Accounting for the possibility of your own and your loved one's eventual mental incapacity is a key part of any estate plan.
As a financial planner serving many older clients, I sometimes work with people who are in the beginning stages of dementia. Someone who handles the family finances forgetting to pay bills is just one common warning sign. The spouse doesn’t know about it until the bank calls the house warning that the mortgage has not been paid in months and is in default.
Accounting for the possibility of your own and your loved one’s eventual mental incapacity is a key part of any estate plan.
A healthcare proxy and a durable power of attorney are legal documents that let you appoint another person to make medical and financial decisions on your behalf once you are no longer able to do so. Your agent may be a spouse, an adult child, a friend, or a trusted adviser. Without a power of attorney, a spouse will need a court order to access any non-joint accounts.
You’ll also want to create a living will, or advance directive. This document will give your agent and your physician instructions as to whether to administer life-sustaining medical treatment if you are in the late stages of dementia, terminally ill, or near death. The living will relieves loved ones of the burden of difficult medical decisions such as whether to keep you on life support if there’s no possibility of regaining consciousness.
Giving someone else the power to take control of your affairs can be a bit scary. You can design the healthcare proxy and power of attorney so that they only become effective once one or more physicians determines that you lack capacity to make medical and financial decisions. This is called a springing power of attorney. But it doesn’t work in every state. In Florida, for example, a power of attorney must be effective immediately.
Make sure your loved ones know about the documents. Give copies of the executed documents to your appointed agents. It’s also a good idea to give copies of your healthcare proxy and living will to your healthcare providers. If your doctors know your wishes ahead of time, it will be easier for them to help ensure that your wishes are respected.
If your loved one appears to be showing signs of diminishing mental acuity, ask if he or she has the proper documents in place. If so, find out who his or her agent(s) are so that you can alert them.
If no such documents exist, encourage your loved one to meet with a qualified financial planner holding the Certified Financial Planner (CFP) credential and an estate-planning attorney. While a financial planner can’t draft legal documents unless he or she is also an attorney, he or she can help you define your goals and can ensure that the attorney considers them when drafting the documents. The planner should also be able to refer you to a good lawyer.
Many with Lessened Capacity Can Still Sign Documents
Diminished capacity does not necessarily mean that your loved one can’t execute estate-planning documents. For example, someone with mild cognitive impairment, or even mild dementia, can be deemed to have the acuity necessary to execute these documents. He or she must be lucid and understand his or her actions when the documents are signed.
But it’s better to act sooner than later. Making sure you have the right documents in place will give you and your loved ones peace of mind.
Shomari Hearn, CFP, is vice president of Palisades Hudson Financial Group, based its Fort Lauderdale, FL, office. Hearn and his colleagues write about estate planning in Palisades Hudson Financial Group’s new book, Looking Ahead: Life, Family, Wealth and Business After 55. The 326-page paperback and Kindle ebook is available from Amazon at http://tinyurl.com/ocro2dx and Barnes & Noble at http://tinyurl.com/m9ca3qk.
Palisades Hudson is a fee-only financial planning firm and investment adviser based in Scarsdale, NY, with $1.3 billion under management. It offers investment management, estate planning, insurance consulting, retirement planning, cross-border planning, business valuation and appraisal, family-office and business management, tax preparation, and executive financial planning. Branch offices are in Atlanta, Fort Lauderdale, FL, and Portland, OR. Read the firm’s daily column on personal finance, economics and other topics at http://palisadeshudson.com/current-commentary. Twitter: @palisadeshudson.