This article is a chapter from "Alzheimer's Disease-Questions and Answers, 2nd Edition" ©Merit Publishing International, Inc., 1999.

CHAPTER 12

LEGAL PLANNING FOR THE

ALZHEIMER'S PATIENT

by Jay J. Sangerman, Esq.  ©2000

When a loved one is faced with the early stages of Alzheimer's disease, given the nature of the illness, practical considerations are often not the first concern. Addressing issues such as healthcare planning and effective property management early can make dealing with the later stages of Alzheimer's easier. This chapter is intended to give an overview of the most important legal issues facing Alzheimer's patients, their loved ones and their physicians. The chapter is divided into three sections: The first section, Planning with the Alzheimer's Patient, discusses how a patient with sufficient decision-making capacity can plan for his/her future property management. This section also discusses how an Alzheimer's patient with sufficient decision-making capacity can specify his/her preferences regarding future healthcare decisions. The second section, Planning in the Later Stages of Alzheimer's, will look at how a patient who no longer possesses sufficient mental capacity for decision-making can be provided for by means of a guardianship proceeding. Paying for long-term Care, the third section, discusses various methods for paying for the long-term care necessitated by Alzheimer's disease.

I. PLANNING WITH THE ALZHEIMER'S PATIENT

At the earliest possible time, the Alzheimer's patient and/or the patient's family should consult with his/her attorney for purposes of legal planning for property management, estate planning and advanced directives for medical decision-making. Consideration in such planning should involve the patient's financial security, a determination of who will manage property, the preservation of assets for others, if so desired, and the determination of future medical care. By undertaking proper planning when the Alzheimer's patient has sufficient mental capacity for decision making, the Alzheimer's patient will be able to impose his/her preferences upon future decision-making for his/her management of property and healthcare. Most important, the legal aspects of planning for the Alzheimer's patient can often be best achieved when there is team effort among the medical and social work providers, the attorney, accountant and financial planner.

PROPERTY MANAGEMENT

What is property management?

For purposes of this chapter, we define property management as the development of a plan whereby there is an efficient and effective system for the administration of property. Under this definition, we are distinguishing "property management" from "financial management." In property management, as defined here, the consideration is "who is going to manage the property," whereas the consideration in financial management is "how is the property going to be invested." Property management necessitates the creation of certain legal documents. A person with sufficient mental capacity can select a family member, a professional (such as an attorney or accountant) or a corporate fiduciary (such as a bank or other financial institution) to manage his/her property.

What is the goal of future planning for property management for the Alzheimer's patient?

The goal of future planning for property management is to seize the opportunity while the Alzheimer's patient has the requisite mental capacity to put into place a mechanism, together with the appropriate documentation, by which the Alzheimer's patient can determine by whom his property will be managed (and spent) if s/he becomes mentally incapacitated. By establishing such a plan, the individual can make determinations for his/her future. In the absence of such a plan, there will likely be the need for a judicial determination of who will manage his/her affairs.

What are the legal devices for the management of another's property?

The legal devices for property management in the hands of another are durable powers-of-attorney, trust agreements and jointly held accounts.

POWER-OF-ATTORNEY

What is a power-of-attorney

A power-of-attorney is a written instrument by which an individual (the "principal") appoints another as agent to act on his behalf (the "attorney-in-fact"). Generally, a power-of-attorney is limited to proper management. In some states, however, the power-of-attorney includes the authority for both property management and medical decision-making

What mental capacity is required to execute a power-of-attorney

To execute a valid power-of-attorney, the principal must have the requisite capacity to understand the nature and consequences of his/her executing a document which permits another to act on his/her behalf. Without the requisite mental capacity, an individual cannot legally execute a valid power-of-attorney. Notaries (including health care institutions providing notaries) must be reasonably careful that they do not preside at the execution of a power-of-attorney where the principal lacks the requisite mental capacity to execute a power-of-attorney. If there is a question as to the principal's mental capacity, witnesses should be present to confirm that the principal has capacity and to note their impressions in a written statement that the principal had such capacity. In some instances, legal counsel may advise the use of a video recording to protect the validity of the power-of-attorney. It is also advisable to have a doctor's letter stating that at the time the Alzheimer's patient executed the power-of-attorney, that he had the mental capacity to understand that document he signed.

Does a person with Alzheimer's disease have the requisite mental capacity to execute a power-of-attorney

A diagnosis of probable Alzheimer's disease is not a sine quo non of incapacity to make fundamental decisions for future planning, nor is it a sine quo non of incapacity to validly execute documents.

Who makes the determination of mental capacity?

