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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Four Overlooked Elements in Estate Plans

When creating an estate plan, there are details which seem minor but are actually very important.  It is helpful, when creating an estate plan or reviewing your existing one, to check for these key estate plan elements, says a recent article from mondaq, “Four Provisions People Often Forget To Include In Their Estate Plan.”

Don’t forget to name alternative beneficiaries and fiduciaries. If the estate plan names a beneficiary, but they are unable to take possession of the property, or they are deceased, the asset may go to someone untended, or even as though you have no estate plan at all. In other words, the state will determine who receives the property, which may not be in accordance with your wishes. If there’s an alternate beneficiary, the property will go to someone of your choosing. Back-up fiduciaries (executors, trustees, agents under a power of attorney and so on) are also critical. If your primary choice can’t or won’t serve, someone unintended, or undesirable, may have to do it.

I find in initial consultations this is one of the biggest issues to discuss.  Clients consider their estate plan based upon present circumstances, but real life doesn’t always go the way we expect, so it is important to plan for contingencies.

Personal possessions, including family heirlooms. In the past, many families had items with great sentimental value, whether or not they have any financial value. Although this tends to be less common now, it is important to consider who would get those types of items.  It’s often best to have a personal property memorandum, which our firm routinely creates in our client’s estate plans.  This is a separate document providing details about what items you want to give to family and friends. These work differently in different states, so a local estate planning attorney will know the law for your state and can advise appropriately.  Even if this document is not legally binding, it gives your heirs clear instructions for what you want and may avoid family arguments.

I ask about important, sentimental possession in consultations, and clients often respond by saying these items aren’t financially valuable, as though that means they shouldn’t be consider.  But, these are the items that lead to fights in estates because they have an emotional impact on who receives them, and more significantly, who doesn’t.  I had an estate litigation case years ago that didn’t settle over a $600 wardrobe.  The financial value of planning was proven.

As a final thought, please don’t use the personal property memorandum to make any financial bequests or real estate gifts or use it as use it to try to amend the estate plan.  It never works well, and can break your estate plan.

Digital assets. Much of our lives is now online. However, many people have slowly incorporated digital assets into their estate plans. You’ll want to  consider all online accounts, including email, financial, social media, gaming, shopping, etc. In addition, your fiduciaries will need appropriate access to your phone, accounts and devices. The agent named by your Power of Attorney needs to be given authority to handle online accounts with a specific provision in these documents, which we do. Ensure the information, including the accounts, account number, username, password and other access information, is kept safe, and tell your fiduciaries where it can be found.

This is a growing need in today’s digital society.  So, you can learn more in this article:  https://galligan-law.com/does-your-estate-plan-include-digital-property/

Animals. Today’s pet is a family member but is often left unprotected when its owners die or become incapacitated. Pets cannot inherit property, but you can name a caretaker and set aside funds for maintenance. Many states now permit pet owners to have a pet trust, a legally enforceable trust so the trustee may pay the pet’s caregiver for your pet’s needs, including veterinarian care, training, boarding, food and whatever the pet needs. Creating a document providing details or speaking to the caretaker concerning the pet’s needs, health conditions, habits and quirks is advised. Make sure the person you are naming as a caretaker is able and willing to serve in this capacity, and as always, when naming a person for any role, have at least one backup person named.

Checking for these four key estate plan elements will help ensure your estate plan works as intended and to the benefit of your loved ones.

Reference: mondaq (March 16, 2023) “Four Provisions People Often Forget To Include In Their Estate Plan”

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The Basics of Estate Planning

Every now and again, it’s helpful to go back to the basics.  This blog will go back to the basics of estate planning to talk about how and why everyone should have an estate plan.  Forbes’ recent article entitled “Estate Planning Basics” explains that everybody has an estate.

No matter how BIG or small your net worth is, estate planning is a process that addresses how and to whom you leave your assets when you die and names decisionmakers who will wind-up your affairs at death and make financial, medical or personal decisions for you if you cannot yourself.

An estate is nothing more or less than the sum total of your assets and possessions of value. This includes:

  • Your car
  • Your home
  • Financial accounts
  • Investments; and
  • Personal property.

Part of estate planning is deciding which people or organizations are to get your possessions or assets after you’ve died.  This includes determining how to give it to them, and that plan addresses concerns such as marital status of the beneficiary, how they are with money, addiction problems, taxes and so on.

It’s also how you leave directions for managing your care and assets if you are incapacitated and unable to make financial or medical decisions. That is done with powers of attorney, a healthcare directive and a living will.

This is a very important aspect of estate planning, and you can learn more here:  https://galligan-law.com/power-of-attorney-why-it-is-important/

One of the biggest reasons people don’t have an estate plan is they assume they have no “estate” to be concerned with.  It might be true they don’t have much money, but everyone should consider naming individuals to act for them if they become incapacitated, ill or otherwise need help making decisions.

It also designates who can make critical healthcare and financial decisions on your behalf should you become incapacitated. If you have minor children, your estate plan also lets you designate their legal guardians, in case you die before they reach 18. It also allows you to name adults to safeguard their financial interests.

You can also create a trust to safeguard a minor child’s assets until they reach a certain age. You can also keep assets out of probate. That way, your beneficiaries can easily access things like your home or bank accounts.

All estate plans should include documents that cover three main areas: asset transfer, medical needs and financial decisions. Ask an experienced estate planning attorney to help you create your estate plan covering these three basic areas.

Reference: Forbes (Nov. 16, 2022) “Estate Planning Basics”

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