The importance of preparing for diminished capacity

Increasingly, we are seeing clients whose capacity has become a concern, which becomes apparent when they may no longer be able to understand their finances or give proper instructions. Only then do we learn of their incapacity and that their estate plan is non-existent or does not meet their current needs.

Planning ahead helps

Unfortunately, engaging in estate or incapacity planning with individuals with diminished capacity is complicated. For example, they may require or benefit from a more complex estate plan that would be difficult to understand under normal circumstances. Such strategies may be off the table when a person’s capacity diminishes. Furthermore, someone with diminished capacity is much more vulnerable to pressures from other individuals, leaving them open to financial abuse while also preventing them from agreeing to planning safeguards to protect them from that same financial abuse. Estate plans developed under these circumstances are also much more likely to be challenged later by unhappy would-be beneficiaries, claiming that the testator either lacked capacity or was unduly influenced.

In the worst-case scenario, individuals may have altogether lost the legal capacity to update their estate plan, in which case we are left trying to fill the legal void with much more onerous and less effective measures, such as a guardianship application where no Power of Attorney has been executed or where the currently named attorney cannot act.

The importance of having a plan

Having a loved one whose capacity is declining is challenging and stressful. One of the biggest hurdles to obtaining appropriate help for a person with declining capacity is simply having this conversation with that person. Often, individuals are unaware of their declining capacity, or they may try to hide it in an understandable effort to maintain their autonomy.
As difficult as the conversation is, it needs to be had. The consequences of delaying are just too severe. Individuals who no longer have the capacity to update their legal estate documents – including their Will and Powers of Attorney – will have lost the opportunity to provide for the management of their finances and their lives the way they would have wanted.

Too often, we see clients whose finances have been left unattended – taxes not filed, bills not paid, and investments left without proper management – simply because they have no one assisting them when they can no longer manage these items on their own. We have seen cases where clients have allowed an ill-intentioned individual to unofficially take over their finances because it was easier than admitting they needed structured help. Unfortunately, we have also seen families torn apart litigating over mom or dad’s finances, with this being the legacy of the parent’s final years.

We cannot overstress the importance of implementing and maintaining an updated incapacity and estate plan early on. These plans should be reviewed every 3-5 years, potentially more often as a person ages or their health begins to decline. If cognitive issues start to appear, do not delay – seek good professional help early on to ensure the best possible outcome in an undoubtedly tricky situation.

¹ Rising Tide: The Impact of Dementia on Canadian Society, Alzheimer Society of Canada (2010)

source https://rosenbergdri.ca/the-importance-of-preparing-for-diminished-capacity/