The determination of mental capacity should be made by the appropriate medical professional in consultation with the attorney who will be present at the execution of the power-of-attorney. Where the validity of the power-of-attorney may he questioned (e.g. by family members, financial institutions or the taxing authorities), it is much safer to have an attorney (especially one acquainted with the Alzheimer's patient) officiate at the execution of the power-of-attorney. Depending upon the circumstances, the attorney may request a letter from the Alzheimer's patient's doctor setting forth that the patient reasonably has, in the opinion of the doctor the capacity necessary to understand that s/he is selecting a fiduciary and giving the fiduciary the authority to make property management decisions on his/her behalf.

Is a power-of-attorney valid when the principal becomes incapacitated?

An ordinary power-of-attorney becomes void when the principal becomes incapacitated. Therefore, all states have enacted legislation to permit the execution of a durable power-of-attorney, i.e. a power-of-attorney which survives incapacity. Accordingly, care should be taken to be sure that the power-of-attorney states that it is durable. A durable power-of-attorney will include words such as: "This power-of-attorney shall not be affected by the subsequent disability or incompetence of the principal."

Does the principal lose authority to act in his/her own behalf when s/he executes a power-of-attorney

The execution of a power-of-attorney does not preclude the principal from acting on his/her own behalf. Unless otherwise stated, the principal and the agent have concurrent authority.

Do all states have the same laws regarding powers-of-attorney

No. It is important to check one's own state laws since state's have varying requirements regarding powers-of-attorney. For instance, some states require witnesses to the execution of the power-of-attorney. Some states have additional requirements when the power-of-attorney is intended for use in real estate, e.g., filing of the power-of-attorney and/or a full description of the real property written in the power-of-attorney. If a person spends significant time in more than one state, it is advisable to have powers-of-attorney in each state in which the person frequents, especially if the person owns real estate in each state.

I do not wish to give authority to my agent presently. Can the power-of-attorney "spring;" into validity upon some stated occurrence?

It all depends upon state law. Some states have statutes authorizing the use of "springing powers-of-attorney." A "springing power-of-attorney" is one in which the agent's authority commences only upon the happening of a certain event, such as mental incapacity. If using a springing power-of-attorney, be extremely cautious that it will be accepted upon the stated occurrence. Financial institutions are especially careful to check that the event has occurred. If the power-of-attorney states that it "springs" into effect upon mental incapacity, be sure that it is written in the power-of-attorney the basis for a determination of incapacity and by whom such determination is to be made, including how many people must concur in the determination of incapacity.

This author does not recommend the use of springing powers-of-attorney unless absolutely necessary. It is better to use a trust agreement (as described later) or for the principal not to give the agent possession of the power-of-attorney, but to have it available for the agent from a third party (perhaps the principal's attorney or accountant) or in the principal's home and accessible only upon necessity.

I have executed a power-of-attorney. Can I revoke it?

Powers-of-attorney can be revoked, but often with difficulty. To revoke a power-of-attorney, one should notify the designated agent(s) and all financial institutions in which the principal has assets, informing them that the power-of-attorney has been revoked. Such notification should be in a writing sent by certified mail, return receipt requested. The principal should also notify his/her attorney and other professional advisors, family members and anyone else whom the principal feels would be helpful in protecting the principal should the agent fraudulently use the power-of-attorney. Generally, the agent cannot be held liable for the use of a revoked power-of-attorney until s/he has been duly notified of the revocation.

When else does a power-of-attorney become terminated?

A power-of-attorney is terminated if the instrument states that it is good only for a specified period of time. further, and most misunderstood a power-of-attorney is automatically revoked upon the principal's death. A power-of-attorney cannot be legally used after the agent knows that the principal has died. Upon death, it is the executor (personal representative) or estate administrator who controls the management of property and its distribution. Additionally, some states may permit, or require, the revocation of a power-of-attorney upon the court appointment of a guardian, if a guardian is necessary. In other states, absent fraud, the power-of-attorney remains valid, even after the court appointment of a guardian.

Does a power-of-attorney ever become irrevocable?

Yes, when the principal loses the mental capacity to make property management decisions, the power-of-attorney becomes irrevocable. A court in a guardianship proceeding, however, may have the authority to revoke the power-of-attorney, but the power-of-attorney will be an indicia of whom the principal trusts.

How many agents can there be in a power-of-attorney

Depending upon state law, there can be an unlimited number of agents to a power-of-attorney. However, the principal must be practical. It becomes unwieldy and confusing to have too many agents. Nevertheless, it is prudent to have more than one agent, when available. With multiple agents, who each have the authority to act individually, should an agent predecease the principal or become incapacitated, there still is someone to act on behalf of the principal. However, where there is no agent able to act and the principal lacks capacity, judicial intervention by means of a guardianship proceeding (as described later) will be required.

If there are multiple agents, must they act together or can they have separate and equal authority?

