Center for Women & Wealth

Estate planning conversations often focus on what will happen with a person’s assets after death. However, many people will experience diminishing mental capacity during their life as a result of accident, disease, medication or dementia.1 It is important to plan for this possibility and consider how best to help loved ones with diminished capacity realize their planning goals.

It can be difficult to determine whether a person’s mental capacity is diminishing. He or she may struggle with memory or communication, experience lapses in reasoning and judgment or be unable to focus. Further, a person’s capacity may wax and wane. He or she may be fine in the morning and have difficulty later in the day, or be lucid for several weeks and then have an episode of diminished capacity. Symptoms may change over time, and each person’s experience will be unique.

The loss of capacity can be devastating, as it is fundamental to autonomy. Atul Gawande, well-known surgeon, writer and researcher, says, “We want autonomy for ourselves and safety for those we love. That remains the main problem and paradox for the frail. Many of the things that we want for those we care about are things that we would adamantly oppose for ourselves because they would infringe upon our sense of self.”2

To preserve the sense of self, it is desirable to preserve autonomy to the extent possible – but how does one do that?

Recognize that determination of capacity is not necessarily binary.
In other words, the level of required capacity differs depending on the task or function at hand. An individual may not have capacity for one function but have sufficient capacity for another. Consider physical capacity: A person may be unable to run a marathon but able to swim, walk and take care of basic hygiene. The same goes for mental capacity. Someone may not have mental capacity to run a company but might be able to execute a will.

Testamentary capacity – the mental capacity required to execute a will – is considered one of the lowest levels of capacity. Laws vary by state, but generally an individual has testamentary capacity if that person understands the nature and extent of his property, the natural objects of his bounty, the legal consequences of making a will and the effect of the will on the assets. Because the bar to establish required capacity for this purpose is relatively low, a person experiencing some loss of capacity may still have the opportunity to update estate planning documents.

State wishes in advance, and anticipate diminishing capacity.
A power of attorney (POA) is an important step to ensure efficient management of financial affairs. The POA gives the named agent the authority to make decisions with respect to financial affairs. A POA can be effective immediately or upon disability or loss of capacity, known as a “springing” power. The idea of a springing power may be appealing to a person who does not want to relinquish control. However, it might also require a determination of incapacity, which fails to recognize the reality of diminishing capacity – that it may wane over time and that capacity may exist for certain functions but not others. If a springing power is desirable so that the POA is effective upon some future contingency – such as incapacity – it may make sense to authorize another person to make the decision that the contingency has occurred. A POA that is effective immediately may be better from a practical standpoint than a springing POA.

Alternatively, a revocable trust can be an effective way to ensure continued management of financial affairs. A revocable trust may contain provisions naming a successor trustee who serves in the event of incapacity but, like a springing power, these provisions may not address the reality of diminishing capacity that wanes over time. Naming a co-trustee (instead of successor trustee) or corporate trustee might ensure better continuity. Note that a revocable trust is effective only to the extent it is funded; the trustee will not have authority with respect to assets not held in the trust.

In addition to management of financial affairs, consideration should also be given to how healthcare decisions will be made in the event of diminishing capacity. Every person, even one experiencing diminishing capacity, has the right to make his or her own medical decisions. This is fundamental to autonomy and cannot be overstated.

For example, consider an out-of-town daughter, Donna, who is concerned about her father, Fred. Fred forgets conversations and names of relatives, which leads Donna to question Fred’s judgment regarding recent stock purchases and charitable gifts. Fred also appears disheveled, and Donna wonders about his personal cleanliness. In addition, Fred’s pantry is sparsely stocked, and his friends have commented about his driving, which they believe to be unsafe. Donna believes Fred would be safer if he moved into an assisted living facility. She may try to persuade him to move, but ultimately she cannot force him to do so.

Because a person with diminishing capacity may have difficulty expressing his or her desires, it can be useful to express those wishes in advance. Advance healthcare directives, such as a living will, allow a person to state wishes prior to incapacity, including preferences for end-of-life care. A healthcare POA allows a person to delegate to another person the ability to make healthcare decisions in the event he or she is unable to make them.

Appointing Guardianship
If a POA and healthcare POA are not in place, it may be necessary to seek a court-appointed guardian for a person who becomes incapacitated. A guardianship generally is a last resort and can be avoided by careful advanced planning. Naming a court-appointed guardian can be a slow process, as it generally requires a court hearing. It also can be expensive and fraught with discord. Consider if, in the earlier example, Fred failed to plan in advance, and his capacity diminished to a point at which Donna sought to be his guardian. Fred might resist the guardianship. Donna’s siblings might disagree on whether Fred needs a guardian or, if they agree that he needs a guardian, which of the siblings should be named.

Achieving Success
The right documents and the planning required to get them in place are important. But the documents cannot replace the conversations that must take place around these important matters, including philosophy regarding quality and extension of life, dignity, cost considerations and the values that drive these views. Plan to have such difficult but important conversations soon – the risk of diminished capacity only increases over time.

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1 One in three seniors will die with dementia. Source: “2017 Alzheimer's Disease Facts and Figures.” Alzheimer’s Association. March 2016.
2 Gawande, Atul. Being Mortal: Medicine and What Matters in the End. New York: Metropolitan Books, Henry Holt and Company, 2014.