living arrangements, care plans, estate planning, to bucket list items.  Starting early includes your loved one as much as possible and preserves their own wishes and choice.

Next, address the legal documents and define the future care. Of course, you should have an estate plan in place long before this.  But, dementia will affect a person’s capacity which may make them unable to create a new plan.  So, this may be the last, best opportunity to review and update the estate plan.

You should especially review the incapacity planning documents such as powers of attorney or trusts.  These documents can help prevent the person from being placed in guardianship by the court, which is an expensive, difficult process for families. When granted, the court appoints a decision-maker, taking away the individual’s ability to make decisions – either in whole or in part. This court oversight continues throughout the individual’s life or until capacity returns.

You especially want to review who your fiduciaries are (such as your agent to make financial decisions for you) and the powers you’ve given them.  For example, if you want to use Medicaid to help pay for your long-term care, the power for your agent to make gifts may become important where it wasn’t 15 years ago when you first executed the power of attorney.

Similarly, it is important to update your medical powers of attorney and directive to physicians, as well as discussing your wishes and preferences with your agent.  These documents appoint a person to make medical decisions on your behalf if you can’t, including end-of-life care.  Having the conversation with your agent about your preferences will prepare your agents to make those decisions and relieve the burden of worrying they are making the wrong decisions.

As a final point here, you should discuss the future care plan with your loved one. Is the plan to live at home?  Will family assist with care?  Will in-home care workers be hired to assist, or is an assisted living or nursing home a better idea?   What’s more, how do you pay for it?  It is often important to discuss these question with your financial advisor and an elder law attorney so that you can make an informed choice.  You may also consider whether and how to use Medicaid or other long-term care programs to help pay for future care.  The answers to these questions also impact your estate planning.

Reference: The Tribune-Democrat (July 29, 2023) “Dealing with dementia | Planning ahead: ‘Have the conversation’”

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6 Things Seniors Should Consider Before Marrying

Seniors in particular think about marrying with an understandable degree of concern. Maybe your last relationship ended in a divorce, or it’s been a long time since they were married. However, according to a recent article from MSN, “Planning to remarry after a divorce? 6 tips to protect your financial future,” there are some steps to take to make relationships easier to navigate and protect your financial future.

Not all of them are easy, but all are worthwhile.

1.No marrying without a prenup. Everyone thinks of prenups as pertaining to divorce.  They can address divorce, but prenups do much more.  They clarify property in the marriage, such as whether it will belong to one spouse or to the other or both.  Prenups clarify many issues: full financial clarity, financial expectations, the marital rights of the couple and clear details on what would happen in the worst case scenario. This is especially important to putting each of the couples’ respective families at ease as they marry.  Getting all this out in the open before you say “I do” makes it much easier to go forward.

2.Trust…but verify. Estate planning ensures that assets pass as you want. A revocable living trust set up during your lifetime can be used to ensure your assets pass to your offspring. Unlike a will, the provisions of a revocable trust are effective not just when you die but in the event of incapacity. A living trust can provide for the trust creator and their children during any period of incapacity prior to death. At death, the trust ensures that beneficiaries receive assets without going through probate.

3.Estate planning. While you are planning to marry is a good time to check on account titles, beneficiary designations and powers of attorney, both medical and financial. Couples should review their estate plans to be sure planning reflects current wishes. This will go a long way to avoiding fights between the respective families who just recently joined together.

4.Check beneficiaries. Especially after divorce and before a remarriage, check beneficiaries on 401(k)s, pensions, retirement accounts and life insurance policies. If you marry, state law may require you to give some portion of your estate to your spouse or otherwise affect your ownership of property.  In many cases, this can be addressed by a prenup, but you still want to consult an estate planning attorney to guide you through any changes to beneficiaries.

5.Medicaid Planning.    On the negative side, you should consider the likelihood that either party will need help paying for long term care BEFORE marrying.  Medicaid, which is a government benefit that helps pay for long term care, has different eligibility based upon the marital status of the applicant.  Medicaid also expects both spouse’s assets to be used for care which has nothing to do with the prenup.  So, for some individuals, it doesn’t make sense financial to marry where one party will need long term care.

6.Choose fiduciaries wisely. The fiduciaries named in your estate plan are the people who have tasks to fulfill.  This could be a trustee, an executor, an agent and so on.  Consider carefully who should fill these roles as they may have to be between the two families.  Consider the advantages of a corporate trustee, who will be neutral and may prevent tensions with a newly blended family. If an outsider is named as an executor, or to act as a trustee, they may be able to minimize conflict. They’ll also have the professional knowledge and expertise with legal, tax and administrative complexities of administering estates and trusts.

Reference: MSN (Feb. 11, 2023) “Planning to remarry after a divorce? 6 tips to protect your financial future”

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