The power-of-attorney will state whether the agents can act "severally" or must act "together." Requiring the agents to act "together" often makes the agent's functioning unwieldy because of the requirement that all agents sign the financial documents. It is, generally recommended that the agents be permitted to act "severally." Also, some financial institutions will not accept a power-of attorney which gives two or more agents equal authority to act. Such institutions want to know that they can rely upon only one individual without any potential dispute from another.

Need the principal keep powers-of-attorney current?

Unless stated in the power-of-attorney, there is no time after which power-of-attorneys lose their validity. Even though powers-of-attorney may be of unlimited duration, it is prudent that so long as the principal has the requisite mental capacity, s/he executes new powers-of-attorney every few years. In such way, the financial institutions will be less concerned with the possibility that the power-of-attorney has been revoked.

Can the agent take or gift to others the principal's property?

This is one of the major problems with powers-of-attorney. Unfortunately, while powers-of-attorney are a most useful means by which to manage another's property, powers-of-attorney are an opportunity for financial abuse. In most states, a power-of-attorney cannot legally be used to transfer (i.e., gift) the principal's property unless such authority is specifically granted. Nevertheless, financial institutions often do not ask questions and agents are able to gift the principal's assets without specific authorization. On the other hand, in many instances the principal wishes to give the agent gift-giving authority for purposes of estate and tax planning, as well as for Medicaid planning through the divestment of assets. If desired, gift-giving authority can be limited to the federal gift tax exclusion ($10,000 per person) or broadened to permit gifts of all the principal's assets. If the principal wishes to give the agent authority to gift assets, then such authority should be specifically stated in the power-of attorney. Prior to accepting the authority to make gifts of another's property, the agent should check with his/her tax advisor as to possible estate tax implications to the agent caused by the gift-giving authority in the event that the agent predeceases the principal.

Are standard forms available for powers-of-attorney

Most states have standard forms for general, durable powers-of-attorney. They are instantly recognizable by financial institutions. This author recommends the use of such standard forms. Where appropriate, the principal can add powers to the standard form power-of-attorney, such as the authority to make gifts. Although power-of-attorney forms can be purchased at retail stores, it is strongly advised that the principal has his/her attorney complete the power-of attorney form to best assure that it is properly completed.

What problems should be considered prior to executing a power-of-attorney

Although a power-of-attorney in the proper hands is most useful and appropriate, a power-of-attorney is potentially a very dangerous instrument by which the principal can be wrongfully divested of his/her assets. The agent, even if not authorized, often has the opportunity to transfer (gift) assets to other people, including the agent himself. A power-of-attorney gives a great deal of authority to an individual without any succinct statement of how the funds are to be managed, spent, given away or preserved. The power-of-attorney does not "spell out" the principal's desires for the use of his/her funds; it is only the giving of authority. There are no "rules" as in a trust agreement (described below) indicating the principal's wishes for how to manage the assets. Accordingly, much thought should be put into deciding who can be trusted with the authority given in a power-of-attorney

TRUST AGREEMENT

What is a "trust?"

A trust is a legal instrument by which an individual appoints a fiduciary and reregisters the assets in the name of the fiduciary of the trust. The components of a trust are a "grantor" (also known as a settlor, donor or trustor) who places the assets into the trust; a "trustee," who is the fiduciary appointed to manage the assets; a "beneficiary," who receives the benefit of the assets during the continuation of the trust; and the "remaindermen," who receive the assets at the termination of the trust (similar to beneficiaries of a last will and testament).

Are there any rules for the operation of the trust?

The rules for the operation of the trust are found in the trust agreement itself, in addition to the state law which the grantor designates to be controlling.

What are some of the provisions which might be included in the trust agreement?

The trust agreement should specify how the trust assets are to be managed, who is to receive assets (and how much) during the continuation of the trust, the powers of the trustee and the identity of remaindermen of the trust assets. The trust agreement can specify that the grantor (and his/her spouse) wishes to he maintained at home with a certain level of care, even if the cost would exhaust the corpus of the trust to the exclusion of the remaindermen. The trust may give the trustee the authority to purchase long-term care insurance for purposes of planning in the event of an illness requiring nursing home care or homecare attendants. The trust may also provide that the trustee is to make gifts to family members in the same pattern as the grantor has in the past, including payment, e.g., of grandchildren's education expenses and birthday and holiday gifts. The trust may even provide for significant transfers of assets out of the trust for purposes of tax, estate or Medicaid planning. The grantor should discuss with his/her professional advisors the various alternative provisions which she/he may wish to include in the trust agreement. The trust agreement is a very personal document and should be carefully tailored to meet the needs and goals of the grantor. The trust agreement itself should state that the trust is to be governed under the laws and regulations of a particular state.

