By: Martin M. Shenkman, CPA, MBA, JD
Introduction to Series on Planning for Chronic Illness
This is the second in a series of articles addressing planning for a range of different chronic illnesses. The first article which appeared in the April-May 2008 issue addressed Parkinson’s. The objective is to provide practical advice on how practitioners can plan for a deal with clients with each of many different chronic illnesses. While there are similarities between each of the illnesses that are noted in all articles, each chronic illness has its own nuances that differ significantly.
Dementia Impacts Many Clients
Dementia is deterioration in cognitive function, often as part of a progressive illness, that reaches a level or degree that impacts the client’s daily life. It is usually defined in terms of a decline in memory accompanied by other cognitive impairments. There are a number of causes of dementia, but Alzheimer’s disease (“AD”) accounts for approximately 70% of dementias in Americans age 71+. Vascular dementia, which is caused by a decrease in blood flow to the brain typically as a result of a stroke, accounts for about 17% of all dementias. Other causes, such as mixed dementia, dementia with Lewy bodies, and Parkinson’s disease, account for the remaining 13% of dementias. Cognitive decline has a host of implications to the estate planning process generally:
Alzheimer ’s Disease Affects Many Clients
AD affects every aspect of a client’s life and leads to dementia and eventually death. AD is surprisingly common so its planning implications need to be taken seriously. More than five million people in the US have AD. Since nearly 3/4ths of AD clients are cared for by their family, AD also has a dramatic impact on the AD client’s caregivers and immediate family. This article will provide background on Alzheimer’s and explore some of the ways both planning and document drafting can be modified.
Background on Alzheimer’s Disease
AD results in dementia, and is fatal. AD is the fifth leading cause of death for those age 65+. There are two characteristics of AD that account for the changes in the AD patient’s brain: tangles and plaques. A protein called “tau” accumulates in abnormal deposits in neuron pathways in the brain called “microtubules”. Normally, nutrients are transported to brain cells, and waste away from the brain, through microtubules. Eventually, microtubules collapse into what is referred to as “tangles”. Plaques are microscopic accumulations of beta-amyloid fragments. As the tangles and plaques expand, the AD client’s memory and other functions decline. Nerve cells loose their ability to communicate and AD progresses. As this spreads, brain tissues dies, and impairment accelerates.
Non-Cognitive Impact of AD on Clients
The affects of AD on a client extend well beyond the more commonly known cognitive impacts discussed below. Most AD clients have other serious health problems as well. Practitioners should endeavor to identify those other conditions and determine the impact on planning. For example, approximately 60% of clients with dementia have hypertension. Almost a third have coronary heart disease.
Cognitive Impact of AD on Estate Planning
The cognitive impact of AD is substantial. In contrast a client with Parkinson’s disease may generally be able to function normally, but have some issues with disorganization, distractibility, prioritizing and forgetfulness.A client with Multiple Sclerosis (MS), does not face the same cognitive impairment a AD client does. Only about 30% to 50% of those with MS experience cognitive impact. Of those with cognitive impairment, 34% only have mild, and 22% moderate, impairment. MS cognitive impairment may affect certain activities (e.g. the ability to balance a complex bank and brokerage statement), but not others, such as the ability to make many of the macro decisions often addressed in planning for disabled clients (choosing to downsize to a smaller house). Practitioners should therefore be cautious to understand the greater significance of AD cognitive impact as compared to clients with other chronic illnesses.
AD symptoms are often clinically divided into stages (mild, moderate, severe and profound), which usually correspond with the person’s point in the disease (early, mid-, or late stage). These can be misleading to practitioners unfamiliar with AD, because even at the early stage of AD, an AD client may become disoriented as to time, date or place. Care must be taken when an AD client is executing documents to demonstrate that at the time of execution there was sufficient understanding of the document and the import of what was being done to withstand a challenge for competency or undue influence.
At the early stage of AD a client can have difficulty with math and may find it difficult to balance a checkbook. The loss of executive function (organizational and complex decision making skills) can occur in the early phase of AD.Can a client who struggles to balance a checkbook have sufficient competency to understand sophisticated estate planning mechanisms like charitable lead trusts (“CLTs”), grantor retained annuity trusts )(GRATs) and so on? If not, will the efficacy of such techniques be undermined by a competency challenge?
