Wealth Advisory & Planning
September 28, 2021
Advance Estate Planning: Getting Out in Front of Mental Incapacity
Six million Americans suffer from Alzheimer’s disease, and 11 million people are providing unpaid care for people with Alzheimer’s or other dementias.1 While physical and cognitive changes are a normal part of the aging process, the possibility of an incapacitating dementia diagnosis requires thoughtful preparation and advanced estate planning to maintain continuity of your financial management and ensure medical and end-of-life wishes are honored.
There are steps you can take to protect your family and your assets in the event you become unable to manage your financial affairs. The key is to start now, communicate your wishes to your loved ones and allow enough time to get everything in order. This is especially true for older adults, who need to act while they still have the mental capacity to execute wills, set up trusts and enter into contracts.
Safeguard your estate: Create a will and a revocable trust
Although an up-to-date will and a revocable, or living, trust serve different purposes, together they address most of the issues required for uninterrupted management of your assets and financial affairs during your life and after.
Do not procrastinate doing a will or trust. If you become incapacitated without these guardrails in place, your assets and finances will likely become supervised and managed by a court-appointed conservator — a stressful, time-consuming and expensive situation for your family and loved ones that may ultimately fail to achieve the outcomes you would prefer.
Why you need a will
While the benefits of executing a will extend beyond planning for mental incapacity, it is an invaluable tool in this context. A will directs what happens to assets you own in your own name and subject to probate upon your death. It can include closing out your financial accounts, distributing assets to your heirs, naming a guardian for minor children and defining funeral and burial wishes.
A will remains in force until you revoke it, and only you can make changes. If you are newly diagnosed with Alzheimer’s disease or other dementias, you should create or update your will as soon as possible while you still have the legal capacity to do so. Once you lose that capacity, you can no longer alter your will — but neither can anyone else.
Why you need a revocable trust
Another critical strategy in planning for mental incapacity is establishing a revocable trust. A revocable trust manages the assets in the trust during your lifetime. As long as you are alive and healthy, you retain complete control over your assets.
When you establish a revocable trust, you may appoint one or more people to become your successor trustee on your incapacity and at your death. Upon your death, the trust becomes irrevocable, and the trustee distributes the trust assets to your beneficiaries, including continuing trusts, according to your instructions. Often, a will and trust are drafted together, with the will “pouring” any assets it governs to the trust where all the distributions and provisions for any ongoing trusts are provided. An important benefit of a revocable trust is the ongoing and continuing management of your assets on your incapacity and at death without the need to wait for probate.
Appoint a financial proxy: Have a financial power of attorney
A financial POA gives another person the legal authority to make financial decisions and act on your behalf, including paying bills and taxes, if you are unable to do so. The POA may be durable, meaning it takes effect immediately, or springing, whereby it takes effect only when you become incapacitated. The typical POA remains in effect until your death unless you terminate it. All POAs terminate at your death.
Document your wishes: Advance healthcare directives
Advance directives communicate your medical decisions when you are unable to speak for yourself. Several documents are designed to help with this task, each with a different purpose. Advance directives are governed by state law, and not all types are recognized by every state. We recommend discussing the following advance directives with your advisors and implementing them accordingly.
A living will details exactly which treatments you do and do not want if your life is threatened, including dialysis and breathing machines, artificial life support, resuscitation and tube feeding, and organ or tissue donation after you die.
A healthcare POA authorizes another person to make medical decisions for you if you are unable to do so. This person may be called an agent, attorney-in-fact, healthcare proxy, patient advocate or something similar, depending on your state law.
A “do not resuscitate” directive instructs healthcare practitioners and emergency aides about your treatment preferences should your heart or breathing stop.
Point of service directives
Medical release of information (HIPAA release form)
This allows your doctor to share medical information with persons you have identified in writing. You must complete a separate form for each of your medical providers.
Hospital visitation form
This allows nonfamily members to visit you in the hospital. The visitation form may be important if you are in a domestic partnership, are not legally married or have friends you want to have visitation rights.
Stay current: Periodically review and secure all documents
We recommend reviewing all estate, financial and healthcare documents every five to seven years and anytime there are changes in your health, personal or family circumstances, or applicable tax laws. Keep originals in a secure place that trusted family members, friends or advisors can easily access in an emergency. Do not keep your original will in your safe deposit box. Your attorney should have copies of all executed documents, and any person named as agent in a POA should have an executed copy of that document. Glenmede clients should consider putting electronic copies of all documents and other relevant papers in their secure GlenmedeConnect online vault.
Get organized: Gather your personal information together
Getting one’s affairs in order means making sure your loved ones have access to everything necessary to keep your life going if you are unavailable — from passwords and social media accounts to preferred plumbers, to subscription services, to passport and license numbers.
Communicate your wishes: Prepare your loved ones to step up
Talking with family about the possibility of diminished mental capacity and death can be uncomfortable. But understanding — and being prepared to act on that understanding — only come through communication. Engage with family and trusted advisors early in the process and share your rationale about your estate, healthcare and end-of-life decisions. These conversations can deepen relationships and help the family prepare to oversee medical, legal and financial issues as they arise.
The considerations and action items mentioned in this article take time to implement, which is why early engagement with your trusted advisors is critical. If you are concerned about being prepared in the event of diminishing mental capacity, we urge you to reach out for support and leverage the experience and expertise a firm like Glenmede provides.
Census and statistical data suggest that by 2050, nearly 16 million Americans will be diagnosed with Alzheimer’s disease. Alzheimer’s proceeds at a different pace for each patient, but if you suspect you have Alzheimer’s or the inception of dementia, you will want to plan well before it becomes a crisis. Resources for the most current medical thinking, treatment options and trials are available on the websites of the following national organizations. We recommend you visit them or many of the other resources readily available on the internet.
- Alzheimer’s Association, www.alz.org
- Cure Alzheimer’s Fund, www.curealz.org
- Alzheimer’s Foundation of America, www.alzfdn.org
- National Institute on Aging, www.nia.nih.gov/alzheimers
- National Multiple Sclerosis Society, www.nationalmssociety.org
- National Parkinson Foundation, www.parkinson.org
- The ALS Association, www.alsa.org
1 Alzheimer’s Association. https://www.alz.org/alzheimers-dementia/facts-figures. Accessed July 24, 2021.
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.