Things just aren’t the same anymore. Going up and down the stairs is a lot slower these days. Using a grabber is a lot easier to use than trying to bend down and pick things up off the floor. Going down the driveway to the mailbox is more tiring than it once was. As you get older, you notice that you just can’t do things as easily or as well as you once did.
This is all part of your natural life cycle. As you age, there is a gradual decline in your physiological systems. Your body just starts to slow down. These new physical limitations are usually pretty obvious to you. However, as you get older, not only does your body slow down physically, your body also slows down mentally. You may become forgetful and lose things more than you used to in the past. You may make decisions that were unheard of before or you thought were foolish in your younger years.
These decisions may not seem so foolish to you now. This may not appear so obvious to you, but it usually is painfully clear to your loved ones. You may start making unwise or inappropriate financial decisions. You used to just throw out the sweepstakes “winner” notices you received in the mail. Now you are opening and reading them and occasionally respond to them.
You have a little nest egg, but you start giving it to loved ones now so you can see them enjoy it, even if it causes things to be a little tight for you financially. These gifts are larger than the ones that you ever used to make. TV infomercials and QVC have become more interesting to you. Viewing these programs rarely triggered a purchase before. Now you start buying household gadgets which appear that they are going to make your life easier. But, the miracle products you purchase in these buying sprees never seem to work out as advertised.
You had always been a saver. But now you start going through more of your savings than you ever did before. You may spend it on yourself. Or you may spend it on your “new best friends”, who are more than happy to accompany you to the bank when you are making withdrawals. Some of these decisions you are making now, you would have thought really stupid 20 or 30 years ago.
Your loved ones try talking to you about these decisions, but you do not listen to them. It is none of their business. It is your money; you can do with it as you please. You tell them, “I can handle it myself!” You may limit or even cut off contact with your loved ones, who say they are trying to protect you. You spend more time with your “new best friends” or long lost relatives, who are more understanding of your new spending habits.
If you have done no planning or just have a financial power of attorney instead of a trust, there is little that you loved ones can do to protect you or give you assistance that you now do not want. Your loved ones may not be able to go to probate court to appoint a conservator if you are only making unwise or inappropriate decisions.
In these situations, the court can only remove your authority of handling your own financial affairs if there is “clear and convincing” evidence that you are unable to manage your property and business affairs effectively. Clear and convincing evidence is a pretty high standard, much higher than a more likely than not preponderance of the evidence standard used in most civil cases. As typically applied in practice, the “clear and convincing” standard generally requires proof which leaves no reasonable doubt concerning your inability to manage your property and business affairs effectively.
If it is just more likely than not that you are unable to manage your financial affairs effectively, there is little that the court can do. The court cannot protect you from just making poor choices. The court can’t fix stupid. You may be just “old and funny”. That does not necessarily mean you are legally mentally incapacitated.
One way of protecting yourself and your assets from making inappropriate financial decisions is to have a fully funded revocable living trust with sufficient disability instructions. A “fully funded” revocable living trust is a revocable trust in which your trust and/or appropriate individuals are named as owner, beneficiaries and/or additional insureds on all of your assets. This includes all of your assets, from your bank and investment accounts to your IRAs and retirement accounts to your home and homeowner’s insurance.
In your fully funded revocable living trust, you can set the standard of when your authority to manage your trust is to be removed and who is to make that decision. You do not have to rely on a court to make that decision by clear and convincing evidence.
Most of my clients with trusts, use a disability panel made up of at least three loved ones who know them, and make the determination that they are unable to effectively manage their property and financial affairs. With a disability panel that you name, you choose the persons that determine your mental disability in accordance with your instructions. You can choose people whom you trust and who know you the best. Your disability panel members do not necessarily have to be loved ones, they can include one or more medical professionals, such as a doctor.
You can designate that your disability panel make your mental disability decision either unanimously or by majority rule. Once the appropriate number of your disability panel members sign your disability certificate, you are out as trustee. After your successor trustees sign acceptances of trust, they can then take over for you to manage your trust property and financial affairs. For IRAs and other assets for which your trust is named as beneficiary, the disability certificates can be presented to the financial institutions and your financial power of attorney can then handle those accounts. No muss, no fuss and no court involvement.
If you have loved ones saying that you are not making the wisest financial decisions then you should take step back. The natural reaction is to become defensive and say “I can do it myself”, sometimes very emphatically. When that occurs, you may want to think twice about the response of doing it yourself. Although you may have been doing it yourself for the last fifty. sixty, or seventy years, there may come a time when you cannot effectively manage your property and financial affairs.
When you have a fully funded revocable living trust with your chosen mental disability provisions, you can make sure that you are in control while you are alive and well, you and your loved ones are protected in the event of your mental disability, and after you are gone, you can give what you have to whom you want, when you want, the way you want.
By: Matthew M. Wallace, CPA, JD
Published edited November 25, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Recognizing the need for assistance