A diagnosis of Alzheimer's disease or another form of dementia often raises legal and financial questions that families have never had to consider before. Who will manage finances if the person can no longer do so? Who can make medical decisions? Is the existing estate plan still appropriate? What happens if long-term care is eventually needed?

Good planning can address many of these questions before they become urgent.

At Andrew Byers, PLC in Troy, Michigan, I help individuals and families plan for the legal and financial issues that can accompany Alzheimer's disease, dementia, and other conditions that may affect a person's ability to make decisions. Depending on the circumstances, planning may involve powers of attorney, patient advocate designations, trusts, wills, beneficiary designations, long-term-care planning, Medicaid planning, or, when advance planning is no longer possible, guardianship or conservatorship.

Why Is Legal Planning Important After an Alzheimer's or Dementia Diagnosis?

Dementia is often progressive. A person who is able to manage finances and make legal decisions today may need increasing assistance in the future.

That makes timing important. Planning while the individual still has sufficient capacity may allow the person to choose who will make financial and health-care decisions, how assets should be managed, and what should happen to property at death.

Waiting until a crisis occurs can reduce the available options. If a person can no longer execute the necessary legal documents and no adequate plan is already in place, family members may have to seek authority through the Michigan probate court.

The goal is not to take control away from someone simply because of a diagnosis. It is to put appropriate arrangements in place so that assistance is available if and when it is actually needed.

Can a Person With Dementia Still Make or Update an Estate Plan in Michigan?

Sometimes. A diagnosis of Alzheimer's disease or dementia does not automatically mean that a person can no longer sign a will, trust, power of attorney, or other planning document.

For example, Michigan law provides a specific standard for the mental capacity required to make a will. Among other things, the person must be able to understand that the document disposes of property at death, know the nature and extent of the person's property, know the natural objects of his or her bounty, and reasonably understand the general nature and effect of signing the will. You can review the Michigan law governing capacity to make a will.

Michigan law applies the same capacity standard to creating, amending, revoking, or adding property to a revocable trust. See the Michigan statute governing capacity to create or change a revocable trust.

A Michigan patient advocate designation has its own requirement: the person making the designation must be at least 18 and of sound mind when it is made.

For this reason, someone who has recently received a diagnosis should not automatically assume either that it is too late to plan or that planning can safely be postponed. The person's actual ability to understand the documents and decisions needs to be considered.

What Documents Should Be Reviewed After a Dementia Diagnosis?

There is no single “dementia document.” Planning usually involves reviewing how several legal documents and assets work together.

Durable Financial Power of Attorney

A durable financial power of attorney allows a person—the principal—to authorize someone else—the agent—to handle financial and property matters.

Michigan's current Uniform Power of Attorney Act generally allows a properly prepared durable power of attorney to continue during incapacity. A power of attorney may become effective immediately or may be drafted to become effective upon a specified future event.

For someone facing progressive cognitive decline, the details matter. The document should be reviewed to determine not only who is named, but also whether the agent has the authority that may actually be needed. Under current Michigan law, some important actions require specific authority, including certain powers involving gifts, beneficiary designations, survivorship rights, and inter vivos trusts.

Patient Advocate Designation and Health-Care Planning

A Michigan patient advocate designation allows an individual to choose someone to make medical and certain other care decisions if the individual later becomes unable to participate in those decisions.

The patient advocate does not simply take over because someone has received a dementia diagnosis. Michigan law requires the designation to state that the authority is exercisable when the patient is unable to participate in the applicable medical or mental-health treatment decisions.

A plan should also address access to medical information through an appropriate HIPAA authorization and should generally name a successor advocate in case the first person chosen cannot serve.

Revocable Living Trust

For some individuals and couples, a revocable living trust can provide an additional method of managing assets if incapacity develops.

A person can serve as trustee of his or her own trust while capable of handling financial affairs. The trust can then provide a process for a successor trustee to take over management if the original trustee becomes unable to act.

That can be particularly useful when a person owns real estate, investments, or other assets requiring continuing management. The effectiveness of the arrangement, however, depends in part on actually transferring appropriate assets to the trust and coordinating the trust with the rest of the estate plan.

Will and Beneficiary Designations

Dementia planning should also include the person's plan for what happens at death.

An older will or trust may name people who are no longer appropriate. Retirement accounts, life insurance, annuities, and payable-on-death or transfer-on-death accounts may pass according to beneficiary designations rather than the will.