Unlike a power-of-attorney which generally gives the agent concurrent authority with the principal, a trust may be drafted so that a successor trustee to the grantor (if then serving as trustee) has authority to act only after the grantor trustee's incapacity. The trust should have language which provides for a smooth transition from the grantor as trustee to the successor trustee. Similarly, there should be a smooth transition from one trustee to another. For instance, the trust may provide that upon the written statements of two physicians, one of whom is the trustee's attending physician, that the trustee is unable to handle his/her financial affairs, that the successor trustee or trustees take over. Other language may include consultation with certain family members prior to a change in trustees. Depending upon the grantor's mental capacity, she/he may or may not be the initial trustee of the trust. If the grantor/Alzheimer's patient has sufficient capacity, but is not able to be the sole trustee of the trust, she/he might be the co-trustee with a spouse, child, professional or corporate fiduciary.

Can a trust be amended or revoked?

It depends upon the type of trust. A trust can be designed to be either revocable or irrevocable. The revocable trust is generally used for purposes of property management on behalf of the grantor, who is likely to be the sole beneficiary. An irrevocable trust is generally used in Medicaid planning, various forms of estate and gift tax planning and for the establishment of a managed source of funds for minors.

Who can he a trustee?

Depending upon state law, the trustee can be the grantor alone or the grantor in conjunction with another. The trustee can be a relative, friend or professional such as an attorney or accountant. The trustee also can be a corporate fiduciary such as a bank or stock brokerage company. The decision as to whom to select as trustee should be based on the size of the trust assets and whom the grantor feels is best suited to be the trustee.

What mental capacity is required for the formation of a trust?

A trust is a contract between the grantor and the trustee; therefore, the grantor must have the requisite mental capacity to enter into a contract as defined by the laws of the grantor's home state. When an individual lacks the mental capacity to execute a trust agreement, it may be possible to have a judge order the creation of a trust.

If a person has a trust, need she/he also have a last will and testament?

Yes. A trust provides for the ultimate distribution of those assets which are part of the trust. Often, people do not transfer all their assets into the name of the trust. Therefore, unless the remaining assets are payable upon death to a named beneficiary, probate will be required. For this reason, it is important to have will in addition to the trust. The trust and the will must be coordinated to assign responsibility for the distribution of assets and for payment of taxes and final expenses.

What are the disadvantages of a trust?

One of the predominant disadvantages of a trust is the expense associated with setting up and maintaining the trust. A trust, unlike a power-of-attorney, is a complex instrument. An attorney should draft the trust. Also, the trustee may receive compensation for the performance of his/her duties. Additional work for income tax filings may be required. Another disadvantage is that a trust also can be confusing in the beginning. In order for the trust to be appropriately effective, nearly all of the grantor's assets should be reregistered in the name of the trust. The trustee has the fiduciary obligation to manage the assets and to keep accurate records, including accountings, of the trust activities.

What are the advantages of a trust?

The main advantage of a trust is that the grantor can continue to manage his/her assets until such time that the grantor either becomes incapacitated or no longer wishes to manage his/her assets. At such time, there is a smooth transition to the person who is designated to manage the trust assets. The trust provides rules by which the trustee is to manage the trust assets. There are clear fiduciary obligations which the trustee must follow. In addition, there can be certain reporting obligations as to the management of the trust. Further, it is much easier to manage the assets because they are all in the name of the trust and, in contrast to a power-of-attorney, there should be no concern that the authority of the trustee will not be accepted by financial institutions.

Does a trust require the trustee to render an annual accounting?

It depends upon how the trust is drafted. Such considerations must be discussed with the drafting attorney, taking into account the family relationships and the need, or lack thereof, to require reporting mechanisms. However, in some states, the trustee must render an annual accounting in order to be paid commissions, if the trustee is to receive such commissions.

JOINT ACCOUNTS

What are joint accounts?

A joint account is a bank or investment account registered in the name of more than one person as owners of that account. Depending upon the nature of the specific joint account, each person named in the registration may be empowered to manage and remove the assets from such an account.

Can "joint accounts" be used for asset management?

Joint accounts are another way to manage another individual's assets. Either joint holder of an account generally is able to withdraw funds from the account and manage the account. There are exceptions, however, which are discussed below.

How does a joint account affect an estate plan?

The presumption with joint accounts is that there is a right-of-survivorship between the joint tenants. Therefore, assets placed into a joint account "pass" to the surviving joint holder by "operation of law" not withstanding what the decedent's last will and testament states. The consequence is that one could undo an estate plan by the placement of assets into a joint account. Frequently a parent with two or more children places assets into a joint account with the child who lives near the parent, thereby unintentionally undoing the estate plan as set forth in the last will and testament. For this reason, powers-of-attorney or trust agreements for asset management are often preferable to joint accounts for assets management.

How does a joint account affect estate tax planning?

