Planning for diminished mental capacity as you age

By Amy Fontinelle
Amy Fontinelle is a personal finance writer focusing on budgeting, credit cards, mortgages, real estate, investing, and other topics.
Posted on Aug 16, 2018

A stroke, a car accident, dementia, Alzheimer’s disease, or another serious illness or injury could make it difficult or impossible to make decisions about your health and finances at any age. The odds increase as you age, however: mild cognitive impairment affects 10 to 15 percent of adults 65 and older, and people with these symptoms are more likely to develop Alzheimer’s or dementia.1

Planning for these possibilities now, no matter how healthy you are, may allow you to retain some control over what would happen to you in such a situation and alleviate the burden of requiring family members to make life-altering decisions for you without knowing your wishes.

Without documents that legally provide for your financial and medical wishes to be carried out, courts may have to decide who will become your legal guardian to make such decisions, especially in cases where your relatives disagree on your treatment or there is no next of kin. A lack of formal estate planning could delay your care.

Furthermore, all the hard work you have done for years to prepare financially for your later decades could be undone if you lose control over your finances and have not appointed someone trustworthy to manage them. Planning ahead will help to preserve your family’s financial security, which is especially important if a spouse, children, or other loved ones rely on your income and savings.

If you are caring for a loved one who has recently been diagnosed with a serious illness, it is likely even more important to take immediate action. These documents should be drawn up and signed while the principal still has decision-making capacity. Everyone declines at a different rate, and even early stages of Alzheimer’s and dementia can make individuals combative and create difficulties with concentration and language. (Related: Seniors and mental fitness: What’s normal, what’s alarming)

There are several documents everyone should put in place while they are still of sound mind and body so their wishes will be carried out if they become physically or mentally unable to make their own decisions. You will need witnesses to your signature and the documents may need to be notarized as well; requirements vary by state and by document.

Financial Documents

A financial power of attorney, a will, and possibly a living trust allow you to decide how others should handle your assets when you are no longer able to.

Power of Attorney

A financial power of attorney document designates an agent, also called an “attorney in fact,” to carry out financial tasks and decisions on your behalf such as paying your bills and taxes, managing your investments, operating your business, and selling your home. Your agent can also be authorized to create a trust, transfer your assets into it, and make gifts on your behalf. You can design the power of attorney to be as broad or as narrow as you want.

A spouse, friend, adult child or trusted advisor can serve as your agent, said financial planner Shomari Hearn, managing vice president of Palisades Hudson Financial Group in Fort Lauderdale, Florida.

This individual should be trustworthy and skilled with money management and have the time and willingness to take on the task. You can designate co-agents, though doing so may complicate matters, if they disagree. You may also want to designate a successor agent in case your first choice is not available for some unforeseen reason.

A power of attorney can become effective in one of two ways. A durable power of attorney goes into effect as soon as it is established, while a springing power of attorney goes into effect only when the principal loses capacity as determined by one or more physicians.

Bob Johnson and David Littell of the American College of Financial Services explain in their September 2015 article “When It’s Time to Transfer Decision Making” that the springing power of attorney “may seem like a better option, but it is quite difficult to draft the conditions in which the power becomes effective as well as verify whether the conditions have indeed occurred.”

That means possible delays in handling your affairs while things are sorted out. Further, a springing power of attorney is not an option in every state.

A durable power of attorney becomes effective immediately and continues until it is revoked or terminated or until the principal dies. To be crystal clear about the principal’s intentions, “the durable power of attorney should specifically state that it will survive the principal’s loss of capacity,” Johnson and Littell write.

Will

A will lays out your wishes for the distribution of your assets and personal possessions after you pass away. It also establishes who should care for your minor children, adult dependents, and pets, if any, and how you want your aftercare to be handled.

Because a financial power of attorney ends when you die, you must specifically appoint that person to handle your financial affairs after you die by naming them the executor of your estate. Or, you can name someone else as executor. (Related: Wills and the basics of estate planning)

Living Trust

Establishing a living trust allows you to avoid the expensive and public process of having your will reviewed by a probate court, though you should still have a will as a backup. The older and wealthier you are, and the more likely you are to become unable to manage your own affairs (for example, if Alzheimer’s runs in your family), the more sense a living trust might make. You can appoint yourself as the trustee and designate a successor, such as a spouse or child, to take over managing the trust if one or two physicians certify in writing that you have become incapacitated.