With AD clients, practitioners particularly need to understand that there is no single definition for competency. The law recognizes various definitions of the term depending on the context. Context depends on the general action being taken (e.g., the document being signed) and, in addition, on the nature of that act or document to the particular client’s circumstances.
A common recommendation to those evaluating whether they have AD is to maintain a journal of symptoms to assist their physician in making the diagnosis. This journal could be an important confirmation of the AD client’s competency at various points in time relevant to the estate planning process. While many practitioners may direct an AD client to medical experts for an evaluation, it should be remembered that ultimately competency is a legal, not a medical, determination. A helpful guide for practitioners is a book jointly published by the American Bar Association and the American Psychological Association, Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers (2005).
Interview Questions for a Client with AD
With the above background, practitioners can formulate questions for an AD client intake or interview to understand the impact the disease will have on the specific plan:
Naming Fiduciaries and Care-Giver When Planning for a Client with AD
Since AD is a steadily deteriorating chronic illness, similar to Parkinson’s, or Primary Progressive Multiple Sclerosis, an agent under a durable power, or a successor trustee under a living trust should understand the virtual certainty of the need to serve, and the likely duration of that role.
Careful consideration should be given to dividing financial and legal management from care-giving services, or to at least institute some checks and balances. For example, if the client’s eldest child will be providing care-giving, if that child is the sole agent under a durable power of attorney, it increases the opportunities for that child to abuse the elderly demented parent. Even if the child is completely ethical in her handling of her parents’ affairs, the possibility of abuse may incite non-care-giving children to challenge financial and other actions. If the parent is adamant that the care-giving child handle finances as well, perhaps that child can be encouraged to have an independent accountant maintain records and issue reports so the entire family is aware of all matters to hopefully avoid any later claims.
Given the duration of AD and the magnitude of care-giving services, the client, while he or she is able to, should carefully consider including a compensation provision a durable power of attorney. Compensation should not be provided in a health care proxy. However, the care-giver could be provided compensation by authorizing, or even mandating, that the agent under the power of attorney provide for it.
For health care related agents, the difficulty of making the end of life decisions that the AD client wishes must be understood. These decisions should be discussed in advance to assure that the agent has the emotional, religious and personal ability to take the steps desired by the AD client.
The emotional stress of serving as a care-giver and/or agent for an AD person is considerable. When planning these appointments with clients compensation is only part of the planning. Consideration should be given to successor care-givers and agents, mandated time off, and other techniques. For example, a revocable living trust or power of attorney could mandate that the fiduciary call in an independent social worker quarterly (or at some other appropriate interval) to make recommendations for care.
Estate Planning Documents
Estate planning documents for an AD client should reflect the likely permanence of the documents. With a definite trajectory of cognitive decline, unlike other clients who may revisit and revise non-irrevocable documents, the AD client might not have that luxury. Planning for what will likely be years of disability when others will have to handle financial, legal and other matters is a certainty that should similarly be reflected in the documents. Some of the modifications to accomplish these goals are noted below. For estate planning practitioners, none of these will be unexpected or complex. The biggest challenge of drafting will likely be addressing the AD client approaching the fringe of competency, and helping the client through the emotional difficulties of making tough decisions which most clients consider theoretical, but for which the AD client knows are a likely certainty in the near future.
Power of Attorney
Durable powers of attorney for an AD client should address the known disease course of AD. The AD client will lose competency and be dependent on an agent to handle matters for years. The impact of this on agent selection is important. The agent should have the ability to address the tasks that will arise with certainty. Compensation should be considered. A sufficient series of successor agents, or reliance on a funded revocable trust, should assure continuity of coverage even if a particular agent ceases serving since the AD client will continue to need help.
The decision whether or not to use a springing power of attorney could be different than that for some other chronic illnesses. The power may only have to be triggered once, when the level of incapacity reaches a point where an agent has to permanently take over. Thus, a springing power is feasible to use.
Given the long term nature of the assistance a PD client will need, a funded revocable trust should probably be used in lieu of primarily relying on the durable power. In such cases the power should be coordinated with the trust, especially if different people are named (e.g. a bank or trust company under the revocable trust and a family member under the power).
