Insights

Declining Mental Capacity and How It Affects Estate Plans

November 11, 2022

/Private Client/Management Liability/D&O

What do Glen Campbell, Rosa Parks, Gene Wilder, Aaron Spelling, Etta James, and Peter Falk have in common? They are all celebrities whose Alzheimer’s disease impacted their estate planning. Current and historic headlines are full of celebrities who have faced dementia, contested estate plans, and conservatorships.

Senior Alzheimer patient

Alzheimer’s disease and related dementias (ADRD) are one of the leading causes of morbidity and disability among older adults. Studies show that an estimated 35 million people live with ADRD worldwide, and it is expected that this number will increase to 115 million by 2050.

ADRD is a chronic brain condition that is terminal and marked by declining memory, language, executive functions, and other cognitive abilities that impact an individual’s ability to manage daily living.

When it comes to estate planning, the challenge is identifying ADRD at a time when the plan can be put in place before the individual’s condition deteriorates.

This timing is tricky because there often is a period when the person’s capability is hidden by coping mechanisms. In other words, highly functioning individuals often can mask their decline for a long time.

When to Intervene

Although our brains start shrinking in our thirties and forties, it is after the age of 60 that our brains start declining at a faster rate. This decline can become critical when someone with ADRD begins to struggle with organizational skills. This diminished capacity can take many forms. However, when difficulties in financial management, medical decisions, and driving come to the forefront, the question family members face is when to intervene.

Here are some guidelines to help you make that determination:

Financial management. If a person has real property or investable assets that are being wasted or are at risk of depletion unless management is provided or money is needed for support, protection may be necessary. A conservatorship can provide the necessary support. Proving the need is relatively easy based on changing financial position, such as unpaid bills, or foreclosure notices.

Personal and/or health care. If a person appears to be endangering themselves either because of medical decisions or lack of care, guardianship may be a more appropriate step. However, the court first must find the person to be incapacitated. This legal determination requires cognitive testing and evaluations as well as documented opinions from a medical team. This decision can be overturned by the individual and family members, so it is crucial to get as much agreement as possible.

Driving. Loss of independence is scary for everyone, so the most difficult decision family members often face is preventing a loved one with ADRD from driving. Keep in mind that an incapacitated person can and will be held liable for accidents just like any other driver. Additionally, in many states, caretakers and family members who are aware that a person is no longer capable of safe driving and do nothing to prevent them from driving can be held liable in the event of an accident.

If the person does not willingly agree to stop driving, medical professionals and close relatives are able to report unsafe drivers to the Department of Motor Vehicles and request an unsafe driving investigation that may result in the revocation of the person’s license.

Supporting a Person with ADRD

There are many other issues that affect the estate plan and support of a person with ADRD.

If an individual is deemed incapacitated, the designated trustee must understand the duties and responsibilities of assuming this role. They should have a heightened awareness of their trustee fiduciary responsibility and personal liability. Trustee duties include:

  • Managing the trust according to its terms
  • Keeping in mind the duty of loyalty to the beneficiaries
  • Seeking help from outside professionals
  • Providing and retaining good accounting records
  • Keeping the beneficiaries up to date on activities
  • Exercising reasonable care and skill

Guardians and conservators have a challenging job in any situation, but early cognitive impairment presents risks. If the person is having a good day, they may feel relieved to have help. But, when they are having a bad day and their memory fails, they may be suspicious or critical of the caretaker. Some individuals with great coping mechanisms may even try to convince family members, friends, or institutions that the caretaker is breaching their duty. Here are the duties of the caretakers:

  • Duties of the guardian:
    • Provide proper care, maintenance, education, and support.
    • Supply food, clothing, shelter, and necessities.
    • Authorize medical, surgical, dental, psychiatric, and psychological care. (Some medical treatments, such as experimental treatments, may require court approval.)
    • File an Annual Report of the Guardian informing the court of the protected person’s condition.
  • Duties of the conservator:
    • Sign legal documents on behalf of the ward, making sure to indicate that you are doing so in a fiduciary capacity.
    • Pay the ward’s bills and other legal obligations from the ward’s income first, then from their other property if the income is insufficient.
    • File federal and state tax returns.
    • Borrow money on the ward’s behalf.
    • Maintain appropriate insurance for the ward, including healthcare, property, and life insurance.

Create a Team to Oversee Care

While this article offers a high-level discussion of some of the issues related to estate plans and care of wealth owners, it highlights the need to create a team that can help implement all aspects of the plan. This team can oversee the care of the individual with ADRD, while also ensuring that the trustees, guardians, conservators, and caretakers understand their roles and responsibilities and are protected from liability.

For more information on liability issues around estate planning for individuals with ADRD, please reach out to your Woodruff Sawyer representative.

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Judith Pearson

Family Office & Trustee Liability Resource Group Leader

Judith is a seasoned insurance and risk management expert who leads the Family Office & Trustee Liability Resource Group at Woodruff Sawyer.

720.593.5410

LinkedIn

Judith Pearson

Family Office & Trustee Liability Resource Group Leader

Judith is a seasoned insurance and risk management expert who leads the Family Office & Trustee Liability Resource Group at Woodruff Sawyer.

720.593.5410

LinkedIn