Joint accounts can undo estate tax planning. Under federal tax law, each individual has a unified estate: and gift tax credit which allows $650,000 (credit shelter), which increases to $1,000,000 in the year 2006, to pass free of federal estate and gift taxes. In many states there is a much lower threshold for state estate and gift tax. If spouses place all their assets into jointly held accounts, then the credit shelter could be lost resulting in a significant increase in estate and/or gift taxes to the heirs. For instance, spouses with a joint net worth of $1,300,000 will have no federal estate or gift taxes if the assets are evenly split between them and, upon the death of the first-to-die spouse, the assets of the decedent do not "pass" to the surviving spouse. If all the assets are held jointly between the husband and wife, the surviving spouse will die owning all the assets, thereby incurring for the heirs a federal estate tax of $202,505, which could have been fully avoided with proper planning.

What are the advantages of jointly held property?

The advantages of jointly held property are simplicity of asset management and the lack of legal costs for the preparation of documents for such management. Another advantage of jointly held property is that the property generally will "pass" to the surviving joint tenant upon the death of the first-to-die without the need nor cost of probate.

Can either joint tenant withdraw funds from a joint account or manage the property within the joint account?

The answer depends upon the type of account and the institution holding the account. For instance, either joint tenant can generally withdraw funds from a jointly held bank account. However, if the withdrawal of the property would create a loss of interest to the account holders or a penalty, many banks, for their own protection, require the signatures of each joint tenant. With stock certificates, if the stocks are held in certificate form, the signatures of both joint tenants will likely be required by the stock transfer agent; however, if the stocks are held by a stock broker in "street name," i.e. in the name of the financial institution, then only one joint tenant will generally need to sign. Also, with transfers of real estate, both joint tenants generally will have to sign the deed transferring the property.

What is the disadvantage of jointly held assets?

The disadvantage of jointly held accounts is that joint accounts may undo an estate plan by causing certain assets unintentionally to go to certain individuals when they were really intended to pass pursuant to the person's last will and testament. Also, such accounts give an individual the opportunity to remove property from the control of the joint tenant (who placed all the property into the joint accounts) when that may not have been the intent of the person who placed all the funds into the joint account.

A word of caution: Prior to any changes in the distribution or registration of property, it is imperative to seek the advice of an estate planning and tax professional, who may be an accountant, attorney, financial planner or all of the above. Changes in property management can have significant tax consequences.

PLANNING FOR FUTURE MEDICAL DECISION-MAKING

What kind of planning should be done for the Alzheimer's patient in regard to future medical decision-making

An Alzheimer's patient (and also every other adult) with sufficient capacity to execute and advance directive for medical decision-making should do so at the earliest opportunity. Advance medical directives include either or both (i) the setting forth of one's medical wishes which are to be followed in the event of mental incapacity and/or (ii) the designation of a surrogate to make medical decisions without necessarily any reference to written instructions. In 1990, the United States Supreme Court, in the case of Nancy Cruzan, stated that every American has the fundamental right under the constitution to make his/her own medical decisions. However, the Court went on to state that it is up to each individual state to determine who, if anyone, can make medical decisions for one unable to make his/her own decisions. State laws, therefore, vary on advance medical directives and should be carefully reviewed.

What is a Living Will?

A living will is a document in which one states his/her medical wishes to be followed in the event that s/he cannot communicate his/her wishes at some time in the future. For instance, in a living will, an individual might state that she/he does not wish to be given medical treatment, such as antibiotics or artificial life support, which would only serve to prolong the dying process. All states have laws authorizing the validity of Living Wills.

What problems can be encountered with a Living Will?

A living will is intended to give "instruction" to the provider of medical care. Therefore, it must be carefully drafted so as to avoid ambiguities and to succinctly state the principal's wishes, yet be broad enough to encompass general medical treatment. If one executes a living will, the individual should consider using a "form" document which is readily recognizable to medical providers. Some states provide a recommended form for such use. In other states, where the state legislature has not provided a form, certain well-recognized organizations have forms which are well drafted and easily understood by medical practitioners. Also, certain religious organizations have published their own forms of living wills. If a living will is ambiguous, the medical provider tray not be able to discern the patient's wishes and require judicial intervention.

Can an individual appoint an agent to make medical decisions when the individual cannot communicate his/her preferences?

Many, but not all, states have statutes governing the appointment of an agent to make surrogate medical decisions. Such documents may be called a "Health Care Proxy" or "Power of Attorney for Health Care." State laws vary on the form for this advance directive, as well as its use.

Is the appointment of an agent in one state valid in other states?

Such documents are relatively new to the law. Twenty-nine states with statutes relating to advance medical directives expressly permit agents appointed in documents executed in other states to make health care decisions on behalf of incapacitated principals. However, the conditions under which the agent can make medical decisions varies among the states. It is, therefore, recommended that someone with homes in different states have documents executed in the form used in each state in which they frequent.