Living Wills and Health Care Proxies
Living wills and health care proxies for an AD client will generally be similar for most clients, but do warrant a few considerations.Since AD can only be confirmed 100% through a brain autopsy, many suffering with AD will wish to include a specific consent in their living will or health proxy directing that a brain autopsy be permitted and their brain be donated to promote scientific research into AD. Religious issues should be addressed if pertinent in this regard.
Given the progressive nature of AD and the certainty of cognitive issues, a guardianship designation should be included in the health care proxy (or a separate guardian designation prepared). Some state laws expressly permit this. But, at minimum such a designation provides clear evidence of who the AD client would want to serve in such capacity if a later court proceeding were necessary to confirm a guardian.
Sample Provision: “To the extent that I am permitted by law to do so, I hereby nominate my Agent, FINANCIAL AGENT NAME, to serve as the guardian of my property, and my Health Proxy, HEALTH AGENT NAME, to serve as the guardian of my person, or in any similar representative capacity, and if I am not permitted by law to so nominate, then I request that any court that may be involved in the appointment of a guardian, special medical guardian, conservator or similar representative for me give the greatest weight to this request.”
Given the certainty of cognitive impairment, the issues of end of life decision making take on considerable importance for the AD client. Language in a typical living will might warrant modification and tailoring to reflect the realities of AD. It should be born in mind that most AD clients will eventually succumb to other illnesses, and not AD. These may range from a stroke, to pneumonia, etc.
Sample Provision: “If I have an incurable or irreversible, severe mental or severe physical condition; or am in a state of permanent unconsciousness or profound dementia; or am severely injured, orhave a terminal illness. For purposes of the above, “terminal illness” shall be defined as an irreversible, incurable and untreatable condition caused by disease, illness or injury when an attending physician can certify in writing that, to a reasonable degree of medical certainty, there is no hope of my recovery or death is likely to occur in a brief period of time if life-sustaining treatment is not provided. In these situations I wish that no heroic measures be taken to preserve or prolong my life.”
This type of provision should be revised to reflect the reality of AD.
Sample Provision: “I have Alzheimer’s disease which is incurable and irreversible and which will result in dementia. Therefore, when if I reach a stage of profound Alzheimer’s disease when I have a nearly complete, or a complete lack of awareness of my surroundings I wish that no heroic measures be taken to preserve my life…. If I reach a stage of severe Alzheimer’s marked by disorientation psychosis, delusions, paranoia, and/or hallucinations,and also am severely injured, orhave a terminal illness (For purposes of the above, “terminal illness” shall be defined as an irreversible, incurable and untreatable condition caused by disease, illness or injury when an attending physician can certify in writing that, to a reasonable degree of medical certainty, there is no hope of my recovery or death is likely to occur in a brief period of time if life-sustaining treatment is not provided) then I wish that no heroic measures be taken to preserve my life…”
Many religious faiths take issue with terminating life support based on a lack of quality of life. The view taken by some is that life in any form is sacred and must be preserved. Given the prognosis of AD, this issue, if relevant to the AD client, or even if not but if relevant to family or those designated as agents, should be addressed directly and explicitly in the documents. This issue is particularly pronounced with respect to the provision of nutrition and hydration. Should nutrition and hydration be provided to an AD client with advanced dementia that is unaware of his or her surroundings?
Another issue to address in a living will and health proxy is companion care, hospice care, and other end of life decisions. The AD client may have specific preferences as to the use of in-home care, assisted living, an Alzheimer’s care center, or a nursing home. These preferences can be specified in the positive, or the negative, as the case may be. Also, review the allocation of these decisions as between the financial agent under the power of attorney and the health care proxy.
Revocable Living Trust
Revocable trustsare an obvious technique to assist any client with a chronic illness to manage assets. However, since dementia is certain for the AD client, the use of a funded revocable trust is appropriate in even more situations then for those suffering with other chronic illnesses. The typical revocable trust isdrafted with the grantor as sole trustee. For a client with AD it may not be possible for the AD client to serve even as a co-trustee, even in early or mid stages of AD.If the AD client does not have a trustworthy line of friends or family to monitor care, discuss the possibility of incorporating into the trust the use of an institutional trustee and a mandate for periodic evaluations of the AD client by a social worker or other professional who is independent of the institution providing care.
