Estate Planning Blog

Safeguarding against Financial Exploitation: Estate Planning for Cognitive Decline

Welcome to our guide on estate planning for cognitive decline, where we examine dementia and estate planning’s role in protecting our aging loved ones. The National Institute on Aging (NIH) article, “Managing Money Problems for People With Dementia,” sparked our discussion on estate plans and cognitive decline. As an elder law attorney, I’ve witnessed firsthand the challenges families encounter when safeguarding their loved one’s assets from fraud and exploitation. This article examines the financial risks of cognitive decline and how practical estate planning strategies can protect individuals experiencing dementia.

What are the Risks? Understanding Financial Risks and Exploitation

Cognitive decline, particularly associated with conditions like Alzheimer’s disease, poses risks for financial exploitation. Individuals with dementia may struggle to manage bills, discern trustworthy individuals, and understand financial transactions. This vulnerability makes them prime targets for fraud and abuse. Here’s a closer look at common forms of financial risks and exploitation:

• Multiple Payments: Individuals with cognitive decline may inadvertently make multiple payments for the same service, leading to financial losses.
• Unauthorized Transactions: Friends or family members might withdraw money, transfer cash, or mismanage assets.
• Undervalued Property Sales: Homeowners may be misled about the value of their property, resulting in sales below market value to the detriment of their estate.

Cognitive Decline: Legal Safeguards and Capacity Assessment

Understanding the legal safeguards available and assessing the individual’s capacity to enter into agreements is essential. Here are key considerations:

Legal Capacity: Contracts and agreements are enforceable only if both parties have the legal capacity to enter into them. Individuals with Alzheimer’s or cognitive impairment may lack this capacity, rendering contracts voidable.

Capacity Assessment: Assessing mental capacity is crucial in determining the validity of agreements. Physicians, family members, and legal experts play a vital role in providing testimony and evidence of cognitive decline, aiding in capacity assessment.

What Is Estate Planning’s Role in Protecting Our Aging Loved Ones?

Signs of dementia are sometimes slow to appear or hard to detect. The National Institute of Aging pointed out that financial management is one of the first signs of cognitive decline affecting a loved one.

Estate planning tools help prevent loved ones with dementia from losing money or property to unscrupulous people. Establishing financial powers of attorney before signs of dementia enables a trusted family member to oversee bank accounts and bill payments on behalf of a loved one.

Living trusts are another tool for protecting an aging loved one experiencing cognitive decline from financial loss. The creator of a trust appoints a trustee to manage the assets and outlines how funds are distributed, thereby preventing misuse of an individual’s finances. Individuals can be the grantor and beneficiary of a living trust, providing access to their assets and protection from financial exploitation.

Estate Planning and Cognitive Decline Key Takeaways:

• Proactive Planning: Plan early and take proactive steps to safeguard assets before signs of cognitive decline.
• Preventative Estate Planning Tools: Consider financial powers of attorney or living trusts to protect an aging loved one from financial risks.
• Experienced Estate Planning Guidance: Seek guidance from an experienced estate planning and elder law attorney to navigate complex estate planning issues.

Conclusion

Estate planning for cognitive decline requires careful consideration and proactive measures to protect vulnerable individuals from financial loss. Ready to safeguard your loved one’s future? Schedule a consultation with our experienced estate planning and elder law team today and take the first step towards comprehensive estate planning.

Reference: National Institute on Aging (NIH) (Oct. 3, 2023) Managing Money Problems for People With Dementia

The Difference Between Power of Attorney and Guardianship

Navigating the intricate landscape of elder law can be daunting, especially when faced with the decision between guardianship and power of attorney for elderly parents. This article sheds light on the difference between guardianship and power of attorney, providing clarity on which approach might be the best fit for your family’s unique situation.

What Exactly Is a Power of Attorney?

A power of attorney is a legal document that empowers an individual, often referred to as the “agent” or “attorney-in-fact,” to act on behalf of another, known as the “principal”. This authority can span a myriad of areas, from handling financial matters to making pivotal medical decisions.

• Deciphering the Power of Attorney Document: The power of attorney document delineates the extent of the agent’s authority. For instance, a medical power of attorney focuses on health care decisions, while a financial power of attorney pertains to managing financial assets, like bank accounts.
• The Significance of Durable Power of Attorney: This variant of power of attorney remains valid even if the principal becomes incapacitated due to conditions like dementia or Alzheimer’s disease. It’s imperative that this durable power of attorney must be prepared with precision, ensuring the agent’s ability to act remains unaffected by the principal’s mental state.

Guardianship: An Overview

Guardianship establishes a legal relationship where a guardian is court-appointed to make decisions for someone unable to do so themselves.

• Guardianship Proceedings: Initiating guardianship requires one to file a petition in the probate court. If the court ascertains that the individual is no longer able to care for themselves or their assets, it may appoint a guardian.
• Differentiating Guardian of a Person from Guardian of an Estate: While the former is tasked with personal and medical decisions, the latter oversees financial matters. The guardian’s responsibilities, whether it’s a duty to provide care or manage financial assets, hinge on the terms of the guardianship.

Power of Attorney or Guardianship: Which Path to Choose?

The choice between power of attorney and guardianship is contingent on the specific needs of the elderly individual.

• Comparing Decision-Making Power: Both the agent (under power of attorney) and the guardian have a shared duty to provide for the best interest of the individual. However, a guardian typically possesses a more expansive level of decision-making power.
• Flexibility and Autonomy: With a power of attorney, the principal gets to choose the person who will act on their behalf. In contrast, in a guardianship proceeding, the court has the final say, which might not always resonate with the individual’s preferences.

When Is Guardianship the Answer?

Guardianship becomes indispensable when an elderly parent is incapacitated and lacks a power of attorney.

• The Process of Seeking Guardianship: If there’s a belief that an elderly parent is vulnerable, it becomes imperative to file a petition for guardianship. Consulting an elder law attorney can streamline the guardianship proceeding.
• Guardianship vs Power of Attorney Post-Incapacitation: In the absence of a durable power of attorney, guardianship emerges as the sole recourse if an individual becomes incapacitated.

Can Power of Attorney and Guardianship Coexist?

Indeed, it’s possible to have both mechanisms in place, although their interplay can be intricate.

• Roles and Boundaries: An adult child might be designated as the agent for financial matters under a power of attorney, while a professional guardian could be entrusted with medical decisions.
• Harmonious Operation: Both the agent and guardian must act in the best interest of the individual, ensuring their comprehensive well-being.

Making the Right Choice for Your Family

Deciding between power of attorney and guardianship demands careful contemplation.

• Engage with an Elder Law Attorney: Their expertise can offer tailored guidance, helping you traverse the complexities of elder law.
• Factor in the Elderly Parent’s Desires: Their voice is paramount in the decision-making matrix, ensuring that their autonomy and dignity are preserved.

Key Takeaways:

• Power of Attorney is a legal instrument allowing individuals to designate someone to act on their behalf.
• Guardianship is a court-sanctioned role for those incapacitated and unable to make decisions autonomously.
• The distinction between the two hinges on the individual’s circumstances and the extent of decision-making power required.
• Both mechanisms can coexist, though their roles might differ.
• Engaging with an elder law attorney is pivotal to making an informed decision tailored to your family’s needs.