BABY BOOMERS AND THE LOOMING ISSUE OF INCAPACITY

As of 2010, 13.1% of the population was over 65 (A Profile Of Older Americans: 2011).  Baby Boomers will have all passed the age of 65 by 2030, which by some estimates means that one-fifth or 20% of the population will be over 65.  Couple that with the fact that life expectancies are at an all-time high, America is looking at a new demographic make-up with a disproportionate (compared to historical numbers) amount of elderly citizens.

Aside from the pending problem of how to provide sufficient health care to this newly dominant demographic group, the issue of fading mental capacity will be a hard reality for millions of Americans – for the individuals themselves, and for their loved ones.  While medical science has made great strides in preserving our physical forms, it has had less success in preserving our minds.  The number of people age 65 and older with Alzheimer's (the most common form of dementia, and which is incurable) is estimated to reach 7.1 million by 2025.

Mental incapacity presents numerous issues and concerns, none of which are easily addressed. The fading ability of one to independently manage their own affairs (as well as those of any dependents) is a gradual one with no bright lines; at what point is intervention necessary to ensure that person’s own physical and financial wellness? Protecting one from oneself is not the only concern - decreased capacity opens the door to undue influence, duress, and fraud.  This is especially worrying considering that, with the proportional increase in seniors, as well as the increased access to personal information through social media and online databases, senior scams are rising in number and success. According to a 2010 survey, one in every five Americans aged 65 or older has been abused financially.  Metropolitan Life Insurance Co. reports that financial abuse cost older Americans at least $2.9 billion in 2010, up 12% since 2008.

So what are the options once one has lost their mental incapacity?  It depends on the level of competence.  A conservatorship is a judicial appointment of an individual (called the “conservator”) to care for another adult (called the “conservatee”) who cannot care for himself or herself or manage his or her own finances.  A conservatorship can be general or limited, and is subject to ongoing court oversight.  The need for a conservatorship is ultimately determined by the probate court, which is based in part on a court examiner’s report.

Short of the level of incapacity that necessitates a conservatorship, however, an individual may slowly degrade through levels of mental competency, rendering them unable to engage in certain legal acts.  From an estate planning perspective, there are several levels of incapacity that can affect a senior’s ability to plan and manage their own estate.  Testamentary capacity refers to the requisite mental capacity of one to make a will, and is described in Probate Code section 6100.5(a).  Contractual capacity, which is a higher standard than testamentary (meaning, one must be more “with it”) is necessary to execute a valid power of attorney, and is arguably the standard necessary for executing a complex trust or trust amendment (this is an area of law still being fleshed out). It is detailed in Probate Code §§ 810 through 812.  The standard of capacity for actually administering a trust is an unanswered question; California trustees are subject to strict fiduciary duties, which may mean that they are subject to a standard of capacity much higher than contractual capacity.  With each level of incapacity, an individual’s options to manage their assets decrease.

How can you plan for loss of capacity before it happens? From a financial point of view, a trust can set forth the standard and method for determining your incapacity to continue on as trustee, and therefore when it is necessary for another to take over for you.  More importantly, it can dictate who will take over for you, and will provide that person direction on how you want your estate managed on your behalf.  The benefit of setting this out in your trust is that it provides you much more control over the process, as well as confidentiality.  Toward that end, proper planning involving a trust, power of attorney, and health care power of attorney will avoid the need for a conservatorship, which would otherwise bleed estate assets and which can cause shame or embarrassment for the conservatee, given it takes place in a public venue, with complete strangers.

However, even the most careful planning cannot avoid the issue of determining when competence is becoming an issue, and therefore needs to be assessed.  Oftentimes individuals are not cognizant of their own mental deterioration, or – understandably – willfully ignore the signs out of pride, or fear of losing power over their own lives.   In that case, how can the proper assessment be made and addressed early enough so that no damage is done as a result of the individual’s incapacity?  This question has no definitive answer.  Keeping friends and/or family close can increase the chances that a decline in mental faculties is noticed and addressed.  Spouses are obviously a good weathervane for gauging competence, assuming they themselves retain mental capacity.  If loved ones are unaware of, or not privy to, estate planning documents, however, they may not know the means of making the official determination, nor the method of dealing with the incapacity thereafter.  Beneficiaries of trusts created by elderly relatives should be aware that, in California, attorneys have a strict duty to their client and their client only - not to the beneficiaries of a trust over which the client is trustee, as in some states - and are proscribed from communicating their belief that the client lacks competence.  And attorneys walk a thin line in encouraging the client to either voluntarily resign control, or to submit themselves for mental assessment. Accordingly, it is up to the client and those close to him or her to get the ball rolling on making a timely competence assessment.

The best one can do to avoid causing injury to oneself or to their loved ones (whom they have often carefully accounted for in their estate planning) is to carefully and properly plan for their mental incapacity, and to remain close with family and friends (which, ironically, recent studies suggest the latter is a means of staving off dementia).