Reviewing these items while the person can still make informed decisions can help identify inconsistencies before they become difficult or impossible to correct.

Can Estate Planning Help Avoid Guardianship or Conservatorship in Michigan?

Often, avoiding unnecessary court involvement is one of the purposes of incapacity planning, although no estate plan can guarantee that a court proceeding will never become necessary.

A guardian generally deals with decisions involving an incapacitated person's care and personal well-being. A conservator generally deals with property and financial affairs.

Michigan law requires clear and convincing evidence before a guardian is appointed and requires the guardianship to be limited to the individual's demonstrated needs.

Advance planning can sometimes provide alternatives. A valid financial power of attorney may allow an agent to manage finances, while a patient advocate designation may provide authority for health-care decisions. A properly funded trust may give a successor trustee authority to manage assets held in the trust.

If someone already lacks sufficient capacity and adequate documents are not in place, however, a guardianship, conservatorship, or other probate-court proceeding may be necessary.

How Can a Trust Help as Dementia Progresses?

A trust can address a problem that sometimes develops gradually: an individual may be able to manage investments, pay bills, and handle property now but become less able to do so as cognitive impairment progresses.

A properly designed revocable trust can identify:

• who manages trust assets now;
• who becomes successor trustee if assistance becomes necessary;
• how incapacity is determined under the trust;
• how trust assets may be used for the person's care and support; and
• how remaining assets are distributed after death.

The objective is not necessarily to create a complicated trust. For many families, the most useful plan is one whose administration will remain understandable when another family member eventually needs to step in.

How Does Dementia Planning Relate to Long-Term Care and Medicaid Planning?

Estate planning and long-term-care planning become increasingly connected when dementia progresses.

A person may initially live independently, then need help at home, assisted living, memory care, or eventually skilled nursing care. The legal and financial consequences differ depending on the type of care, how it is paid for, the person's assets and income, marital status, and whether Medicaid eligibility may eventually become necessary.

This is one reason dementia planning should look beyond the will.

Michigan Medicaid has detailed rules concerning assets, married couples, transfers of property, trusts, and long-term-care eligibility. Planning strategies that may make sense years before nursing-home care is needed can be very different from the options available after care has already become necessary.

For that reason, long-term-care planning and possible future Medicaid planning should be considered together with the estate plan rather than as unrelated subjects.

What if My Parent Has Already Lost the Ability to Make Legal Decisions?

The first question is what planning already exists.

A current financial power of attorney, patient advocate designation, or properly funded trust may give another person much of the authority needed to assist.

The documents need to be reviewed carefully. The fact that someone is named as an agent, patient advocate, or successor trustee does not necessarily mean that the person's authority has already become effective or that the document grants every power needed.

If adequate advance planning was not completed and the person no longer has the capacity to create it, a family member may need to consider a Michigan guardianship or conservatorship. These are probate-court proceedings and are different from voluntarily signing estate-planning documents while the individual still has capacity.

When Should an Estate Plan Be Reviewed After a Dementia Diagnosis?

Earlier is generally better, but the review should be thoughtful rather than rushed.

It is also important to identify who would actually be available and appropriate to help if assistance becomes necessary. Documents prepared many years ago may name an agent, trustee, or patient advocate whose circumstances have changed.

Families should also consider whether financial safeguards would be appropriate. Cognitive decline can increase vulnerability to mistakes, questionable transactions, scams, or financial exploitation. Thoughtful planning can establish who has authority to assist and, in appropriate circumstances, how responsibility should be shared or monitored.

Does Every Person With Dementia Need the Same Legal Plan?

No.

Someone in the early stages of cognitive decline who is married and has an existing trust may have very different needs from a widowed person whose adult children are already handling day-to-day care. Someone with modest savings and an increasing likelihood of nursing-home care may need different planning from someone who has sufficient resources to privately pay for care.

The legal plan should reflect the person's present abilities, family circumstances, assets, existing documents, likely care needs, and stage of life.

That is why Alzheimer's and dementia planning often involves more than drafting a document. It involves looking at how the person's estate plan, incapacity plan, assets, family support, and possible future long-term-care needs fit together.

Planning for Dementia Before a Crisis Develops

Alzheimer's disease and other forms of dementia can change a family's circumstances gradually. Legal planning is most useful when it anticipates that progression rather than waiting until a family member suddenly needs authority that he or she does not have.