As we age, our likelihood of mental incapacity increases. After all, our bodies and minds deteriorate as we age. Mental incapacity could result from dementia, stroke, brain injury, or other illness. What is mental incapacity and in what ways can you plan to be best prepared for it?
You are mentally incapacitated if you are unable to carry out your affairs. Meaning, you can’t make meaningful decisions that are in your best interests regarding your finances or your property. Now that doesn’t mean that if you make financial decisions that others don’t agree with that you are incapacitated. Just because you decide to spend your money in an unusual way doesn’t mean that you can’t handle your affairs. Instead, some questions to ask are: Do you have a sound reason for this decision? Do you understand the nature of and repercussions of this decision? Is this decision detrimental to your financial health?
If someone thinks you lack mental capacity, they can sue you in a court of law to have a judge issue an order saying you are incapacitated and appointing a guardian (in some states referred to as a “conservator”). In the court proceeding, an evaluation will be done on you to determine if a doctor thinks you are incapacitated. Hearings will be held, witnesses will be called, and testimony will be examined. In the end, if you are found to lack capacity, the judge will appoint someone, a guardian, to be in charge of your finances. This guardian will have complete control over your affairs and will be responsible for taking care of you financially. This guardian could be someone you trust (someone you would have chosen) or someone you don’t even know.
If you haven’t been proactive and done planning, then a guardian could be necessary. Promptly appointing a guardian in a timely manner could be needed to obtain Medicaid benefits. In a recent case, a resident of a nursing home was incapacitated but did not have a guardian appointed or designated ahead of time. The resident could not access his financial accounts due to his incapacity and so could not provide the necessary documentation to the Medicaid office in order to get an application for benefits approved. The court ruled that the resident’s inability to access his financial accounts did not render the accounts uncountable assets for Medicaid eligibility. Because the resident had the legal right to the funds in the account even though he was incapacitated and incapable of accessing the funds, the account was still countable and he did not qualify for government benefits. The resident would have to first go through the lengthy and expensive court process to get a guardian appointed, the guardian could access the financial accounts, and then another Medicaid application could be submitted.
If the nursing home resident had instead planned for his incapacity before it happened, he could have been able to have a Medicaid application promptly submitted on his behalf without going through the court process of getting a guardian appointed. This planning involves creating a Durable Power of Attorney.
A Durable Power of Attorney is a document that you can sign while you still have capacity whereby you appoint a person to act on your behalf in the event you later become mentally or physically incapacitated. This person named in the Durable Power of Attorney is your agent. As with a guardian, the agent must act in your best interests and there are consequences if the agent doesn’t do so. But by signing this document before you become incapacitated, you can bypass a costly court proceeding and select you want to be your agent and act on your behalf in the event you are unable to do so.
What are some other ways to plan for incapacity?
Why should you be proactive and plan for your incapacity? First, it gives you control. The person you want to handle your affairs will be named. The things you want to happen will happen. Second, it will save your family the grief and expense of going through a court process. They won’t have to take time off work, they won’t have to get up on the witness stand, and they won’t have the headache of coming up with thousands of dollars in lawyer’s fees. Finally, sometimes you need someone to act quickly for you.
Planning is all about peace of mind. If you have a plan in place, then things that need to get done can be done in a timely manner by someone you select and you trust. Your agent can access financial accounts and records and submit an application for public benefits for you, your agent can manage your investments so they are taken care of, your bills can get paid on time, and your property can be maintained and protected. If you are one of the lucky ones and never become mentally incapacitated, then your agent won’t have to act on your behalf. But if you are one of the millions that will need an agent as you age, you will have a plan in place to give you and your family that peace of mind.