PLANNING FOR MENTAL DECLINE

by Monte L. Schatz

When the topic of estate planning comes to mind, most individuals think about the distribution of their assets at death.   The increased longevity of our population requires equal attention to diminished cognitive skills caused by dementia or other diseases that affect normal cognitive functioning.

Dementia is a syndrome in which there is deterioration in memory, thinking, behavior and the ability to perform everyday activities.  An estimated 5.5 million Americans of all ages have Alzheimer’s disease.  One in 10 people age 65 and older has Alzheimer’s dementia.  The average survival time for people diagnosed with dementia is about four and a half years, new research shows. Those diagnosed before age 70 typically live for a decade or longer.  The time frame from mild cognitive decline to the onset of dementia averages seven years.   Typically, when an individual is in the moderately severe cognitive decline, assistance may be required for daily activities and management of the person’s financial affairs.

The difficulties that families encounter is determining when the person no longer can manage their own affairs or maintain his or her own physical well-being.  The ultimate question of capacity is a legal determination and in some cases a judicial determination, not a clinical finding. A clinical assessment stands as strong evidence to which the lawyer must apply judgment considering all the factors in the case at hand.  While psychologists and other health professionals may use different terms than lawyers, conceptually the clinical model of capacity has striking similarities to the legal model.

The best estate planning approach is to take proactive legal steps ahead of mental decline to assure adequate personal and financial care and to minimize unnecessary legal costs or litigation expenses.  The legal tools available to circumvent legal capacity issues include:

  • A will drafted in advance of cognitive decline to minimize heirs contesting an estate.
  • A living trust should be considered to assure proper management of assets and continuity of financial management by a trustee for the incapacitated person’s benefit.
  • A durable power of attorney for financial matters designating a trusted and financially responsible individual to manage assets upon the onset of mental incapacity.
  • A health care power of attorney or directive that provides for a designated person to make health decisions in the event of incapacity.
  • A living will that outlines, in advance, the wishes of a person who receives artificial life sustaining treatment.

Thoughtful estate planning in advance of mental decline can help avoid expensive court alternatives that can include court conservatorships or guardianships during life and/or estate litigation after the person’s death.  More importantly, well designed advanced planning minimizes the possibility of disputes among heirs that may disrupt family relationships.

© 2017 Vandenack Weaver LLC
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Preventing Financial Abuse of Elders

Elder abuse can take many forms, but according to a True Link report, 36.9% of elder abuse takes the form of financial abuse in any five year period. This same True Link report estimates that financial abuse of elders costs $36.48 billion, annually. One particularly challenging area of financial elder abuse stems from high-pressure selling tactics for estate planning tools, such as living trusts, that are unnecessary for the senior.

Although living trusts have many benefits, the seniors targeted by the high pressure sales tactics tend to have few transferrable assets, which makes the benefits of having a living trust relatively small. What’s worse, when a sales tactic is successful and the senior signs up for a living trust, usually that relationship leads to an estimated $2,000 of needless financial products sold to that senior for every $20 lost to the initial exploitation. Overall, this type of financial elder abuse costs seniors an estimated $17 billion dollars, with trust abuse at $6.7 billion, annually.

For elders, prior to agreeing to a living trust or other financial vehicle, speaking to another financial professional will aid in combating these abusive sales tactics. Moreover, if you purchase a living trust agreement in a location other than the seller’s place of business, you have three days to cancel the deal. Finally, take the time to verify any facts presented in a high pressure sales effort.

© 2016 Vandenack Williams LLC
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In re Castellano: A Strike at Third Party Spendthrift Trusts

By Mary E. Vandenack.

In In re Castellano,  a Bankruptcy Court in Illinois applied Section 548(e) of the  Bankruptcy Code to disregard a third party trust containing spendthrift provisions and conclude that the spendthrift trust was a device similar to a self-settled trust and that the assets of the trust were subject to seizure by the creditors of a trust beneficiary who filed bankruptcy.

Faith Campbell created the Faith M. Campbell Living Trust (“LT”) on February 18, 1997 in South Carolina, where she was a resident. The LT provided that upon Faith’s death, its assets would be divided equally among her children. The LT stated that “[upon] the death of Faith F. Campbell and upon settlement of her estate, this Living Trust shall terminate”.  The LT contained a spendthrift clause as follows:

“If any beneficiary should attempt to alienate, encumber, or dispose of all or any part of the income or principal of this trust before it has been delivered by the Trustee, of if by reason of bankruptcy or insolvency or any attempted execution, levy, attachment, or seizure of any assets remaining in the hands of the Trustee under claims of creditors or otherwise, all or any part of the income or principal might fail to be enjoyed by any beneficiary or might vest in or be enjoyed by some other person, the interest of that beneficiary shall immediately terminate…Thereafter, the Trustee shall pay to or for the benefit of that beneficiary only those amounts that the Trustee, in its sole and absolute discretion, deems advisable for the education and support of that beneficiary until the death of the beneficiary or the maximum period permissible under the South Carolina rule against perpetuities, whichever first occurs.”

Faith died on February 11, 2011, survived by all four of her children, including Linda Castellano (“D”), who was a debtor in the case. Bank of America declined to accept its appointment as trustee and in March 2011 Faith’s children, including D, named the husband of one of Faith’s grandchildren (a nephew by marriage) as trustee.

D filed bankruptcy on November 18, 2011. Prior to filing, D’s counsel sent a letter to the trustee of LT indicating that D was insolvent and directing the trustee to set aside and retain any assets that might otherwise be distributed to D in a spendthrift trust. On October 31, 2011, D signed a receipt acknowledging she would receive no distribution from LT.

The court applied Section 548(e)(1) of the Bankruptcy Code to conclude that the assets in the spendthrift trust were subject to seizure by D’s  creditors. The court concluded that D had made a transfer as a result of the combined effect of the letter from her counsel to the trustee, her signature on the receipt, release and refunding agreement and a “familial” Trustee.

 The court concluded that the transfer by D  was to a device similar to a self-settled trust because the trust was created to shield D from creditors and to preserve the rights of D to future distributions from the trust. The court indicated that D had indirectly created the trust by refusing to take a distribution of assets from LT and instead engaging in a course of action that resulted in setting aside her share of LT in the spendthrift trust.

The court’s decision in this case seems flawed. It is our understanding that counsel for D is considering an appeal.

© 2014 Parsonage Vandenack Williams LLC

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What Is a Revocable Living Trust?

A Video FAQ with Ronald K. Parsonage.

A revocable living trust is a document that is created by yourself as the grantor and its purpose is to hold assets for the benefit of yourself and your family, typically during your and their lifetimes. The idea of a revocable trust is that the assets can pass to or for the benefit of your family without probate. It has another very unique value connected to it in the fact that you can coordinate a lot of tax activities by using skip generation planning within the trust and cause the assets to pass down to your spouse, children and grandchildren without being taxed again.

© 2014 Parsonage Vandenack Williams LLC

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