Bar News - March 22, 2017
Elder, Estate Planning & Probate Law: Navigating the Grey Zone: The Estate Planner’s Role
By: Alison M. Wells
Modern medicine has become so advanced that Americans are living longer than ever before, and increasing longevity has led to mental health complexities for the aging population. In 2016, one in nine Americans over the age of 65 had some form of Alzheimer’s or dementia, according to a report by the Alzheimer’s Association.
Alzheimer’s and dementia can have devastating effects on a client’s relationships, quality of life, and finances. Often, the most difficult issues occur between the black-and-white zones of complete mental capacity and complete mental incapacity, when the client is no longer fully mentally competent, but still possesses some degree of mental acuity. This “grey zone” was historically short, because the time between the onset of disease and death was brief. Now, that is no longer the case. Clients can live for decades in the grey zone.
Often, as clients experience the mental changes of aging, it is difficult for them to admit the need for assistance. Some elders develop paranoia and can doubt or even fear their loved ones. Occasionally, the aging client may be unwilling to forfeit control of financial affairs, resign as trustee, or consent to a declaration of incompetency. While the estate planner hopes that the transfer of authority to a successor trustee or an agent under a power of attorney will be a straightforward process, a smooth transition is not always realistic or attainable.
It is an estate planner’s duty to help clients plan ahead and protect their property. So, what role should estate planners play in preparing clients and their loved ones for the grey zone?
New Hampshire respects the due process and civil rights of incompetent individuals, as shown by guardianship laws that encourage the least restrictive form of intervention in the appointment of guardians (see RSA 464-A). However, guardianship proceedings can be an expensive and time-intensive process. To avoid guardianship proceedings while protecting a client’s rights, counsel should advise clients about the use of powers of attorney and trusts as means to ensure the client’s interests are protected.
These considerations are particularly important when clients are in the grey zone and vulnerable to a myriad of phone, internet or “charitable” scams, or the malfeasance of a family member, friend or caregiver. When the amount stolen from incompetent elders amounts to more than $36 billion a year – as reported by a 2015 report on elder abuse by True Link Financial – estate planners should advise clients of the risk of mental deterioration and of documents that help protect against financial misappropriation and potential ruin.
A durable power of attorney can be an effective tool in dealing with the management of a client’s assets. If the power of attorney is immediately effective, the agent can act without an official determination of the client’s competency. However, the agent will still be faced with the pressure to decide when to step in and act for the aging principal.
If the client has a trust, the successor trustee provisions can provide a way to plan for the competency determination. It is common for a trust’s boilerplate language to require a physician to decide whether “by reason of illness or mental or physical disability or incapacity, the individual is unable to properly manage his or her affairs.” Relying on a physician has its limitations. The client may refuse to be seen by the physician and insist that he or she is competent. Some physicians are simply unwilling to opine due to liability concerns or out of respect for the client’s insistence that he or she is competent.
Some trusts provide for a committee or panel of people to determine whether the client should no longer act as trustee. The members of the panel hopefully know the client’s day-to-day mental capacity best, and thus are able to make an informed decision. However, the removal of authority over a client’s financial affairs is such a momentous action, particularly when viewed by someone dealing with confusion or paranoia, that a smooth transition cannot be guaranteed. The client might feel betrayed if ruled incompetent by loved ones, and take action to retaliate against them.
There are other creative options beyond the above-listed possibilities for drafting safeguards in case of a client’s incompetency. However, no matter what method is used, it is imperative that the estate planner recognize the implications that the loss of control may have on a client’s day-to-day life. As such, it’s important to discuss the pros and cons of the different possibilities with the client during the estate planning process, and not allow the issue to be determined by boilerplate language.
Some clients might have strong opinions on what method is used. Initiating a discussion regarding the implications of aging, and offering clients the option to decide the details of the process early on, can help clients effectively protect their interests years after the estate plan has been completed.
Alison M. Wells is an estate planning attorney at Downs Rachlin Martin in Lebanon, NH.