Planning for the Alzheimer's Patient

When a loved one is faced with the early stages of Alzheimer's disease, given the nature of the illness, practical considerations are often not the first concern. Addressing issues such as healthcare planning and effective property management early can make dealing with the later stages of Alzheimer's easier. This document is intended to give an overview of the most important legal issues facing Alzheimer's patients, their loved ones and their physicians. Planning for the Alzheimer's Patient, discusses how a patient with sufficient decision-making capacity can plan for his or her future property management, as well as how an Alzheimer's patient with sufficient decision-making capacity can specify his or her preferences regarding future healthcare decisions.

I. PLANNING FOR THE ALZHEIMER'S PATIENT

At the earliest possible time, the Alzheimer's patient and the patient's family should consult with an Elder Law and Estate Planning Attorney for purposes of legal planning for property management, estate planning and advanced directives for medical decision-making. Consideration in such planning should involve the patient's financial security, a determination of who will manage property, the preservation of assets for others, if so desired, and the determination of future medical care. By undertaking proper planning when the Alzheimer's patient has sufficient mental capacity for decision making, the Alzheimer's patient will be able to impose his or her preferences upon future decision-making for his or her management of their property and healthcare. Most important, the legal aspects of planning for the Alzheimer's patient can often be best achieved when there is team effort among the medical and social work providers, the attorney, accountant and financial planner.

PROPERTY MANAGEMENT

What is property management?

For purposes of this chapter, we define property management as the development of a plan whereby there is an efficient and effective system for the administration of property. Under this definition, we are distinguishing "property management" from "financial management." In property management, as defined here, the consideration is "who is going to manage the property," whereas the consideration in financial management is "how is the property going to be invested." Property management necessitates the creation of certain legal documents. A person with sufficient mental capacity can select a family member, a professional (such as an accountant) or a corporate fiduciary (such as a bank or other financial institution) to manage his or her property.

What is the goal of future planning for property management for the Alzheimer's patient?

The goal of future planning for property management is to seize the opportunity while the Alzheimer's patient has the requisite mental capacity to put into place a mechanism, together with the appropriate documentation, by which the Alzheimer's patient can determine by whom his property will be managed (and spent) if he or she becomes mentally incapacitated. By establishing such a plan, the individual can make determinations for his or her future. In the absence of such a plan, there will likely be the need for a judicial determination of who will manage his or her affairs.

What are the legal devices for the management of another's property?

The legal devices for property management in the hands of another are durable powers-of-attorney, trust agreements and jointly held accounts.

POWER-OF-ATTORNEY

What is a power-of-attorney?

A power-of-attorney is a written instrument by which an individual (the "principal") appoints another as agent to act on his behalf (the "attorney-in-fact"). Generally, a power-of-attorney is limited to property management. In some states, however, the power-of-attorney includes the authority for both property management and medical decision-making.

Is a power-of-attorney valid when the principal becomes incapacitated?

An ordinary power-of-attorney becomes void when the principal becomes incapacitated. Therefore, all states have enacted legislation to permit the execution of a durable power-of-attorney, i.e. a power-of-attorney which survives incapacity. Accordingly, care should be taken to be sure that the power-of-attorney states that it is durable. A durable power-of-attorney will include words such as: "This power-of-attorney shall not be affected by the subsequent disability or incompetence of the principal."

Does the principal lose authority to act in his or her own behalf when he or she executes a power-of-attorney?

The execution of a power-of-attorney does not preclude the principal from acting on his or her own behalf. Unless otherwise stated, the principal and the agent have concurrent authority.

Do all states have the same laws regarding powers-of-attorney?

No. It is important to check one's own state laws since state's have varying requirements regarding powers-of-attorney. For instance, some states require witnesses to the execution of the power-of-attorney. Some states have additional requirements when the power-of-attorney is intended for use in real estate, e.g., filing of the power-of-attorney and/or a full description of the real property written in the power-of-attorney. If a person spends significant time in more than one state, it is advisable to have powers-of-attorney in each state in which the person frequents, especially if the person owns real estate in each state.

I do not wish to give authority to my agent presently. Can the power-of-attorney "spring;" into validity upon some stated occurrence?

