Legal Issues

The two things most people try to avoid are death/illness and dealing with lawyers! In the case of dementia, unfortunately, these two issues go hand in hand! Legal issues vary from selecting individuals to make medical and/or financial decisions, to spelling out preferences as to medical treatment to transferring one’s real and personal property at death. The list goes on. 

While your loved one’s true desires can be spelled out in enforceable documents, the timing is important. It is best to execute these during the early stages of your loved one’s dementia because these documents all require a certain capacity to understand what they mean to be enforceable.

The legal issues for those with dementia are as varied as they are for people without dementia and even more so, so it is not something that can be extensively covered in one article. What we will try to do is note some things that you will need to consider. These include wills and trusts, powers of attorney, living wills, what it means to be “intestate” and how probate works, amongst other topics. Let’s jump in!

The Importance of Having a Will And/or Trust and Having Documents Such as Powers of Attorney, Living Wills and the Like.

Wills: 

For most people, it is important to have a will. All states have provisions for what happens to a person’s assets if they do not have a will and many assets will legally transfer without a will (“non-probate assets”), but a state’s general set of rules may not reflect what a person would want. Take a simple case. Let’s say a man is married to his second wife with whom he has children, but he also has additional children that are not by his second wife. If he didn’t have these other children, New Jersey law states that his wife would get all his probate assets, but because he does, his wife will get more like half with all his children dividing the rest.

Trusts: 

While wills deal with a person’s assets and desires after they have died, trusts deal with things both before and after. There are many types of trusts and a trust can be a separate document or put into a will. A “Living Trust” is a type of trust set up while a person is alive where they place a lot, if not all, their assets and they generally will administer it by themselves. A common provision in this type of trust is one that states what happens if they become incapacitated. 

Having a trust like this can be especially helpful for those with dementia. Here a person can appoint a successor trustee who takes over the management of the assets in the trust upon a triggering event such as the incapacity of the person whose trust it is. If one doesn’t have this type of document, another document, a “Power of Attorney “often gives another rights to manage assets if someone becomes incapacitated, yet these tend to give that person less control and sometimes will not be enforced. If no documents exist covering what happens if a person becomes incapacitated, usually someone needs to go to court to get an order that gives them power to do so.

Living Wills and Medical Directives: 

Another set of documents that you might want to consider is a Living Will or medical directive. Here, a person spells out what their desires are as far as medical decisions being made for them when they cannot make them for themselves. Again, states step in and make provisions for who and what medical decisions will be made if these documents do not exist, but this set of rules might not express a person’s desires. 

Capacity to Execute a Will and Other Documents When One Has Dementia

Whether a will or other document is valid often comes down to whether a person has “legal capacity”, and the term “legal capacity” is different for different things and in different states!

For example, in New Jersey, the “legal capacity” to write a will is called “testamentary capacity.”  The requirements are minimal: the person must be 18 or older and must be capable of knowing and understanding in a general manner (i) the nature and extent of his or her property, (ii) the natural objects of his or her bounty, and (iii) the disposition that he or she is making of that property, and must also be capable of (iv) relating these elements to one another and forming an orderly desire regarding the disposition of the property.

People with dementia have all legal rights until it is determined – often by a court – that they do not. In the first instance this means that if your loved one is showing early signs but still can make decisions then there is still time for them to execute wills, trusts, powers of attorney and other important documents. There is no fine line regarding impairment. Yet, if you believe time has passed and these important documents do not exist, then clearly it is time to go to court and have the court do things such as appointing a guardian to protect your loved one. 

If a loved one does not have a will or other documents, you really should impress upon them the importance of getting these things executed. If dementia runs in the family, that might also be a sign that these documents need to be prepared sooner rather than later. Once your loved one shows some early signs of forgetfulness, you should stress the importance of doing these. 

Also remember that these documents are binding until replaced with another or destroyed! Even if your loved one has a will or other document, make sure it properly reflects their current desires and situation!

What is a Will?

A Last Will and Testament is a binding document where a person states to whom they want their assets to go to after their death and may include many other provisions, such as their desires for funeral arrangements, guardians for their minor children, trusts for people such as minor children and even provisions for their dogs!

What is a Trust?

Trusts are legal documents where one takes assets and provides that they be for the benefit of someone or something (the “beneficiary”) and be administered by someone or something (the ‘trustee”). Our tax laws have tax ramifications for many types of trusts and in some cases, tax benefits.  During a person’s life a trust is called an “Inter Vivos Trust” and it can either be revocable (meaning they are free to dissolve or change it) or irrevocable (not subject to being changed or dissolved.) 

Trusts are used for many reasons. One of the most common reasons to create a trust is to put your assets that would otherwise be subject to the process of probate to avoid the costs and expense of probate. Other reasons include reducing estate taxes, shielding assets from creditors, making a gift to a minor that the minor will not control until they are of age and many others.

A Living Trust is the name of the commonly used one that many lawyers and advisors tell people to execute to avoid probate. Basically all your assets (except for ones that will legally go to whom you want by way of other legal means) are put in the trust, you appoint yourself as trustee, provide for a successor trustee if you die or become incapacitated and then provide for the distribution of your assets when you die.

Is a Living Trust Better Than a Will?

Much is said about a Living Trust being a great way to avoid probate. Probate is the process of going to court to make sure the terms of a will are followed. Yet most people, even if they have a Living Trust will execute a will, to cover things that may have been forgotten or not otherwise dealt with. This is because a trust will only apply to things that are properly placed in the trust, which can get tricky! Many states have laws that will state that a certain asset is not in the trust even though the trust has a general clause that states it is for all a person’s assets. Thus it is necessary to have all assets properly changed into the name of the trust!

