Napolitano looks at money.
Not many people go through life wondering what will happen if they lose control over their mind or body. Yet the Alzheimer’s Association estimates in 2017 close to 50 million people struggled with dementia. This is likely to double every 20 years and may affect 130 million people by 2050.
As a family member, the warning signs may be subtle. There may be confusion, forgetting to pay a bill, missing a meeting or simply repeated instances of poor financial judgment. As a part of your regular financial planning, conversations about this sensitive topic should occur when it is clear that everyone is mentally aware and not impaired.
The conversation should first arise as your advisor delves deeply into your current estate plan. Within that plan, there may be several documents to help assess your preparedness to deal with cognitive impairment. The documents that most current estate plans would have are the Health Care Powers of Attorney and a Durable Power of Attorney. These two documents should be coordinated when it comes to assessing someone’s cognitive capacity.
The Health Care Power of Attorney is the legal document that gives your caregivers the legal obligation to speak with your health care agent regarding your medical records. These documents should be kept current and updated every 3-5 years or as soon as circumstances change. With current documents on file, you can have a conversation with your ailing loved one’s doctor to see if Doc has seen signs of impairment or can recommend some testing to see if anything is going on.
The Durable Power of Attorney is a document that allows someone to act on your behalf for nearly everything. It needs to be current as many institutions will not accept one that isn’t. Be aware that each institution has their own rules about what is current. If you have one, ask your institution how fresh your Durable Power of Attorney needs to be for them to accept and rely on it.
The possibility of cognitive impairment is yet another reason why the use of lifetime trusts may make sense. Unlike assets in your individual name, any assets owned by your trust can then easily be managed by your backup trustee. Your backup trustee can be anyone you trust, and should also be revised if necessary, as people change and may or may not be the best fit going forward.
The challenge in using your trust document to artfully transfer the management of the assets to someone who is not impaired is: When do you become impaired? A smart person can easily fake it for a while, and mislead the concerned family members. The most creative idea that I’ve seen in trust planning is to create a disability board of friends, family or beneficiaries to decide if the loved one needs help managing their affairs. This is much simpler than requiring 2 of 3 doctors to declare incompetence or some other method that may take time or involve the court system.