Managing Diminishing Capacity

Transcript

Hi everyone, I’m Toni Ann Kruse, an ACTEC Fellow from New York, and I’m here today with Matt Hochstetler, an ACTEC Fellow practicing in Naples, Florida, and Canton, Ohio. And today, we’re going to be talking about diminishing capacity. Welcome, Matt.

Matt Hochstetler: Thanks, Toni Ann.

Toni Ann Kruse:  So, I guess to get started, I’m curious if you could tell us, as a practitioner, what are some things that you think all clients should be doing to prepare for the possibility of future incapacity?

Matt Hochstetler: Well, there are a lot of things you can do, and the low-hanging fruit, I think, are just getting the foundational estate planning documents in place, and those are going to be your financial powers of attorney, your healthcare powers of attorney—they’re called healthcare directives in some states or might have a different name—and then revocable trusts that are funded. That means there are assets transferred to them. And then a pour-over will, which captures any assets that aren’t transferred to the revocable trust and transfers them there during probate.

Toni Ann Kruse:  That’s helpful. And so, with each of those documents, I’m wondering if you could maybe go in turn and just explain what each of those documents would do and why they would be helpful in a situation where the principal is suffering from some diminishing capacity issues.

Estate Planning Documents in Preparation for Diminishing Capacity

Financial Power of Attorney (POA)

Matt Hochstetler: Sure. So, the financial power of attorney is a document that lets you name somebody who can make financial decisions if you can’t. And those are typically effective as soon as you sign them, although sometimes those are called “springing,” and so they become effective when you lose the ability to make financial decisions. I don’t care for the latter because it adds another element of difficulty in terms of finding out how the principal becomes incapacitated.

Healthcare Powers of Attorney, aka Healthcare Directives

As far as healthcare directives, those are kind of the same thing as the financial power of attorney, but they concern your physical healthcare. So, who makes decisions about your healthcare when you can’t? And those are effective only when you can’t make your own medical decisions. And that’s easy to figure out because you’re going to be in front of a doctor or in a hospital, and there’s going to be somebody there who can evaluate your capacity.

The Difference Between a Durable Power of Attorney and a Springing Power of Attorney

Toni Ann Kruse:  I tend to agree, Matt. I mean, I think, you know, when I’ve been practicing and I tend to prefer what’s called a durable power of attorney, which I’m sure, you know, some of the folks who are listening, you may hear this word when you’re talking to a lawyer. Like, what does it mean—a durable power of attorney? And essentially, what that means is that it’s effective immediately, right? It’s not the springing power of attorney that you spoke about.

Matt Hochstetler: Oh, I like to joke with clients that it’s printed on heavier paper.

Toni Ann Kruse: It’s more durable. Exactly. That’s great.

And with respect to the healthcare power of attorney that you mentioned versus the typical financial power of attorney like—do you have any advice in terms of, like, how many someone should sign or where those should be held?

Managing Your Estate Planning Documents

Matt Hochstetler: So I typically ask clients to do just one set of originals, and those are usually kept either by my office or with the client. I don’t like there to be a ton of copies in case clients change their minds or change who’s serving in different capacities.

The only time I deviate from that is if they have residences in multiple states. I practice in Florida and Ohio, and there are a lot of folks who travel between the two. And sometimes we’ll do a set of Ohio documents and a set of Florida documents just so the doctors are looking at what they’re familiar with. So, in that case, we’d have two sets of originals.

Toni Ann Kruse: So let’s kind of play out a particular client scenario. So let’s say someone comes to you, a client of yours comes to you, and they mention that they’re very concerned about a family member who has diminishing capacity. How would you handle that situation? What would your suggested next steps be, and how do you approach the situation?

Initial Steps to Take When Diminished Capacity is a Concern

Matt Hochstetler: I think the first step is to just kind of assess what their abilities are and determine, you know, to what extent their capacity is diminished. Do they still have the ability to put some of these documents in place or not? I mean, there can be a big difference in what you can or can’t do, depending on how far along the curve somebody is. So that’s the first step: just to figure out, you know, where things stand.

Then, if they have a current plan in place, I like to look at it to see if, like, maybe things are fine the way they are, and maybe we don’t need to do anything. But a lot of times, especially if it’s been a couple of years, they want to make some changes just to get things finalized for when they eventually lose the ability to make changes in the future.

Toni Ann Kruse: I’m curious what you think the single most important document is to have in place for someone who has diminishing capacity.

Matt Hochstetler: You know, that’s a tough question, but I probably think it’s the financial power of attorney. And the reason is this. If you don’t have a financial power of attorney and you lose capacity, then how does somebody pay your bills? How does somebody manage your investments? You need the court to appoint a guardian to make financial decisions. And that can be pretty onerous in some states. In some states, it requires the court to approve all expenditures. So if you want your whole financial life to be public record and part of the court docket, then I guess the guardianship’s okay, but it’s expensive and it’s not confidential at all. So the way to get around that is with a financial power of attorney.

Implementing Guardianship or Conservatorship

Toni Ann Kruse: Right. And then, are there any situations where you recommend a legal guardian or conservatorship put in place for a client?

Matt Hochstetler: Yeah. Sometimes, that can be the better thing. If a client doesn’t have somebody they trust and they need a court oversight, then a guardianship can be all right. It can be the better option. And sometimes, if there’s just a risk of elder abuse or theft, then you really want that court oversight. Although I found for most folks, it’s not something I recommend.

Dangers of Not Planning for Diminishing Capacity

Toni Ann Kruse: Okay. So, what is really the biggest foot fault that you’ve commonly seen in a situation with a client who has diminishing capacity? Like, where do things typically go wrong?

Matt Hochstetler: Things typically go wrong by just ignoring it and not planning because you can do so much good to make things easier, to ease the transition. And that might be just moving somebody from their home to an assisted living facility where they can get more socialization, more structure in their day, help, or even in-home care to help with medication compliance. You know, that’s just from a day-to-day living perspective.

But then from my perspective, having somebody in place to avoid that guardianship and to ensure that, you know, life can continue as normal, even when their abilities diminish, that’s really going to be the key. And you only get there if you plan.

Toni Ann Kruse: I could not agree with you more. And I feel like as planners, of course, right, that’s our go-to. But you know, I think it’s not—not planning ahead enough, right? Like if someone is very early in a diagnosis, there still may be things that they can do, and they still may be able to get some of these protective measures in place. But if they come to you too late, and your hands are tied, and there is no power of attorney, you’re in a very different situation.

Matt Hochstetler: Yeah. And to go from there, I think sometimes folks think a dementia diagnosis is too late. And it might not be, it might not be. So it’s important to, don’t delay, but, you know, meet with a lawyer to see what your options are and whether there’s anything you can do to make things easier going forward.

Toni Ann Kruse: Absolutely. Is there anything else that you wanted to cover today that we didn’t talk about?

Matt Hochstetler: I think that’s it. Thanks so much, Toni Ann.

Toni Ann Kruse: Yeah, great. Thanks for joining us.