June is Alzheimer’s and Brain Awareness Month: A good time for legal capacity planning

As life expectancy increases, the possibility that Americans will face a mental decline at some time in their lives is a very real possibility.

Consider the following statistics:

• More than 11,200 Americans will turn 65 every day — or over 4.1 million every year — from 2024 through 2027.¹
• The lifetime risk for Alzheimer’s at age 45 is one in five for women and one in 10 for men.
• Nearly 12 million Americans provide unpaid care for people with Alzheimer's or other dementias.²

These statistics indicate that the nation is aging, and as life expectancy increases, more and more Americans likely will need someone to help them with activities of daily living (ADLs) at some point. And younger Americans face the prospect that their aging parents or other loved ones may need care, which can require considerable resources — physical, mental and financial. Americans of all ages may wish to consider a plan to manage that care and the associated costs when the time comes, either for an aging family member or for themselves. And that plan — and the corresponding legal instruments — needs to be put in place while capacity still exists.

For these purposes, having capacity means that a person must be able to understand the nature and effect of their action. Importantly, a person’s level of capacity is not compared against any universal standard, or even against their peers. When a question of capacity is raised specific to legacy or other planning efforts, a determination about the individual’s ability to understand and make decisions is needed before any documents, such as a will or power of attorney, can be implemented.

Additionally, most people would likely agree that they deserve the right to make their own decisions on long-term and medical care, housing needs, income needs, health care costs and transitioning assets to future generations. But individuals must make these types of decisions for themselves when their legal capacity exists, and since no one knows at what point when, or even if, capacity no longer will exist, the most important thing is to start the process before capacity even is in question.

Working with an attorney

It can be difficult for family members who see a person every day to recognize declines in capacity. But it’s critical to make sure that plans are in place before capacity declines past the point where a person can legally sign documents and affect transactions. When working with an attorney for elder or other life planning efforts, part of the attorney’s role is to determine if an appropriate level of capacity exists for the specific document being created or decision being made. Family members, financial professionals and other advocates can provide input regarding a person’s decision-making ability as needed, but the attorney will make the final determination and may even work with a medical professional or other appropriate diagnostician for guidance.

If it’s determined that a client has diminished capacity, the attorney will work with a representative (for example, a guardian or conservator) on the process and documents necessary to protect the client’s interests. If an attorney establishes capacity, they will then work with the client on legal documents that will ensure the client’s wishes will be carried out while they are alive but unable to express their wishes. Examples include:

An advance medical directive is a set of instructions that outline an individual’s health care wishes, providing instructions on treatments that they do or don’t want to receive. It is used when incapacitating medical situations occur, and the patient is not able to communicate their wishes. An advance directive may include a situation such as terminal illness, but it may also cover other medical events such as dementia, stroke or coma.

A living will is a specific type of advance directive that outlines an individual’s wishes for end-of-life care if they become terminally ill and cannot make these decisions on their own. Living wills can be used to specify whether life is to be prolonged, what measures are acceptable to keep the patient alive, and other instructions around things like pain management, organ donation, and religious preferences.

A health care proxy (or a durable health care power of attorney) is an advance directive that grants authority to make medical decisions to another party in case an individual is not able to make them due to incapacity.

A durable power of attorney (POA) for financial matters grants the authority to make financial decisions in case an individual is not able to make them due to incapacity. Understanding what rights the principal (the subject of the POA) and the agent (the person who receives the authority) have is of key importance. The principal retains control and makes their own decisions after granting the POA and can even revoke or change its terms, as long as capacity exists. The agent assigned by the POA assists with managing finances and has a legal and ethical obligation to act in the principal’s best interest.

Legal documents effective after death

A will is a legal document that captures wishes regarding what happens to property after an individual dies. A will can also be used to name who will be the successor guardian for minor children or a loved one with a disability, where applicable. A will generally covers any assets that do not have named beneficiaries and those assets not included in a trust. An executor who handles settling of the estate (probate) also is named in a will.

A trust is a legal document that authorizes a third party (trustee) to hold and manage assets on behalf of a beneficiary. Trusts can come in many forms: some have tax benefits, while others limit a beneficiary’s access to the money or protect it from creditors. Primarily, trusts are a way to avoid the probate process and control specific assets after an individual has passed away. Specific types of special needs trusts also are available that are designed to preserve access to government benefits.

Letter of intent

A letter of intent (LOI) is a powerful financial planning tool for people with disabilities and caregivers. It is not a legal document that requires proof of capacity to execute; however, it can be a meaningful complement to legal and estate documents. A letter of intent includes information about how to care for a loved one, future goals for their quality of life, and where to find important information. It can be a critical step to support continuity of care when the caregiver no longer is able to care for their loved one with a disability.

All the above legal instruments require that mental capacity be present to execute them so that documents are legally valid and enforceable, and end-of-life and after-death wishes are carried out. So the sooner families start considering them and putting them into place the easier the process will likely be, and family members will not need to make these difficult decisions during challenging times.