In Brief

As the country’s population ages, increasing numbers of people find themselves experiencing conditions of chronic illness. CPAs that serve such clients can tailor their financial advice to the conditions faced by individuals suffering from serious diagnoses. One diagnosis in particular, dementia, is the subject of the following conversation between a CPA/financial planner and an elder law attorney. Their discussion will likely answer questions that many CPAs have regarding assisting clients in similar circumstances.


Sidney Kess: We see so many of our clients and loved ones who have been diagnosed with Alzheimer’s Disease or other forms of dementia. They slowly, but sometimes rapidly, deteriorate before our eyes. Their memories wane, particularly their capacity to recall things that recently took place. The following discussion covers some of the most important items a person with a new dementia diagnosis should consider and what we—as their loved ones, caretakers, CPAs, and lawyers—can assist them with in this very challenging time.

Elizabeth, what are some of the items that an individual with a recent dementia diagnosis should consider in the realm of estate planning?

Elizabeth Forspan: Sid, thank you so much for bringing this important topic to the fore. Unfortunately, we see so many situations where our clients or their loved ones are diagnosed with dementia. It’s very scary for clients and for their family members. A new diagnosis is certainly a good time for individuals to review and perhaps reevaluate their estate plans. But I would say that the single most important item to be reviewed is their power of attorney (POA). In most cases, the POA is the single most important planning document.

A POA is a legal document whereby an individual appoints someone else to make legal and financial decisions for them. In the absence of a valid POA, if individuals become incapacitated, their family members may be forced to petition the court to have a guardian or conservator appointed for them. This can be an incredibly costly, time-consuming, and heart-wrenching experience, particularly when family members do not agree about whom should be appointed as the guardian or conservator.

Crafting the Power of Attorney

Kess: Are there specific provisions that these POAs should include? Must they be specific?

Forspan: Like many legal documents, the POA is only as important as its terms and provisions. As we age, as our loved ones age, and as those in our lives are diagnosed with dementia, we need to think about the things we might need to rely on others to do for us, particularly if we become incapacitated—in short, the answer could be everything. We want to make sure that we give our agent, the person whom we appoint to make decisions for us, the ability to do anything that we would have been able to do were it not for our incapacity. Therefore, in most cases, I would suggest that the POA be as broad as possible. Of course, there are exceptions to this rule, but just think of the scenarios that might arise.

As an elder law attorney, I’ve seen so many situations where a good POA would have saved the family members significant time, money, and effort. I’ve had a number of situations where relatively young individuals became incapacitated—because of an accident, stroke, or some other event—and guardianship proceedings were still necessary.

For example, we were involved in a case where a man in his mid-50s suffered a stroke. This man had a wife and young children who were still in grade school. Even though he had a POA, it was a POA that did not allow for his agent to take the actions that were needed in that situation; in this case, transferring assets from the husband’s name to the wife’s name so that the family could apply for Medicaid on his behalf. The POA simply did not allow for the agent to make gifts of his assets in excess of $500 per year. This is a recurring theme in many of the guardianship proceedings in which I’ve been involved.

Although giving someone else the ability to make unlimited gifts and transfers of one’s assets can seem frightening, I would say that it is essential to include such provisions.

Unfortunately, too many people execute POAs without the proper gifting authority. A limitation of $500 or the annual federal gift tax exclusion (now $17,000 per donee) in a POA just won’t be sufficient if an individual’s family needs to remove assets from the individual’s name in order to qualify for Medicaid or other means-tested government benefits.

Although giving someone else the ability to make unlimited gifts and transfers of one’s assets can seem frightening, I would say that it is essential to include such provisions, particularly if there is a concern about dementia or incapacity, as those individuals will likely require government benefits at some point.

Kess: Are there reasons other than Medicaid planning that an individual would want to include additional gifting provisions in their power of attorney?

Forspan: Yes. I’ll give you another example: Say you have a relatively wealthy client who is engaged in ongoing estate tax planning, as many of our clients are. This individual may engage in annual gifting either directly to descendants or to irrevocable trusts. If the individual doesn’t have a POA, or if the POA doesn’t allow for sufficient gifting, then the agent will be prohibited from continuing to engage in this important estate and gift tax planning strategy once the individual has become incapacitated. This could have a significant tax impact upon the family.

Kess: Other than gifting, what are some other important provisions for the POA to include?