It all depends upon state law. Some states have statutes authorizing the use of "springing powers-of-attorney." A "springing power-of-attorney" is one in which the agent's authority commences only upon the happening of a certain event, such as mental incapacity. If using a springing power-of-attorney, be extremely cautious that it will be accepted upon the stated occurrence. Financial institutions are especially careful to check that the event has occurred. If the power-of-attorney states that it "springs" into effect upon mental incapacity, be sure that it is written in the power-of-attorney the basis for a determination of incapacity and by whom such determination is to be made, including how many people must concur in the determination of incapacity.

I have executed a power-of-attorney. Can I revoke it?

Powers-of-attorney can be revoked, but often with difficulty. To revoke a power-of-attorney, one should notify the designated agent(s) and all financial institutions in which the principal has assets, informing them that the power-of-attorney has been revoked. Such notification should be in a writing sent by certified mail, return receipt requested. The principal should also notify his or her attorney and other professional advisors, family members and anyone else whom the principal feels would be helpful in protecting the principal should the agent fraudulently use the power-of-attorney. Generally, the agent cannot be held liable for the use of a revoked power-of-attorney until s/he has been duly notified of the revocation.

When else does a power-of-attorney become terminated?

A power-of-attorney is terminated if the instrument states that it is good only for a specified period of time. Further, and most misunderstood is that a power-of-attorney is automatically revoked upon the principal's death. A power-of-attorney cannot be legally used after the agent knows that the principal has died. Upon death, it is the executor (personal representative) or trust administrator who controls the management of property and its distribution. Additionally, some states may permit, or require, the revocation of a power-of-attorney upon the court appointment of a guardian, if a guardian is necessary. In other states, absent fraud, the power-of-attorney remains valid, even after the court appointment of a guardian.

How many agents can there be in a power-of-attorney?

Depending upon state law, there can be an unlimited number of agents to a power-of-attorney. However, the principal must be practical. It becomes unwieldy and confusing to have too many agents. Nevertheless, at time, it may be prudent to have more than one agent, when available.

If there are multiple agents, must they act together or can they have separate and equal authority?

The power-of-attorney will state whether the agents can act "severally" or must act "together." Requiring the agents to act "together" often makes the agent's functioning unwieldy because of the requirement that all agents sign the financial documents. It is, generally recommended that the agents be permitted to act "severally." Also, some financial institutions will not accept a power-of attorney which gives two or more agents equal authority to act. Such institutions want to know that they can rely upon only one individual without any potential dispute from another.

Need the principal keep powers-of-attorney current?

Unless stated in the power-of-attorney, there is no time after which power-of-attorneys lose their validity. Even though powers-of-attorney may be of unlimited duration, it is prudent that so long as the principal has the requisite mental capacity, he or she executes new powers-of-attorney every few years. In such way, the financial institutions will be less concerned with the possibility that the power-of-attorney has been revoked.

Can the agent take or gift to others the principal's property?

This is one of the major problems with powers-of-attorney. Unfortunately, while powers-of-attorney are a most useful means by which to manage another's property, powers-of-attorney are an opportunity for financial abuse. In most states, a power-of-attorney cannot legally be used to transfer (i.e., gift) the principal's property unless such authority is specifically granted. Nevertheless, financial institutions often do not ask questions. On the other hand, in many instances the principal wishes to give the agent gift-giving authority for purposes of estate and tax planning, as well as for Medicaid planning through the divestment of assets. If desired, gift-giving authority can be limited to the federal gift tax exclusion ($13,000 per person) or broadened to permit gifts of all the principal's assets. If the principal wishes to give the agent authority to gift assets, then such authority should be specifically stated in the power-of attorney. Prior to accepting the authority to make gifts of another's property, the agent should check with his or her tax advisor as to possible estate tax implications to the agent caused by the gift-giving authority in the event that the agent predeceases the principal.

What problems should be considered prior to executing a power-of-attorney?

Although a power-of-attorney in the proper hands is most useful and appropriate, a power-of-attorney is potentially a very dangerous instrument by which the principal can be wrongfully divested of his or her assets. The agent, even if not authorized, often has the opportunity to transfer (gift) assets to other people, including the agent himself. A power-of-attorney gives a great deal of authority to an individual without any succinct statement of how the funds are to be managed, spent, given away or preserved. The power-of-attorney does not "spell out" the principal's desires for the use of his or her funds; it is only the giving of authority. There are no "rules" as in a trust agreement (described below) indicating the principal's wishes for how to manage the assets. Accordingly, much thought should be put into deciding who can be trusted with the authority given in a power-of-attorney.

TRUST AGREEMENT

What is a "trust?"