Estate Tax Planning
As noted earlier the typical diagnosis of AD is at around age 73. At this age many clients with AD will have substantial savings, long term disability and long term care insurance, and sufficient resources that will be factors to consider in estate tax planning.Many AD clients with the financial wherewithal will be interested in providing charitable support to the Alzheimer’s Association, or other charities involved in research or serving those with Alzheimer’s. Charitable giving should be planned for in a manner that best fits the AD client’s disease course and family responsibilities.
Family Members’ Estate Plans
The AD client’s family members should use special needs trusts (“SNTs”) as receptacles for any assets left to the AD client to protect those assets from being dissipated to pay for medical costs that state programs would otherwise cover. If the AD client’s estate is sufficient to sustain all of his or her needs a better approach may be for family members to avoid bequests to the AD client.
If family members had named the AD client as a fiduciary, their documents should be revised or the AD client should execute a resignation while competent to do so.
Will Challenges and Other Contests
Any client that has dementia is more likely to face a challenge, or their estate a will contest, than a client who does not suffer from AD or another form of dementia. Practitioners should be alert to these issues and address them proactively. The following example presents two scenarios, each told from a different child’s perspective, highlight the difficulties common in many AD client situations.
Example – Daughter’s Perspective:Sandy Smith is age 76, lives in Connecticut, and has been diagnosed with AD. Sandy has two children Joan, the oldest, and Tom the youngest. Joan lives nearby and has helped her mother for years with household chores and bill paying. Tom lives in Nevada and is quite busy with his young family and career. There has always been jealousy between Joan and Tom. As Sandy’s situation has worsened, her daughter Joan gave up a promotion and substantial raise with her company because she felt it imperative to stay in Connecticut to help her mother, and the relocation to Florida that the promotion would have required would have made care-taking impossible. Sandy realized the sacrifices that Joan was making and, over time, asked Joan to re-title several large accounts to joint name with Joan. Because of fall and hip replacement surgery it was hard for Sandy to get around. She had Joan change these accounts using the power of attorney the attorney prepared naming Joan as agent. As Sandy’s AD progressed she really didn’t have the competence to make decisions. Joan continued to care for her at the expense of her own career and social life. Since Sandy had made it clear to Joan that she wanted her to inherit the joint accounts Joan used other accounts to pay for Sandy’s expenses. By the time that Sandy died, other than her home, the only assets left were the joint accounts with Joan. This was exactly what Sandy had wanted done.
Example – Son’s Perspective:As Sandy’s situation has worsened, her daughter Joan, who never really pursued a career with any vigor, forced herself on her mother, and began to control her and her finances. Sandy realized the sacrifices that Tom had made to build is family and career, and had always promised him help for his children’s college costs. To prevent this from happening, after their mother already had lost substantial decision making capacity, his sister Joan moved in for the kill. Joan, unbeknownst to her mother or brother surreptitiously used a power of attorney to re-title several large accounts to joint name with Joan so she would inherit them on her mother’s death. As Sandy’s AD progressed, she did not really have the competence to make decisions, so Joan used Sandy’s remaining accounts to pay for part-time care taking with the intent of depleting any resources Tom could inherit. Although Sandy had made it clear to Tom that she wanted him to inherit extra funds to pay for his children’s college, Joan used these accounts to pay for Sandy’s expenses. By the time that Sandy died, other than her home, the only assets left were the joint accounts with Joan. This was exactly the opposite of what Sandy had wanted done.
Planning to document gifts, restricting gifts under powers of attorney, mandating equal gifts, coordinating title to assets, and other actions of agents under powers and dispositive provisions under wills and trusts take on greater importance with an AD client. The use of annual (or even more frequent) meetings to monitor these matters, and document the AD client’s intent while they are able, can be vital to securing their wishes. Steps which practitioners might consider include:
AD Client Incapable of Signing Documents
If the AD client’s disease has progressed too far for the AD client to sign documents planning takes on a different perspective. The steps to take, while obvious to practitioners are summarized below:
AD, as any other chronic illness, affectsevery document and aspect of planning. Generalizations are inappropriate and will not serve the interests of the client with a chronic illness, or his or her family. Every chronic illness has its own nuances, and hence impact on planning. The certainty of cognitive impairment that accompanies AD must be carefully addressed in all aspects of planning and drafting.
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