What mental capacity is required to appoint an agent to make medical decisions?

It is up to state law. Many states have laws which state that everyone is presumed competent to execute an appointment of a healthcare agent. In such instance, the level of requisite mental capacity is far below that required for the execution of a living will.

What considerations should be taken prior to the execution of a living will or appointment of an agent?

There probably can be no more important document executed than an advance medical directive; yet, people often execute them without full deliberation. When possible, prior to execution of an advance medical directive, the principal should consider the moral and religious implications, if any, of executing such a document. If the person is religious, she/he should consult with his/her religious leader. Certainly, prior to the appointment of an agent, when possible, the principal should inform the agent of his/her medical wishes.

Who should he the agent?

Generally in most states anyone can he the agent except for the treating physician. Careful consideration must be given to whether the agent can be "trusted" to give the medical instruction which the principal would want. Such instructions may include the giving, or withholding, of artificial nutrition and hydration and/or the use of a ventilator. A loving spouse, whom the principal fully trusts, may not be the proper agent to make medical decisions pertaining to the withholding of life sustaining treatment.

How many agents can there be?

In most states which have laws on surrogate decision-making, there can be only one agent acting at a time. Therefore, there is generally a primary agent and an alternate agent named in the surrogate document.

Can the agent make any medical decision for the principal?

It depends upon the state. In some states, for instance, artificial nutrition and hydration are considered on a different level than medical treatment. In such states, the agent, if she/he is to have the authority to make decisions pertaining to the provision, or withdrawal, of artificial nutrition and hydration, must have been given the specific authority to make such decisions and know the principal's wishes.

Should a person execute both a living will and a document appointing an agent?

There is a split within the legal community on this issue. Some feel that if the individual has an appropriate person(s) to appoint as agent(s), then it is best to have only the appointment of an agent. Therefore, there is no written document which could be ambiguous as to the principal's wishes. Others within the legal community prefer both so that the living will acts as a guide to the agent and is available as an expression of the principal's wishes in the event the agent is not available. The issue to consider is that the living will limits the authority and flexibility of the agent in that the agent must follow the living will.

Can there be surrogate decision-making in the absence of an advance directive?

It depends upon the law of the particular state. Some states permit "interested" parties to give instructions for the provision of medical care. In such states, the statutes provide for priority of decision-makers. This means that in the absence of an advance directive appointing an agent, state law will determine who, if anyone, has authority for surrogate decision making. In such matters, the hospital or nursing home risk management or ethics committee may have to intervene and determine who, if anyone, has the authority to express the wishes of the patient.

If an individual has both a power-of-attorney and an advance medical directive, will all decisions be able to be made in the event of incapacity?

Generally, if there is a valid power-of-attorney and an advance medical directive, all relevant decisions will be able to be made for the individual in the event of incapacity.

Is it useful to have a doctor's letter with regard to mental capacity?

Without question, the answer is "yes." Financial institutions are concerned with the validity of powers-of-attorney and the capacity of the Alzheimer's patient at the time of the execution of such a document. Therefore, it is helpful to have a note in the patient's medical file and a contemporaneous letter in the attorney's file stating, if it is the case, that the individual has the capacity to execute a power-of-attorney, a trust agreement and/or an advance medical directive.

 

II. PLANNING IN THE LATER STAGES OF ALZHEIMER'S DISEASE

At this stage, there are not as many options. In the event that there has been no advance planning by a patient for either property management or healthcare decision-making and the patient no longer possesses sufficient mental capacity to allow for such planning, court intervention becomes necessary. Courts appoint an individual, usually called a guardian, to make decisions; such decisions vary from strictly financial decisions to health or personal or a combination thereof depending upon the powers decided by the judge.

PROPERTY MANAGEMENT AND MEDICAL DECISION MAKING FOR THE INCAPACITATED IN THE ABSENCE OF PROPERTY MANAGEMENT AND MEDICAL DIRECTIVES

How is a guardian appointed?

A guardian is a court appointment made after a judicial finding of incapacity. The guardian may be a family member, a friend or a stranger who never knew the individual. Because the guardian may not have known the ward, the guardian may be unable to ascertain the wishes of the ward. Therefore, unlike where there are directives of property management and medical decision-making indicating the principal's wishes, the court-appointed guardian will likely apply a "best interest" test for decision-making, which could be contrary to that which the individual actually would have wanted. Had the individual performed the proper planning, the individual's choices would have been followed. Every state has its own laws of guardianship.

What powers is the guardian given?

A guardian is given certain powers over the incapacitated person. If there is an advance medical directive, but no mechanism for property management, then the guardian may be given authority only over property management and the designated advance directive agent will continue to make medical decisions. Similarly, if there is a plan for property management, but no medical directive, it is possible that the court will continue the property management plan put into place when the incapacitated individual had capacity and give the guardian authority only over medical decision-making

Who makes the determination of mental capacity?