A trust is a legal instrument by which an individual appoints a fiduciary and reregisters the assets in the name of the trust. The components of a trust are a "grantor" (also known as a settlor, donor or trustor) who places the assets into the trust; a "trustee," who is the fiduciary appointed to manage the assets; a "beneficiary," who receives the benefit of the assets during the continuation of the trust; and the "remaindermen," who receive the assets at the termination of the trust (similar to beneficiaries of a last will and testament).

Are there any rules for the operation of the trust?

What are some of the provisions which might be included in the trust agreement?

The trust agreement should specify how the trust assets are to be managed, who is to receive assets (and how much) during the continuation of the trust, the powers of the trustee and the identity of remaindermen of the trust assets. The trust agreement can specify that the grantor (and his or her spouse) wishes to be maintained at home with a certain level of care, even if the cost would exhaust the corpus of the trust to the exclusion of the remaindermen. The trust may give the trustee the authority to purchase long-term care insurance for purposes of planning in the event of an illness requiring nursing home care or homecare attendants. The trust may also provide that the trustee is to make gifts to family members in the same pattern as the grantor has in the past, including payment, e.g., of grandchildren's education expenses and birthday and holiday gifts. The trust may even provide for significant transfers of assets out of the trust for purposes of tax, estate or Medicaid planning. The grantor should discuss with his or her professional advisors the various alternative provisions which she/he may wish to include in the trust agreement. The trust agreement is a very personal document and should be carefully tailored to meet the needs and goals of the grantor. The trust agreement itself should state that the trust is to be governed under the laws and regulations of a particular state.

Unlike a power-of-attorney which generally gives the agent concurrent authority with the principal, a trust may be drafted so that a successor trustee to the grantor (if then serving as trustee) has authority to act only after the grantor trustee's incapacity. The trust should have language which provides for a smooth transition from the grantor as trustee to the successor trustee. Similarly, there should be a smooth transition from one trustee to another. For instance, the trust may provide that upon the written statements of two physicians, one of whom is the trustee's attending physician, that the trustee is unable to handle his or her financial affairs, that the successor trustee or trustees take over. Other language may include consultation with certain family members prior to a change in trustees. Depending upon the grantor's mental capacity, she/he may or may not be the initial trustee of the trust. If the grantor/Alzheimer's patient has sufficient capacity, but is not able to be the sole trustee of the trust, he or she might be the co-trustee with a spouse, child, professional or corporate fiduciary.

Can a trust be amended or revoked?

It depends upon the type of trust. A trust can be designed to be either revocable or irrevocable. The revocable trust is generally used for purposes of property management on behalf of the grantor, who is likely to be the sole beneficiary. An irrevocable trust is generally used in Medicaid planning, various forms of estate and gift tax planning and for the establishment of a managed source of funds for minors.

Who can be a trustee?

Depending upon state law, the trustee can be the grantor alone or the grantor in conjunction with another. The trustee can be a relative, friend or professional such as an accountant. The trustee also can be a corporate fiduciary such as a bank or stock brokerage company. The decision as to whom to select as trustee should be based on the size of the trust assets and whom the grantor feels is best suited to be the trustee.

What mental capacity is required for the formation of a trust?

A trust is a contract between the grantor and the trustee; therefore, the grantor must have the requisite mental capacity to enter into a contract as defined by the laws of the grantor's home state. When an individual lacks the mental capacity to execute a trust agreement, it may be possible to have a judge order the creation of a trust.

If a person has a trust, need he or she also have a last will and testament?

Yes. A trust provides for the ultimate distribution of those assets which are part of the trust. Often, people do not transfer all their assets into the name of the trust. Therefore, unless the remaining assets are payable upon death to a named beneficiary, probate will be required. For this reason, it is important to have a will in addition to the trust. The trust and the will must be coordinated to assign responsibility for the distribution of assets and for payment of taxes and final expenses.

What are the advantages of a trust?

The main advantage of a trust is that the grantor can continue to manage his or her assets until such time that the grantor either becomes incapacitated or no longer wishes to manage his or her assets. At such time, there is a smooth transition to the person who is designated to manage the trust assets. The trust provides rules by which the trustee is to manage the trust assets. There are clear fiduciary obligations which the trustee must follow. In addition, there can be certain reporting obligations as to the management of the trust. Further, it is much easier to manage the assets because they are all in the name of the trust and, in contrast to a power-of-attorney, there should be no concern that the authority of the trustee will not be accepted by financial institutions.

