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?
What does incapacity mean?
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?
Appointment of a guardian
If you haven’t been proactive and done planning, then a guardian could be necessary. And, appointing this guardian timely could be needed to obtain Medicaid benefits. In a recent case out of Indiana, Southwood Healthcare Center v. Indiana Family and Social Services Administration, a nursing home resident was incapacitated but did not have a guardian appointed. The resident could not access their financial accounts due to their incapacity and so could not provide the necessary documentation to the Medicaid office in order to get their application for benefits approved. The court ruled that the inability to access an account did not render the account an uncountable asset for Medicaid eligibility. Because the resident had the legal right to the funds in the account, the account was still countable. The resident would have to first go through the lengthy court process to get a guardian appointed, the guardian could access this account, 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 submitted on his behalf without going through the court process of getting a guardian appointed. This planning involves creating a Financial Power of Attorney.
A Financial Power of Attorney is a document that you can sign while you still have capacity that allows another to act on your behalf in the event you later become incapacitated. This person named in the Financial Power of Attorney is your agent. As with a guardian, an 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 simply have your agent act on your behalf in the event you are unable to do so.
Planning tools
What are some other ways to plan for incapacity?
- You can sign a Health Care Power of Attorney. Just as a Financial Power of Attorney allows someone to act on your behalf if you become incapacitated, so does a Health Care Power of Attorney. The former gives the agent authority to make financial decisions for you; the latter gives the agent the authority to make health care decisions for you.
- You can sign a HIPAA document. This document gives doctors and other health care providers permission to give information about your condition to the authorized recipients that you name.
- You can create a revocable living trust. This is a contract between you and your Trustee to hold and manage property in a certain manner. After you sign the contract, you transfer your property to the trust. Because you no longer own property in your personal name, if you become incapacitated the Successor Trustee can step in and manage the trust property according to your written instructions in the trust document.
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, as we learned from the Southwood case, above, sometimes you need someone to act quickly for you. If you have a plan in place, then things that need to get done can be done in a timely manner. 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. Planning is all about peace of mind. 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.