Except as otherwise set forth in a state's guardianship statute, only a court can make the legal determination of mental incapacity. Generally, a judge will make such determination after observing the alleged incapacitated individual and hearing testimony from an examining psychiatrist and people familiar with the alleged incapacitated individual. Nevertheless certain state statutes have provisions for the determination of mental capacity by physicians in specific instances, especially in the case of surrogate medical decision-making. Also, certain legal documents, such as a trust agreement, may set forth how to determine incapacity so as to remove a trustee.

What can medical providers do to protect themselves when treating patients of questionable mental capacity?

There cannot be informed consent without the requisite mental capacity. An unconsented "touch," e.g., a medical procedure without patient permission, can be an assault and battery, subjecting the physician and provider institution to liability. Therefore, unless there is a specific statutory guideline for the determination of mental incapacity, in cases of questionable capacity, medical providers should consider looking to the courts for such a determination prior to undertaking elective medical procedures, including the transferring of patients to other medical institutions. Medical providers should speak with their legal counsel to best protect themselves and, if necessary, to determine how to expedite a judicial determination of capacity. Should the court determine that the patient lacks mental capacity, then the court should determine who shall be the medical and property decision-maker, as well as the authority of the decision maker (i.e. the guardian or special guardian).

Is it safe for medical providers to make determinations of mental capacity for the execution of legal documents?

Unless otherwise authorized by statute, medical providers should restrict their determination of mental capacity for the execution of legal documents to a determination solely based on "professional opinion." It is the court, if necessary, which will make the legal determination.

 

III. PAYING FOR LONG-TERM CARE

The questions below address concerns involved with financing the long-term care often necessitated by Alzheimer's disease:

Is there insurance available to cover nursing home care?

Long-term care insurance available but it generally require medical examination to qualify.

If I qualify, what should I look for in long-term insurance?

There are certain policy provisions which should be considered. Among them are:

he 'gatekeepers,' which must be satisfied before the policy will pay for the nursing home care: coverage of Alzheimer's-type dementia; possible requirement for a prior three-day hospital stay; number of ADLs (activities of daily life _ feeding, dressing, bathing, toileting and maneuvering) which cannot be performed prior to the policy paying;

the exclusion period prior to payment which should be carefully considered together with Medicare benefits and Medigap benefits; daily coverage and number of months of coverage; an inflation rider;

a waiver of premium so that the insured stops paying premiums once s/he is in a nursing home or receiving care at home and the insurance company has started to pay benefits; and

nonforfeiture of benefits so that should the insured stop paying premiums, there might be some return to the insured on the investment.

Do long-term care policies cover care at home?

Some of the policies cover care at home or offer a combination of care plans, such as six years of homecare or three years of nursing home care or any combination thereof.

Where do I receive information about long-term care insurance?

Check with the department of insurance in your state. The department of insurance probably has a book setting forth the various options available within a long-term care insurance policy. Such information booklets may also compare policies and costs of various insurance carriers. Insurance agents should also be able to provide the consumer with an information booklet prepared by the insurance industry. Information can also be obtained from local departments of the aging and senior citizen organizations. Most important, it is wise to contact several companies and agents before purchasing long-term care insurance. Ask the insurance agents for outlines of coverage summarizing the policy's benefits and highlighting important features. Be sure to compare benefits, facilities covered, exclusions and premiums.

Does Medicare pay for nursing home care?

Medicare payments for nursing home care are very limited. At the most, Medicare will pay for 100 days of nursing home care with a deductible from day 21 to day 100.

What are the criteria for Medicare payment for the nursing home stay?

Medicare will pay only if the following criteria are met: that there was a prior three day in-patient hospital stay; that the hospital stay was within 30 days of admission to the nursing home; and that the nursing home stay is for "skilled nursing care" as defined by Medicare. Further, the nursing home stay must be for the same condition as was the prior hospitalization.

When will I know if Medicare will cover my nursing home stay?

The hospital social worker will be able to tell the patient and/or family the probability of whether Medicare will cover the nursing home stay. The final determination, however, will occur only after admission into a nursing home.

Will Medicare pay for homecare?

Medicare will pay for very limited home health services when the patient is under the care of his physician. In order to qualify, one must be in need of intermittent skilled nursing care, physical or speech therapy or occupational therapy. The services must be provided by a home health agency.

Can life insurance he used to pay for long-term care?

