Practical Considerations in Dealing with Incapacity
“Practical Considerations in Dealing with Incapacity,” that’s the subject of today’s ACTEC Trust and Estate Talk.
This is Toni Ann Kruse, ACTEC Fellow from New York. Today, we will build on previous podcasts regarding clients with incapacity and, specifically, practical considerations in estate planning and litigation when dealing with incapacity. ACTEC Fellows Brad Gallant of New Haven, Connecticut, and Julia Meister of Cincinnati, Ohio, will share their thoughts. Welcome, Brad and Julia.
Avoiding Adult Guardianships
Brad Gallant: This is Brad Gallant, hello. One of the things that Julia and I want to make clear to everybody is that this whole talk and our presentation at the ACTEC National Meeting earlier this year is all about how to avoid adult guardianships. And there are a lot of reasons why you want to avoid them.
There are ethical reasons, there are practical reasons, and there are also just client relationship reasons. But I think we all agree that 9 times out of 10, an adult guardianship is a disaster for the entire family and the lawyers. From my perspective as a planner, it’s particularly undesirable because it’s very, very difficult to write documents where someone is actually adjudicated, incapacitated, incapable, or whatever the language is in your jurisdiction, but the process is bad one too and Julia is going to speak about that for a second.
Guardianship Challenges and Issues
Julia Meister: Sure, Brad. Thank you. So, yes, we do have this emphasis on avoiding guardianship. Let’s talk a little about that. Why is it that we want to avoid guardianship? Well, anybody who’s seen the movie I Care a Lot, which is fiction but has just enough of a kernel of truth in it to make it of interest and scary to all of us, they know that guardianship means losing control. That’s the main reason that we want to avoid guardianship.
Because your affairs aren’t being managed according to how you did your documents, how you did your plan, they’re being managed completely by a guardian who, although they have guardrails around their conduct, they also have a lot of discretion and control over the life of their wards. Just ask Britney Spears about that. Also, ask those on the Senate committee that has proposed guardianship bills of rights and reform laws. This is a very serious subject that people are deeply concerned about, and rightly so.
When capacity is diminished or lost, we do want to avoid guardianship if we can because it’s distressing, cumbersome, invasive, and frankly inefficient. And the concept of capacity also comes up in litigation where we may be talking about the validity of documents, the validity of certain transactions based on whether a person had capacity at the time or not.
Primarily, though, today, what we’re focused on is thinking about avoiding guardianship, anticipating and dealing with diminished capacity issues, loss of capacity issues, which are going to happen. And what can we do about that in the drafting?
I’m going to throw this back to Brad and say, Brad, can advance planning, doing perfect expert, meticulously drafted documents, entirely avoid the possibility of guardianship, avoid these problems that we confront when we have a person with diminished capacity?
Capacity and Estate Planning Documents
Brad Gallant: Well, Julia, the short answer is no. The better answer is, it depends. In fact, nine times out of ten, avoiding guardianship has more to do with the facts and circumstances that arise at the time the capacity is becoming diminished, with the family dynamics, with the personality of the client. Those are the types of issues that are more likely to determine whether or not you have a contested adult guardianship.
People talk about using powers of attorney as an alternative to guardianship. Sure, that works as long as nobody challenges the power of attorney holder, as long as nobody tries to demand an accounting, tries to allege that there was either incapacity at the time the power was signed, or that other acts were done without capacity.
Another way of approaching the issue is by the use of revocable trusts. But again, depending on who the trustee is, depending on whether or not there are allegations that a trustee- which we’ll talk about later- is incapacitated, whether or not the document was signed at a time of incapacity. And of course, there’s also the issue where the settler of the “rev trust,” your client, decides that she isn’t incapacitated and she wants to take the assets out of the Rev trust, this is really a difficult situation. And when that arises, we usually end up in probate court, as you know, Julia, and that means that someone like you gets involved.
And how does that look from your perspective once we have these beautiful documents, but the family’s still at war?
Litigating Diminished Capacity
Julia Meister: Well, Brad, it certainly is not where you want to be. And I think I hear you saying that even the best-drafted documents cannot account for the human circumstances and practicalities that arise. We just try our best with these documents. But sometimes, as you say, we wind up in disputes, we wind up in court. And so, how does that start?