Medical documents

Because of medical privacy laws, you must state in writing who can access your medical records through a HIPAA authorization form available from your doctor. To truly provide for your health care if you become unable to make your own decisions, however, you’ll need to complete additional paperwork.

Living Will or Advance Directive

A living will or advance directive lets your loved ones and health care providers know your preferences regarding end-of-life care.

You can use a living will to formalize your wishes for whether and under what conditions you would want to be placed on a ventilator or given a feeding tube and whether you wish to be kept alive if you have no detectable brain activity.

Memorializing your wishes in video form can also help your loved ones and caregivers understand your desires and reinforce or clarify what you’ve documented in writing, notes Dr. Angelo E. Volandes in his book “The Conversation: A Revolutionary Plan for End-of-Life Care” (Bloomsbury, 2015).

A living will merely expresses your wishes and is not a legal order. To ensure that your wishes are carried out, you need to formally appoint someone to make medical decisions on your behalf.

Health Care Proxy

A health care proxy, also called a health care surrogate or power of attorney for health care, makes health care decisions on behalf of a patient who cannot. These decisions might include whether to refuse or agree to certain treatments, whether to change doctors, whether to start or continue life support, whether to end life in hospice care or in the hospital, and whether to donate organs. Powers can vary based on state law and based on what the patient specifies.

As with a financial power of attorney, you can set up a health care power of attorney to be either durable or springing. You should make sure your agent is willing to carry out your wishes (which might not be the case if they have conflicting religious beliefs), and you should designate a successor in case this person cannot fulfill their duties.

Do Not Resuscitate (DNR) Order

Individuals who do not want to receive cardiopulmonary resuscitation (CPR) if their heart stops beating or if they stop breathing should complete a DNR with their health care providers to be included in their medical chart. While CPR can save lives, it can also have complications such as cracked ribs, damaged airways, internal bleeding, and brain damage, and it may not be a desirable option for terminally ill patients, wrote Dhruv Khullar, M.D., in a 2014 New York Times column.

Ensuring that your wishes are implemented

It is not enough to create these formal documents and select the people who will manage your affairs if you become unable to.

Hearn said to be sure your loved ones are aware of the documents in addition to giving copies of the signed forms to your agents and your health care providers. (Related: What my loved ones need to know, a planning guide from MassMutual)

Those who are concerned about the potential for abuse when giving so much financial and medical control to another person can limit their risk by implementing safeguards. If you are concerned, Johnson and Littell suggest selecting two agents who must act jointly to sign checks or having an independent accountant or attorney oversee the agent.

Professional help

An estate planning or elder law attorney can help draw up initial documents in accordance with state laws and can help to revise documents in the event that the principal gets divorced or moves to another state or a previously appointed agent becomes unable or unwilling to serve. The American Bar Association’s website offers guidance on how to find and select an attorney.

Families who cannot afford professional help can use low-cost online legal form services or follow the free templates provided by some states (see Wisconsin’s power of attorney for finances and property form, for example).

The Bottom Line

Everyone should have a financial power of attorney, a medical power of attorney, an advance directive for health care, and a will. These documents should be kept in a secure place at home and in a safe deposit box at the bank, and your agent(s) should have a copy. A trusted friend, relative, attorney, or financial advisor should also know where these documents are kept. If a major change occurs in your personal situation, you should review these documents and update them if necessary.

It is imperative to put these documents in place while you are still of sound mind and legally able to sign them, and it is best to do it while you are completely healthy rather than waiting until being diagnosed with a physical or mental issue and hoping you can still think clearly at that point.

In addition to these key documents, you may want to make sure you have enough life insurance to provide for any dependents and possibly to cover your final expenses. If you are still working, disability income insurance can help protect your ability to pay your bills and provide for your family if you become unable to work for several months or longer.

More from MassMutual…

How to make sure your heirs won’t fight

5 costly estate planning mistakes

Tips for talking money with your aging parent

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Alzheimer’s Association, “Alzheimer’s and Dementia: MCI Facts,” 2017.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.