Forspan: The POA should, in almost all cases (of course there are always exceptions), permit the agent to create, fund, amend, and revoke trusts; again, this will help achieve the principal’s estate and gift planning goals. Individuals should also consider allowing their agents to change beneficiary designations, purchase life estates in real property, engage in broad real estate transactions, access digital assets, and other similar actions. In essence, a really good POA will allow the agent to “step into the shoes” of the principal. It is impossible to imagine exactly every scenario that may arise; this is why it is generally beneficial to have a POA that is as broad as possible. Of course, principals must trust their agents and must also have a clear understanding of which powers they are giving the agents. Attorneys should also explain the potential legal implications of a situation where the agents do not act in the best interest of the principals, or where the agents act in a way that is not concordant with the principals’ directions. This highlights how important it is for individuals to execute these documents while they still have the capacity to understand all their various implications. Not only does the law require it, but common sense also dictates that principals fully understand the documents before they execute them.

Kess: Do you think all individuals who have recently been diagnosed with dementia should engage in Medicaid planning? Are there situations where they might not?

Forspan: For the majority of seniors, or even those younger individuals who have a recent diagnosis, the cost of the care that they will eventually require is huge. Both home care and nursing home care, for those who require it, are extremely expensive, particularly for individuals who require around-the-clock care. Thus, for most, it is important to consider engaging in Medicaid planning. Medicaid planning will allow the individual the ability to plan for the eventuality that they will require expensive care. If done far enough in advance, individuals might be able to protect most, if not all, of their assets.

But Medicaid planning is not for the wealthy, of course. Many of our clients do not need to engage in Medicaid planning because they either have sufficient funds to pay for their care or they have adequate long-term care insurance (LTCI). LTCI can be great, but sometimes it is insufficient to pay for the full cost of care. People should not wait until there is a dementia diagnosis in order to review their LTCI policies! There are so many situations where people have LTCI policies, but the daily amounts that these policies pay out is just too low and they don’t come close to covering the cost of care. For example, if nursing costs are $600 per day and the LTCI policy pays for $150 per day for a maximum of two years, that’s just not going to go a long way.

For those who are “wealthier,” with sufficient funds to cover the cost of care, Medicaid likely won’t be something these families consider. But nevertheless families should always have a plan for covering LTC costs.

Kess: From a healthcare perspective, are there specific documents that an individual with a recent dementia diagnosis should rush to finalize?

Forspan: Yes. Every adult, whether they are recently diagnosed with an illness or not, should have a healthcare proxy (HCP) or health directive. An HCP is a document wherein an individual appoints someone else to make healthcare decisions for them if they should become incapacitated and unable to make those decisions on their own. Like the POA, the form will vary by state. Moreover, some states will allow individuals’ closest relatives to make substituted healthcare decisions, even where there is no healthcare proxy; however, a person’s closest relative is not always the “right” person to make those types of decisions. Thus, it is important for everyone, particularly those with a recent dementia diagnosis, to appoint the person whom they trust the most to make healthcare decisions for them should they become incapable of doing so themselves.

There are other documents that, depending upon the situation, an individual might want to consider. A living will is a document wherein an individual can make end-of-life decisions known. For example, many people specifically want to ensure that if they are in a vegetative state, or so chronically ill that there is no chance of recovery, that they do not want to be kept alive by artificial means. Others want to ensure that they live their remaining days at home, rather than in a hospital. Directions like these can be included in a living will.

For the majority of seniors, or even those younger individuals who have a recent diagnosis, the cost of the care that they will eventually require is huge.

Kess: On a different note, if someone is diagnosed with dementia, can a new last will and testament still be executed?

Forspan: We need to remember that just because someone has been diagnosed with Alzheimer’s, dementia, or mild cognitive impairment, it does not mean that they cannot make decisions. The legal standard for the requisite capacity to execute a will varies from state to state. In New York, for example, the capacity required to execute a will is less than that required to execute a POA or a contract. The New York statute that governs who may or may not execute a will only requires that the testator be at least 18 years of age and “of sound mind and memory.” [New York Estates, Powers, and Trust Law section 3-1.1] New York courts have expounded upon this to require merely that the testator 1) understand the nature and consequences of executing a will, 2) understand the extent of their property that they are disposing of, and 3) know who the natural objects of their bounty and their relations are [see Matter of Slade, 106 A.D.2d 914 (1984) and Matter of Flynn, 71 A.D.2d 891 (1979)].