Probate is not necessarily overly expensive or time consuming depending on what a person has and the state or county one lives in. Yet, it can be a pain to deal with. On the other hand, going through probate can even be better in some cases, especially if there are people contesting provisions made by the person who died.

How Will Assets be Divided if There is no Will or Trust?

Certain assets have built in provisions for what happens when one owner dies. For example, many homes are owned by spouses as “joint tenants in the entirety” which means that if one dies, the other automatically becomes the sole owner of the home. Things like bank accounts can be jointly owned “with a right of survivorship” which means that person’s share automatically goes to the others if they die. Life insurance and IRA, 401(k) and others usually have a beneficiary named that will get the asset without any court intervention.

For assets that do not have a built-in mechanism for distribution, the assets will go through probate – court proceedings – where an administrator will be appointed to essentially do the work that an executor would if there had been a will.

The difference is that while an executor follows the desires set out in a person’s will (in most cases, unless they are contrary to the laws of the state) an administrator will distribute things according to the laws of the state. It varies from state to state, but a typical intestate distribution statute has a basic order of who takes: 

1. Surviving spouse.

2. Issue (children).

3. Parents.

4. Issue of parents.

5. Grandparents/issue of grandparents.

6. Next of kin.

7. Escheats (goes) to the state.

It is important to know that states all have different rules which provide for exceptions to the simple order noted above. So if one dies, married but with no children, most laws simply provide that the assets go to their spouse. Yet, if there are children outside the marriage, such as a prior marriage, the assets will be divided between your spouse and the children. The state will not administer illegal assets – such as an illegal drug smuggling business - the person’s loved one’s simply have to fight it out on their own!

Will Everything a Person Put into a Will or Trust Be Followed?

Not necessarily. Illegal assets do not get legally transferred to someone, even if they are in a will or a trust. Most states also have laws meant to protect spouses, so even if you hate your spouse and write them out of your will, they will be entitled to a share. Also, if you write something that is not legally enforceable, it won’t be followed. Let’s say the person writing the will is a racist and provides that a person gets assets unless they have married someone of a different color. The court will probably disregard the racist comment and simply give the asset to that person.

A strange legal area has to do with trusts set up for the care of someone’s pets. Legally, while you expect that person to spend the money on the care of your pet, they do not have to; these are considered “honorary trusts” where it is up to their honor to follow a person’s wishes.

What Happens If a Person Has Dementia and Cannot Make Financial Decisions but There Is No Trust or Power of Attorney?

All states are different, but generally they will have processes to name a person to officially take care of their finances. Sometimes these are called guardianship proceedings, sometimes conservator proceedings.

A court can appoint a person to handle a person with dementia assets. This does not mean that they will be responsible for other decisions, but often the person will be appointed for that too. States have different proceedings that can be brought when one believes that another is not adequately being taken care of. For example, In New Jersey you can apply to be a person’s guardian of the person. You must file certain documents, qualify before the County Surrogate, get official documents naming you as guardian, receive “Letters of Guardianship” and agree to terms and conditions. Being a Guardian of the Person is not the same as being Guardian of the Estate, which means their assets. Often people apply for both but being Guardian of the Estate has requirements like regular accountings, having a bond put in place and many more. It may be difficult to properly take care of them if you or someone else is not appointed as guardian of the estate. If you are considering an appointment as guardian, it is advisable to retain an attorney familiar with these proceedings. New Jersey has a great website with guides, tutorials and forms on it at https://www.njcourts.gov/courts/civil/guardianship.html?lang=eng

New Jersey in recent years has even gone farther and has a voluntary Guardian Monitoring Program to make sure that guardians are doing things properly and not taking advantage of incapacitated people.

What Are the Documents That Cover Healthcare Decisions?

Living Wills 

Also known as a medical or advance directive or an “instruction directive” in New Jersey, is a document that allows a person to refuse life-sustaining medical treatment when there is no reasonable expectation for recovery. A living will must be signed by two witnesses and a notary. There are advantages and disadvantages to this document. The advantage is your loved one has expressed their values and wishes in advance, and it will save you from making a difficult decision, if not the hardest decision. The negative is that a living will lack flexibility and may be inconsistent with a current scenario. 

Durable Powers of Attorney for Healthcare

In New Jersey, there is the Proxy Directive (Durable Power of Attorney for Health Care) Designation of Health Care Representatives - This document appoints an agent to make medical decisions in the event of the principal's incapacitation. It is a flexible document that gives legal power to an agent to decide the medical treatment by incorporating the values and wishes of the incapacitated, to consult with physicians and others, and to consider all the circumstances when making medical decisions.

POLST 

In New Jersey, and other states, there is a document called a POLST –Practitioner Orders for Life Sustaining Treatment – which tells all healthcare providers what a person wants during emergencies and has more options than a simple DNR (Do not resuscitate) order. See https://www.state.nj.us/health/advancedirective/polst/

One of your loved one’s medical providers may ask you to fill one out for them. Keep in mind that this document can be changed by one with legal authority to do so.

Suppose a Healthcare Decision Needs to Be Made for a Person with Dementia and They Have Not Executed Any Documents That Cover Healthcare Decisions?

Laws Regarding Consent

Most states have laws which provide, in the absence of a Living Will, DNR, POLST, Power of Attorney or other document, for the order of who can give consent, which usually starts with spouses, then usually a majority of existing adult children and parents and the like.

Guardianship 

A guardian can be appointed to take care of the needs of a person. This does not necessarily mean that they are the guardian of the person’s assets, but often one person will serve for both. This does take some time though, usually including court hearings where the proposed guardian will testify, and it is wise to retain an attorney for these proceedings.