As our population ages, the prevalence of dementia and other cognitive impairments that make it difficult to conduct business affairs is on the rise. An aging, demographics, and memory study conducted by the US government found that individuals over age 71 had a 13.9% incidence of dementia, and in those over 90 had a 37.4% incidence of dementia.
Lobo A, Launer LJ, Fratiglioni L, et al. Prevalence of dementia and major subtypes in Europe: a collaborative study of population-based cohorts. Neurologic diseases in the elderly research group. Neurology 2000;54 (11 suppl 5) :S4–9.
As the elderly US population grows, the number of individuals with dementia will also increase, making it important for estate planning documents to address the needs and desires of these incapacitated individuals.
Three primary estate planning documents exist to address incapacity: (1) financial durable power of attorney, (2) a revocable living trust with robust incapacity provisions; and (3) healthcare power of attorney. The first two documents may contain a threshold definition of incapacity in order to trigger the ability of a designated agent or trustee to handle financial affairs during incapacity. The healthcare power of attorney is triggered usually when a healthcare professional determines that one is unable to effectively make or communicate healthcare decisions.
Effective January 1, 2018, North Carolina enacted a new power of attorney statute. It is based on the Uniform Power of Attorney Act which has been enacted in various forms in many states. This new law adds flexibility, gives clarity to many issues concerning powers of attorney and gives more complete guidance. Our Firm is updating powers of attorney executed prior to the new law with provisions based on the new statute. All powers of attorneys executed under the new Act need to be acknowledged before a notary, but they do not have to be witnessed.
The new North Carolina Power of Attorney statute has, for example, dropped the term “Attorney-in-Fact” and replaced it with the simpler term “Agent.” The term “Agent” refers to the person appointed under a power of appointment. Another definitional change is that the law now refers to “incapacity” of the principal, and no longer uses the term “disability.” This change is to acknowledge the fact that being disabled does not necessarily equate with being incapable of managing one’s assets or business affairs. The focus is now on the inability to manage property or business affairs.
Financial powers of attorney can either be effective immediately or can “spring” into action upon a triggering event such as incapacity. Therefore, the distinction between incapacity and disability is especially important if you use a springing power of attorney, which only become effective upon the incapacity of the principal. In our Firm, we use a version of the springing power of attorney that becomes effective when and if a Principal signs a Certificate of Effectiveness:
Because of the administrative difficulties in obtaining an
incapacity determination by physician(s), we are recommendingthat
clients consider specifying that they use either an immediately effective power
of attorney or a springing one with a Certificate of Authorization. If a
springing one is used, clients should consider only requiring the determination
of incapacity by one physician. Similarly, the revocable living trust should
specify the triggering events for a determination of incapacity and the passing
of the baton to a successor incapacity trustee. Our Firm is recommending that
clients specify that only one physician determination is needed. Of course, if
a court makes a determination of incapacity, then that would trigger the
succession of trusteeship. Lastly, and although this has not happened in
practice, we also worry about a trustmaker disappearing or becoming incarcerated
for an extended period of time. If a trustmaker disappears then it would be
necessary to manage his or her financial affairs, and a successor incapacity
trustee should be put in place.
 (Ofstedal MB, Fisher G, Herzog AR: Documentation of cognitive functioning measures in the Health and Retirement Study. http://hrsonline.isr.umich.edu/docs/userg/dr-006.pdf (accessed February 15, 2007).)