Long-term planning for long-term care for Americans of all ages: legal capacity planning

Consider the following statistics:

• Every day until 2030, 10,000 Baby Boomers will turn 65¹, and 7 out of 10 people (over age 65) will require long term care in their lifetime²
• About 34.2 million Americans have provided unpaid care to an adult age 50 or older in the last 12 months³
• Americans living with Alzheimer’s disease could more than double by 2050 to 13.8 million, from 5.8 million today ⁴

These statistics indicate that the nation is aging, and as life expectancy increases, the possibility that Americans will face a physical or mental decline some time in their lives is a very real possibility. Younger Americans face the prospect that their aging parents (and other loved ones) may need care, which can require considerable resources – physical, mental and financial. Americans of all ages should consider a plan to manage that care and the associated costs, when the time comes, either for an aging family member or for themselves.

By definition, having capacity means that a person must be able to understand the nature and effect of their action. Importantly, a people’s level of functioning is not compared against any universal standard, or even against their peers. 

Generally, the law starts with an assumption that if a person is an adult (over the age of majority, which is 18 in most states), they have legal capacity. But, when a question of capacity is raised, a determination about the individual’s ability to understand and make decisions is needed before documents can be implemented. 

It’s important to plan ahead for long-term and medical care, housing needs, income needs, health care costs and transitioning assets to future generations. Most people agree that everyone deserves the right to make these types of decisions for themselves when they have the legal capacity to do so. Whether planning ahead for a person’s own future incapacity - as in the case of career extenders, or planning for the needs of a loved one with declining capacity — which sandwich caregivers may be faced with, the most important thing is to start the process before capacity is questioned. 

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.  

How to recognize diminishing capacity

When helping plan for the care and finances of an aging loved one, here are a few examples of what to watch for in each category of functioning. 

• Cognitive: asks the same questions often, struggles to remember events or conversations, has difficulty finding the right words or adjusting to change, gets confused about dates or times, gets lost. Capacity could be an issue when any intellectual tasks that would have typically been easy for a person become more difficult. 
• Emotional: signs of fear, anxiety or pressure, distress or quick changes in emotional responses. When a person’s feelings are inconsistent with the situation it could be a sign that capacity is declining.
• Behavioral: paranoia, seeing things that aren’t there, or simply not grooming or dressing in a typical or appropriate manner — these can be behavioral flags that something is happening with a person’s ability to care for themselves.⁵

Work with a well-qualified attorney

When working with an attorney, part of their role as an officer of the court is to determine if an appropriate level of capacity exists for the specific document to be created or decision being made.  Family members, financial professionals and other advocates can provide input regarding a person’s ability to make appropriate decisions, but ultimately the attorney must make the final determination or work with a medical professional to get an assessment. 

Most adults in the United States should have basic legal documents in place to help capture their wishes and provide a structure to make sure those wishes are carried out in the event of incapacity or death. Those documents may include a will, living will or advance directives that include Do Not Resuscitate documents (DNRs), durable powers of attorney for health care and financial decisions, and trusts.

There are different legal standards required to create a will, sign a power of attorney, create a trust or to transfer property. This could mean that some individuals will be deemed competent to write and sign a will but might not have the legal capacity to put their assets into a trust.⁵

As people get older, many will retain their capacity and independence, but conditions like dementia and Alzheimer’s can gradually (or rapidly) erode a person’s ability to make their own decisions. For many, there will come a time when they need help making decisions about how to handle their own money and medical care. They may need a loved one or advocate to step in and provide input on decisions or make decisions on their behalf. 

Legal documents may be required to grant someone else the authority to act on behalf of another. Some documents, like Powers of Attorney (POA) and Advance Directives grant specific authority to a third party without affecting a person’s right to make their own decisions. Individuals can sign these documents while they have the capacity to do so. In cases of declining capacity, a person may lose the ability to enact these documents, therefore limiting their options. 

For some individuals with disabilities (including those with dementia or Alzheimer’s), there may be a need for guardianship or conservatorship, if a court determines they lack the capacity for making their own decisions regarding their care or finances. These arrangements typically require a court proceeding, and essentially remove rights of the individual and give their decision-making authority to a third party, so they would typically be applied in cases of severe disabilities or dementia. 

In most states, the “least restrictive alternative” is an important standard, meaning that guardianship or conservatorship should be limited or only applied if necessary, and if capacity doesn’t exist to use powers of attorney or other options that preserve more of an individual’s own rights. The process of planning for long-term care requires that many of the elements be in place well before they are needed. In particular, legal documentation needs to be understood and finalized for when you or your loved one no longer has capacity. 

Next steps: get the rest of the team involved

It’s important that all loved ones who may be involved with the care or finances of another be on the same page. One step to consider in that process is holding a family meeting. Meet with loved ones to learn about their future wishes, finances, financial planning goals and any plans that already are in place. Talking about money before concerns arise can help set expectations and make sure their wishes are clear and understood by all parties involved if capacity starts to decline. 

Creating a Letter of Intent (LOI) can be a great way to document goals, potential care needs, location of documents and important contacts. An LOI can be created without an attorney or additional costs but can complement other important estate planning documents. Whether it’s done as a first step in the planning process to gather and organize information, or as a final piece to a holistic plan, an LOI can be a valuable reference that can help provide continuity of care and documentation of wishes. 

Working with a qualified financial professional before any potential capacity decline can help provide confidence that there’s someone who understands not only the current financial situation, but also the future goals and wishes associated with a person’s money. Financial professionals also may be monitoring for signs of cognitive decline in their clients by spotting inconsistent activity, declining balances and attempts to access the account by new individuals.⁶

Consider naming a “trusted contact person” on investment accounts and keeping that information up to date wherever money can be accessed. Having someone whom financial institutions can reach out to for answers to questions about a person’s decision-making can be an important deterrent to those who might try to take advantage of a person with declining capacity. 

Resources that can help

Sandwich caregivers and career extenders can implement the core tenets of special needs planning to help provide for a lifetime of care. Well-qualified legal and financial professionals, educational resources and services can help families  put the right legal structures in place to help make the most of family resources, government and employer benefits. Visit voyacares.com or contact your Voya representatives for more information.