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Protecting Your Assets: Capacity Considerations

The key to having your legal affairs in order is putting the right documents in place before you need them.

By Patrick Simasko and Luke Stempien

Welcome back to part three of our elder law series titled, “A Guide to Protect Your Assets as You Age.” This month, we are focusing on capacity and competency issues that may arise when planning out your or your loved one’s estate. We call this segment the lock-and-key. To get to your tools, you need the key. Let’s start with a question.

Simasko, Patrick

Patrick Simasko

“Mr. Lawyer, you keep telling us we need to get our ducks in a row but our parents are in their 90s, is it too late?” Well, the easy answer is, “Who knows!”

Age is never a barrier to getting your legal affairs in order. You can be 100% mentally competent at age 102 or you can be completely incompetent at age 22. The key is getting things signed up before it’s too late. It becomes too late when you stop having good days or even good parts of the day, or in legal terms, when you become mentally incompetent.

Luke Stempien

Luke Stempien

Mental incompetency means a person is impaired because of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, or other cause not including minority, to the extent they lack sufficient understanding or competency to make or communicate informed decisions. Now, here is our $20 phrase of the day, “Mental competency is transient.” It comes and goes. You can have good days and bad days; good mornings and bad nights.

Let me, Patrick, dive into my own experience with this situation. I met my wife at a nursing home. Her father had dementia at age 54. He never signed a power-of-attorney, so I prepared one for him. Sounds simple, but I had to go back four times to catch him on a good day where he could understand what the document was, who he was picking to be his agent and what authority he was giving. We finally got him when he was having a good day, what we call a lucid moment. Families dealing with dementia will completely understand this concept. Sadly, he did pass away a few years later, but after 27 years of marriage, my wife and I have three beautiful children.

simasko family

So, how was I able to sign this document with my father-in-law? Because having the mental ability to create and execute estate planning documents goes by its own set of rules. You need to have testamentary capacity. Testamentary capacity means you’re of sound mind to comprehend your property, understand who your family members are, and finally, understand who you want to inherit your property.

This is opposed to what’s known as contractual capacity. Contractual capacity is a higher level of competency that is harder to prove, if questioned. So, being sick, eccentric, or really old does not automatically prevent you from signing your documents, but it definitely comes into play if they are subsequently challenged. How competent do you really have to be to leave everything to your three children? That’s between you and the person signing. But, if you are cutting out your children because you decided to leave everything to that pretty caregiver that you just hired last week, you better be extremely competent in order to make that decision.

Now truthfully, you don’t need an attorney to prepare these documents. But if you do, it’s the attorney’s job to ensure that you understand what is going on when you sign the various legal documents. Attorneys are looking for red flags. For example, an involved child bad-mouthing their siblings as if Mom was the one mad at them; the overly helpful neighbor or friend; family disputes with living arrangements, caretaker roles, visitation, or loans of money; verbal abuse; recent moves to a new home or new city; fear of the child because they are the caretaker; isolation of the parent; turning them against their other children; or, more innocently, Mom is rambling, is incoherent or still believes Ronald Reagan is the president. Attorneys should always have a plan of action to make sure the client is mentally competent and not unduly influenced. When situations arise, the attorney must be able to take the appropriate steps to protect the client.

All-in-all, the key is to plan as early as possible while there is no question to your competency. Don’t wait until the last minute because sometimes that last minute is just too late. Find an experienced elder law attorney in your area to sit down with you or your loved ones. Also, as children, don’t forget that your parents could be in denial, so you’ll need to figure out what to do. As the holidays approach, it might be the perfect time to have that “family meeting” to talk about the plan for the future. A word of caution though, your family and you need to stick together. Parents hate to see their children fight. So, don’t. It’s not worth it. Who cares that your sister borrowed your sweater 35 years ago and didn’t give it back? Be a united front to help take care of Mom and Dad. You only have one family and it’s not worth losing them over petty things or money.

Read the other articles in this series: Guide to Protect Your Assets as You Age - Power of Attorneys and Protecting Your Assets: Joint Accounts and Beneficiary Designations.

About the Authors:

Patrick Simasko

For more than 20 years, Patrick has dedicated his legal career to the practice of elder law. As a partner with Simasko Law in Mt. Clemens, MI, he helps families plan for their future, protect their assets and receive the financial and medical benefits available to them. Patrick also conducts seminars and workshops across the country to educate communities about elder law, financial planning and Medicaid, as well as VA Benefit Aid and Attendance.

Luke Stempien

Luke Stempien is a current law student at WMU-Cooley Law School. He works at Simasko Law Office in Mt. Clemens, MI, where he hones his estate planning skills and has developed a great understanding of all probate matters. He hopes to continue his career in this field of elder law to better serve those he feels could use his help the most.