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Recent Court Case Is a Reminder That Incapacity Planning Is Important

Edited by Bobbi Thury

It is inevitable, our bodies and minds deteriorate as we age, and our likelihood of mental incapacity increases. Mental incapacity could result from dementia, stroke, brain injury, or other illness, and unfortunately happens to millions of people.

You are mentally incapacitated if you are unable to conduct your affairs. Meaning, you cannot make meaningful decisions that are in your best interests regarding your finances or your property. These decisions don’t include how you are spending your money or the decisions you’ve made on where your money goes, that others may not agree with. The questions to ask to help determine mental capacity would be: Do you have a sensible reason for this decision? Do you understand the nature of and consequences of this decision? Is this decision detrimental to your financial health?

If anyone thinks you may lack mental capacity, they can sue you in a court of law. In the court proceeding, an evaluation will be done on you to determine if a doctor thinks you are incapacitated or not. Along with the hearings held, witnesses will be called, and testimony will be examined. In the end, the judge will determine the outcome and issue an order stating if you are indeed incapacitated. If you are deemed mentally incapacitated, the judge will appoint a guardian to now oversee your finances. This guardian could be someone you know or may be a complete stranger, and they will have complete control over your affairs and will be responsible for taking care of you financially.

Being proactive and doing planning ahead of time is the best way to avoid the above situation. Appointing a guardian timely could also be necessary to obtain Medicaid benefits. In the recent case of Southwood Healthcare Center v. Indiana Family and Social Services Administration, a nursing home resident was mentally incapacitated but did not have a guardian appointed. This led to the resident not being able to access their financial accounts and in turn the resident was denied Medicaid benefits. The Healthcare Center filed a petition for this, and the court ruled that the “resident did not have the actual ability to access his bank account, but his legal right to the account never wavered. Therefore, the account was an available resource to be properly considered.”

This all could have been avoided if the proper planning had been done, the resident would have been able to have a Medicaid application submitted on his behalf without all the court hassles. Instead. the resident would have to first go through the lengthy court process to get a guardian appointed, then the guardian could access the bank accounts, and then another Medicaid application could be submitted.

You may be thinking. “What planning should have been done?” The planning in this case involves creating a Financial Power of Attorney. This document is one you can sign while you still have full capacity and it allows another person, whom you appoint, to act on your behalf in the case you later become incapacitated. The person you appoint as your Financial Power of Attorney acts as your agent and must act in the best interests of you or there are consequences.

There are additional ways to thoughtfully plan for potential incapacity:

  • Signing a Health Care Power of Attorney.
    • Similar to Financial Power of Attorney where someone acts on your behalf, but instead of financials this agent is given the authority to make health care decisions for you. Both are much needed documents to have in place.
  • Sign a HIPAA document.
    • This document gives health care providers permission to give information regarding your health conditions to the authorized recipients.
  • Create a Revocable Living Trust.
    • This is a contract between you and the Trustee to hold and manage your assets. When completing the trust you transfer your assets into the trust and as such they are no longer in your personal name. If you become incapacitated the Successor Trustee, who you designate, then steps in and manages the trust according to your instructions listed in the document.

You may still be asking yourself Why should I be proactive and plan for incapacity? Not only does it give you control over who will be handling your affairs, how they will be handled, but it also saves your family the grief and cost of going through a court process. And from the Southwood Court Case listed above, sometimes things need to be done in a timely manner, having an agent already in place will expedite things for you. Your agent will have access to financial accounts, health care decisions, manage your investments as you have planned, pay your bills and maintain your assets.

Estate Planning is truly all about peace of mind. You may be one of the few that never become mentally incapacitated, and your agent won’t have to act on your behalf in this manner. But having a plan in place for any circumstance that may arise will give you and your family that peace of mind.

Here at Legacy Law Firm, P.C. we want to take care of you and elevate your peace of mind, please give us a call to hear about the options that are best for your specific Estate Planning Needs.

Article references: https://public.courts.in.gov/Decisions/api/Document/Opinion?Id=zSx1rur5zaWYpdsAttYxko-OOr-DHH77ATdm0QVx9ADx2ew_JVbYjDUO78HzaARP0


About the author

Bobbi Thury