Chapter 4-5 Estate Planning for Patients With Alzheimer's Disease and Other Forms of Dementia

• Jurisdiction: United States

4-5 Estate Planning for Patients With Alzheimer's Disease and Other Forms of Dementia

People typically put off estate planning until they experience a health crisis. Because of the emotional toll of the ongoing crisis, such a time is not best for engaging in estate planning. When the potential client is suffering from Alzheimer's disease or some other form of dementia, the memory loss and other conditions that accompany the disease make it extremely difficult for an attorney called upon to assist the individual to put together an estate plan.

That said, to the extent the individual has recently begun exhibiting symptoms of Alzheimer's disease—which would indicate that the disease is probably in its early stage—his or her family members, acting on the patient's behalf, would most likely be the ones who contacted the attorney to discuss the issue of estate planning. Of course, this raises ethical issues, ranging from a determination of who is the client to conflicts of interest issues. Assuming the attorney can overcome the ethical issues, he or she can develop an estate plan that should include at least three parts—a durable power of attorney, a Last Will and Testament, and a set of medical advance directives. Depending on the value and complexity of the patient's assets and the availability of funds to pay for it, the plan may also include a revocable living trust.

4-5:1 The Texas Durable Power of Attorney

Like all other durable power of attorney statutes, the Texas statute allows an adult principal to designate another person as attorney in fact or agent to make financial decisions on the principal's behalf.⁴⁵ The Texas statute provides that the power may be either "regular" or "springing." The "regular" durable power of attorney grants authority to the agent to act as soon as the principal executes the document.⁴⁶ The "springing" power of attorney grants the agent authority to act only if the principal loses the ability to act for himself or herself—that is, when the principal becomes disabled or incapacitated.⁴⁷ For the power of attorney to be valid, at the time he or she signs it, the principal must possess the requisite mental capacity. In that regard, Texas law simply requires that the principal have the ability to understand the nature of the document he or she is signing and the significance of signing it.⁴⁸ It is also necessary that the power of attorney be notarized.⁴⁹

4-5:1.1 Forms of the Power of Attorney

Texas provides a form for the durable power of attorney known as the "Statutory Durable Power of Attorney."⁵⁰ We provide a copy of this form in Appendix 7. However, the form prescribed by the Texas Estates Code is not exclusive, and attorneys are free to draw up their own or to use other formats.⁵¹

4-5:1.2 The Agent of the Durable Power of Attorney

The Texas statute is clear: The agent is a fiduciary with a duty to account for actions he or she takes under the power of attorney.⁵² Accordingly, the agent is obligated to perform his or her duties pursuant to the standards of good faith and trustworthi-ness.⁵³ Under normal circumstances, a principal who believes that an agent is not behaving according to those standards may revoke the power of attorney and/or seek restitution from the agent for misused funds or other property.

However, Alzheimer's disease presents a circumstance that is far from normal. A principal who develops Alzheimer's disease after having appointed an agent and subsequently progresses into an advanced stage of the disease would lack the mental capacity to object to the agent's self-serving or unscrupulous acts, or to challenge the agent in any way. How, then, can the principal's property and income be protected?

Texas law attempts to protect the mentally incapacitated principal by requiring the agent to maintain records of all actions he or she takes with reference to the principal's property, and to make these records available to the principal or to a court.⁵⁴Even with these safeguards, though, the attorney representing an elderly client in preparing a durable power of attorney should counsel the principal to choose his or her agent wisely. The principal should appoint as agent someone who strikes a balance between having skills and knowledge in asset management and being trustworthy and willing to always act in the principal's best interest.⁵⁵

But what if, notwithstanding all the safeguards put in place and precautions taken, the agent acts or continues to act in a manner contrary to the best interest of the principal? What hope exists for the principal and his or her family members?

Texas law provides an avenue whereby, notwithstanding the principal's mental incapacity, the agent can be removed. If, after a principal has executed a durable power of attorney, a court sitting in the principal's domicile appoints a guardian of the estate of the principal—either permanent or temporary—the powers of the agent will terminate and the agent will turn over to the guardian all of the principal's property in his or her possession.⁵⁶

4-5:1.3 Termination of the Power of Attorney

Several circumstances can give rise to a termination of a durable power of attorney:

1. The principal dies.⁵⁷
2. The principal revokes the power of attorney.⁵⁸
3. The power of attorney provides that it terminates.⁵⁹
4. The purpose of the power of attorney is accomplished.⁶⁰
5. The agent's authority to act under the power of authority terminates and the power of attorney does not provide for another agent to act in his or her stead.⁶¹
6. A court of competent jurisdiction appoints a guardian of the principal's estate and such guardian is qualified to serve in this capacity.⁶²

Notwithstanding the aforementioned provisions, a revocation of a durable power of attorney is not effective as to a third party relying on the power of attorney until the third party receives actual notice of the revocation.⁶³

To ensure that all parties are aware that the principal has terminated the power of attorney, the Texas Bar recommends that the principal mails a form to all concerned parties. A copy of this form is included in Appendix 8.

4-5:1.4 Termination of the Agent's Authority

Just as the power of attorney can be terminated, the agent's authority can also be terminated. The following circumstances can give rise to such termination:

1. The principal revokes the agent's authority.⁶⁴
2. The agent dies, becomes incapacitated, is no longer qualified, or resigns.⁶⁵
3. The agent's marriage to the principal is terminated through divorce or annulment or is declared void and the power of attorney does not provide for the agent to continue in this role notwithstanding such an occurrence.⁶⁶
4. The agent's authority terminates.⁶⁷

4-5:2 The Last Will and Testament

To be valid in Texas, a Last Will and Testament must satisfy four requirements: (1) the testator must possess legal capacity,⁶⁸ (2) he or she must also possess testamentary capacity,⁶⁹ (3) the testator must also demonstrate the necessary testamentary intent,⁷⁰ and (4) the testator and all parties involved in the will execution ceremony must adhere to certain formalities.⁷¹

4-5:2.1 Legal Capacity

Someone has legal capacity to execute a Last Will and Testament in Texas if the person is either 18 years of age or older, is or has been married, or is a member of the armed forces of the United States of America, an auxiliary of the armed forces of the United States, or the United States Maritime Service.⁷²

4-5:2.2 Testamentary Capacity

Testamentary capacity refers to the "sound mind" part of Texas Estates Code § 251.001. Someone possesses testamentary capacity to execute a Last Will and Testament in Texas if he or she has the mental ability to understand:

1. the business in which he or she is engaged;
2. the effect of making a Last Will and Testament;
3. the nature and extent of his or her property;
4. the persons who are the natural objects of his or her bounty (e.g., his or her relatives);
5. the fact that he or she is disposing of his or her assets; and
6. how all these elements relate so as to form an orderly plan for the disposition of his or her property.⁷³

4-5:2.3 Testamentary Intent

A testator possesses testamentary intent if, at the time of signing his or her Last Will and Testament, the testator intends to make a revocable disposition of his or her prop-erty.⁷⁴

4-5:2.4 Formalities

Texas requires that certain formalities be followed for a Last Will and Testament to be valid. The formalities that need to be followed depend on the type of Last Will and Testament the testator is making.

Texas recognizes two types of wills: attested and holographic.

4-5:2.4a Attested Will

To be valid, an attested Last Will and Testament must be in writing, signed by the testator or by another person at the testator's direction and in the testator's presence, and attested to by at least two credible witnesses who are...