Does a trust require the trustee to render an annual accounting?

It depends upon how the trust is drafted. Such considerations must be discussed with the drafting attorney, taking into account the family relationships and the need, or lack thereof, to require reporting mechanisms. However, in some states, the trustee must render an annual accounting in order to be paid compensation, if the trustee is to receive such compensation.

JOINT ACCOUNTS

What are joint accounts?

A joint account is a bank or investment account registered in the name of more than one person as owners of that account. Depending upon the nature of the specific joint account, each person named in the registration may be empowered to manage and remove the assets from such an account.

How does a joint account affect an estate plan?

The presumption with joint accounts is that there is a right-of-survivorship between the joint tenants. Therefore, assets placed into a joint account "pass" to the surviving joint holder by "operation of law" not withstanding what the decedent's last will and testament states. The consequence is that one could undo an estate plan by the placement of assets into a joint account. Frequently a parent with two or more children places assets into a joint account with the child who lives near the parent, thereby unintentionally undoing the estate plan as set forth in the last will and testament. For this reason, powers-of-attorney or trust agreements for asset management are often preferable to joint accounts for asset management.

What is the disadvantage of jointly held assets?

The disadvantage of jointly held accounts is that joint accounts may undo an estate plan by causing certain assets unintentionally to go to certain individuals when they were really intended to pass pursuant to the person's last will and testament. Also, such accounts give an individual the opportunity to remove property from the control of the joint tenant (who placed all the property into the joint accounts) when that may not have been the intent of the person who placed all the funds into the joint account.

A word of caution: Prior to any changes in the distribution or registration of property, it is imperative to seek the advice of an estate planning and tax professional, who may be an accountant, attorney, financial planner or all of the above. Changes in property management can have significant tax consequences.

PLANNING FOR FUTURE MEDICAL DECISION-MAKING

What kind of planning should be done for the Alzheimer's patient in regard to future medical decision-making?

An Alzheimer's patient (and also every other adult) with sufficient capacity to execute an advance directive for medical decision-making should do so at the earliest opportunity. Advance medical directives include either or both (i) the setting forth of one's medical wishes which are to be followed in the event of mental incapacity and/or (ii) the designation of a surrogate to make medical decisions without necessarily any reference to written instructions. In 1990, the United States Supreme Court, in the case of Nancy Cruzan, stated that every American has the fundamental right under the constitution to make his or her own medical decisions. However, the Court went on to state that it is up to each individual state to determine who, if anyone, can make medical decisions for one unable to make his or her own decisions. State laws, therefore, vary on advance medical directives and should be carefully reviewed.

What is a Medical Durable Power of Attorney?

A Medical Durable Power of Attorney allows you to establish a process so that medical care decisions can be made which are consistent with your wishes, when you are no longer able to express those wishes directly to your doctor or family.

It is a legal document in which you name someone else called a " Healthcare Agent" to make health care decisions for you if you can't make them, even if you are not terminally ill. The HIPAA provisions, (Health Information Portability and Accountability Act) allow your agent to get copies of your medical records and other information in order to make medical decisions for you.

You may appoint anyone to be your health care agent so long as that person is at least 18 years old, mentally competent and willing to serve as your agent. Your agent doesn't' need to live in Colorado, but it usually makes things more convenient. You should also name a second person to serve in case the first person can't.

It's important to talk with your agent, your doctor and your family about what you would want, in the event you are incapacitated, about your medical care choices and your Medical Durable Power of Attorney.

II. PLANNING IN THE LATER STAGES OF ALZHEIMER'S DISEASE

At this stage, there are not as many options. In the event that there has been no advance planning by a patient for either property management or healthcare decision-making and the patient no longer possesses sufficient mental capacity to allow for such planning, court intervention becomes necessary. Courts appoint an individual, usually called a guardian, to make healthcare decisions and a conservator to make financial and property decisions.

Guardianships and conservatorships are costly and require court supervision for the duration. For this reason, it is always wiser and more practical for the Alzheimer's patient to put their own plans in place with an estate planning and elder law professional before they become too incapacitated to legally do so.

CONCLUSION

It is imperative to seize the opportunity at the earliest possible time to plan for the future financial and medical care for the Alzheimer's patient and his or her family. Consult with the professionals in such planning. By proper planning, the quality of care for the Alzheimer's patient and his or her family and significant others can be enhanced, while providing the appropriate security and peace of mind for those caring for the Alzheimer's patient.


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