Yes. Certain life insurance companies offer "qualified accelerated death benefits." Under recent changes to the Internal Revenue Code section 101(a), these payments are income tax free. This benefit is payable only if the insured becomes terminally ill, i.e. has an illness or physical condition that is reasonably expected to result in death within 12 months of the date on which the accelerated benefit is paid. Under the new and developing law, there is also another living benefit that can be purchased that provides accident and health benefits upon the occurrence of certain morbidity risks. These insurance benefits should be considered as only one of the methods to pay for long-term care; they should not be viewed as a substitute for long-term care insurance. Prior to purchasing such benefits, the insured should speak with his/her tax advisor as this is a new and developing tax law with specific regulations and there are specific conditions that must be met. Also, there are certain possible income tax deductions available for the payment of the premiums for long-term care insurance.

Will Medicaid pay for long-term care in a nursing home?

Yes, but only under certain circumstances. Because the laws governing Medicaid are a combination of state and federal laws, it is important to check one's own state law. In all states, Medicaid will pay for nursing home care, but only when certain specific conditions are met. Laws governing Medicaid can be dramatically different from one state to another and the differences will accelerate as Congress changes federal laws. Medicaid in some states also pays for homecare attendants.

Does the Alzheimer's patient need to be poor to qualify for Medicaid?

Medicaid is a program for the poor. However, for the elderly and the disabled, Medicaid has become the source of payment for healthcare for many. It is possible to divest oneself of assets in order to qualify for Medicaid. However, when one divests oneself, one creates a period of ineligibility during which Medicaid will not pay for nursing home or nursing home-type care. The longest effective period of ineligibility created by divestment of assets is 36 months from the date of divestment, except in the case of an irrevocable trust with income back to the individual, in which case the maximum period of ineligibility is 60 months from the date of transfer, (if divestment is not done appropriately, one could extend the period of ineligibility). The period of ineligibility is counted from date of transfer and not from date of entry into a nursing home.

Can the Alzheimer's patient divest him/herself of assets after admission to a nursing home?

Generally an individual can divest him/herself at any time, even after entry into a nursing home. However, check local law and be careful of the provisions of the nursing home contract. Under federal Medicare laws, a nursing home cannot evict an individual who has exhausted his/her assets for medical care, who is eligible for Medicaid and for whom the only source of payment is Medicaid.

Does one require special advice as to divestment of assets?

Absolutely. Do not undertake a plan of divestment without expert advice. When one divests, s/he creates a period during which Medicaid will not pay for nursing home care. It is, therefore, important to receive advice from one knowledgeable in Medicaid planning prior to any divestment. Prior to any contemplated divestment, there must be an evaluation of the income and estate/gift tax consequences of such contemplated divestment. Also, it is important to inquire of experts as to whom are legally responsible relatives who can be held liable for payments made by Medicaid.

Can an advanced Alzheimer's patient who does not have the capacity to participate in financial decision-making be divested of assets?

The answer depends upon state law. In many states, it is possible to petition a court for permission to transfer assets. This procedure is generally done within a guardianship proceeding.

Where can one go for advice about planning for long-term care?

Family members and/or friends should consult with legal counsel, tax advisors, insurance agents and financial planners; and local social service agencies, hospital social workers, nursing home social workers and departments of the aging in their municipality. Social service agencies, including hospitals and nursing homes generally maintain a listing of resources for guidance in long-term planning for the Alzheimer's patient.

Are there any other sources of payment to the Alzheimer's patient that should he considered?

Yes, a legally disabled individual who is not yet a recipient of Social Security may be eligible to receive Social Security Disability income if s/he worked a sufficient period of time. Social Security Disability payments are based upon the amount of time worked and income earned; the payments are not subject to an income and asset test. There is no age requirement. Also, after one has been on Social Security Disability for two years, she/he qualifies for Medicare medical coverage.

What if the Alzheimer's patient does not qualify for Social Security Disability payments. Are there other sources of funds available?

If one does not qualify for Social Security Disability, then it is possible to qualify for Supplemental Security Income. To qualify, the individual must be disabled or elderly and have assets not greater than $2,000 in addition to a burial fund of not more than $1,500. The maximum allowable income level changes each year. One should also check the availability of food stamps, senior citizen housing allowances or rent reductions and welfare.

CONCLUSION

It is imperative to seize the opportunity at the earliest possible time to plan for the future financial and medical care for the Alzheimer's patient and his/her family. Consult with the professionals in such planning. An excellent place to begin is with the medical providers who should maintain a current list of resources for information and advice. Medical providers who do not have such resource information should, as a service to their patients, obtain such resource information and keep it available for the Alzheimer's patient and his/her caregivers. By proper planning, the quality of care for the Alzheimer's patient and his/her family and significant others can be enhanced, while providing the appropriate security and peace of mind for those caring for the Alzheimer's patient.


Jay J. Sangerman, PLLC
171 East 84th Street - Unit 21B
New York, New York 10028
Telephone (212) 922-0711
Facsimile (212) 439-0056
 

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