In essence, if the person executing the will understands what will result from it, what their property is, and who their family members are, then they have the requisite capacity under New York law. An individual who has been diagnosed with dementia, particularly one with a recent diagnosis, may very well (and very easily) meet this standard. But it is important that such individuals not delay in getting their affairs in order because, unfortunately, dementia is generally degenerative, and they may come to the point where they can longer meet the standard.

Helping Hands

Kess: Over the years, I have encountered so many examples of elderly or disabled individuals who didn’t have family members who could care for them. Is this something you have seen? And, if so, which specific recommendations do you have for people in these circumstances?

Forspan: We encounter this all the time in our law practice. For elderly individuals whose children live far away or for those with no family members, I generally recommend that they consider engaging the services of a geriatric care manager or a private patient advocate. These professionals charge for their services, but they are generally so helpful. They can help set up doctors’ appointments, arrange for the hiring of home health attendants, help pay bills, and purchase groceries, among other things. I’ve seen how these professionals remain connected with their clients for years, and in some cases, decades. While no hired professional can ever really replace a trusted family member, some of these dedicated individuals come really close.

Unfortunately, many of the victims of elder abuse are those seniors (and sometimes younger individuals) who don’t have many family members with whom they are actively involved.

Kess: On that note, do you think it’s important for individuals to hire someone who is significantly younger than them, or is it okay for them to hire someone around their age?

Forspan: That’s a very tough question. While it may sound like a no-brainer to hire someone a lot younger than yourself to be your POA or health-care agent or even your care manager, sometimes the best person for that job is actually not far from your own age. I would say that it really depends on the individual’s specific situation. If an individual appoints an agent or care manager who is close in age, however, they should probably make sure to appoint or hire a successor who is younger.

Dealing with Difficult Circumstances

Kess: I know that you see many unfortunate situations where people in their 50s are diagnosed with Alzheimer’s. Are there special considerations that such individuals should focus on?

Forspan: Certainly, everything we’ve discussed until now is applicable to such people. And yes, these situations are heartbreaking. Particularly because these individuals often have young children, some of whom haven’t yet finished college or gotten married. One item that a younger person with a recent diagnosis should consider is possibly applying for Social Security Disability Insurance (SSDI) benefits. If individuals are still working or have recently stopped working, then they may be able to avail themselves of SSDI benefits. Additionally, they should look into whether their employer has a long-term disability policy and whether they are covered under such policy. Moreover, the individual might also have a private disability policy that may pay out considering the individual’s inability to continue working.

Kess: I have seen situations where those with dementia have fallen prey to elder abuse, both financially and physically. What can people do to protect themselves?

Forspan: Elder abuse is a terrible reality in our time. There are people out there—more than you can imagine—who search for those who are elderly, disabled, or otherwise unable to appreciate the consequences of their actions. There are so many scams and scammers out there. Unfortunately, many of the victims of elder abuse are those seniors (and sometimes younger individuals) who don’t have many family members with whom they are actively involved. Even more sadly, there are times when elder abuse is committed by the family members themselves. This is why it is so important for people to make sure that their advance directives (POA and healthcare directives) are in order and that the professionals in their lives (e.g. physician, attorney, geriatric care manager) are fully briefed on whom the individuals have chosen to make these important decisions when they themselves cannot. If individuals have recently been diagnosed with a disease that may be likely to cause memory loss or impairment, they must act to get their affairs in order and make sure that they are not inadvertently placed in a position where they could be taken advantage of.

On this note, I would also highlight how important it is for those of us who service the elderly and disabled as clients to advocate for laws that protect the most vulnerable and disadvantaged among us.

Sidney Kess, JD, LLM, CPA, is of counsel to Kostelanetz LLP and a senior consultant to Citrin Cooperman & Co. LLP, New York, N.Y. He is a member of the NYSSCPA Hall of Fame and was awarded the Society’s Outstanding CPA in Education Award in May 2015. He is also a member of The CPA Journal Editorial Advisory Board.
Elizabeth Forspan, JD, is a partner in the New York–based law firm Forspan Klear LLP. She focuses her practice on estate planning, elder law, and taxation. She is also a member of The CPA Journal Advisory Board.