Well, it usually involves some sort of an expert opining on whether a person has diminished capacity or is incompetent or whatever the standard in the particular case and jurisdiction is. You’re confronted immediately with the issue of: how could a person who knows enough, is aware enough, has enough capacity to understand what’s going on if that person doesn’t want to be evaluated? There’s a process to deal with that. It’s terrible to see it happen because people don’t like it. But there’s a process where a court can order an evaluation by a qualified professional.
What do I mean by a qualified professional? Well, this depends on variations in state law but generally speaking, we’re talking about medical doctors, MDs, Dos. We may be talking about psychologists or psychiatrists. We may be talking about neuropsychiatrists, neuropsychologists, and other particular types of evaluators. And a court can put on an order mandating that an evaluation be performed. And that’s usually what gets things started, but that’s just the beginning.
Brad Gallant: You know, sometimes, Julia, when I’m worried about capacity and I’m worried about a challenge to the documents, I’ll say to my clients, listen, I wouldn’t do this with you if I didn’t feel that you’ve got the capacity- and I wouldn’t if I didn’t feel you had the capacity- to execute these documents. But who cares what I think? And so why don’t we instead get a professional involved who can evaluate you in a place you feel comfortable at home, maybe in their office, but probably at home?
And that way, when that awful niece of yours tries to challenge your will, we’ll have something to roll out right in front of her and say, ha-ha, we’ve got you. In fact, Julia, I’ve seen this work sometimes. And, you know, as a litigator, if the drafting attorney appears with documents signed by a qualified psychiatrist or other professional, doesn’t that pretty much make the case that… that the individual had capacity at that time? Is there very much left to challenge from your perspective?
Challenges to Determining Capacity
Julia Meister: Certainly, it’s argued to be the case that things can be challenged. I mean, challenges are always going to be attempted and made if someone wants to do that. There’s a discovery process where the circumstances of the execution of documents is delved into deeply. Where the qualifications of the evaluator, where biases of the evaluator are explored, where the presence of interested people and the potential influence of those people on the process are explored, all those things.
So, you are pointing out something that certainly is recommended. I highly recommend anyone listening, the ABA’s recently published guide on dealing with clients with diminished capacity (Assessment of Older Adults with Diminished Capacities: Handbook for Lawyers). It contains a very nice primer on how to go about assessing capacity in circumstances like these you’ve been describing, Brad, where perhaps you’re anticipating challenges and you want to have those off, or there’s some other special circumstance that you have to be attuned to.
Brad Gallant: You know, one thing that I’ve found to be quite helpful in dealing with this situation is to get your ducks in a row and get your professional opinion that you have capacity and then create a revocable trust where you have a corporate fiduciary involved. Maybe even take away the role of the individual, if the client is willing to do that, with a power in the individual to remove and replace the corporate fiduciary.
That tends to make life easier as long as the client is cooperative, and it also makes it very difficult to challenge not necessarily the creation of the document but the subsequent acts. Because as far as I know, no one’s ever accused a trust company of lacking capacity. I mean, they may not like certain types of investments, but from our perspective, they have capacity.
But there is another problem, Julia. What if that trustee is not a corporate fiduciary, but a friend or a relative, and that individual starts to have capacity issues? Where do you go then?
Capacity Issues with Trustees and Triggering Provisions
Julia Meister: The first thing you do in either case is look to the documents, see what the document says about removal and replacement of trustees. You look at the statutory and common law of your jurisdiction about the removal and replacement of trustees. And then you’re back to the question that I raised in connection, even with guardianship.
If you’re alleging that a person shouldn’t be serving as trustee anymore because they lack capacity to serve in that office; whether that person is the grantor who originally was serving as their own trustee, then to be followed by a successor, or whether you’re talking about someone who is a successor different from the grantor, how do you get that person to submit to the evaluation that I’ve been talking about? There are ways within litigation to make that happen.
But that is not really where we want to be. You’ve hit on something that I wanted to discuss here, and that’s the notion of transition from the original trustee to successor or from successor to a subsequent successor. And that’s what I call triggering provisions, if you will, leavers that exist in the documents so that, when a person develops a certain type of condition, is not supposed to be serving anymore. And we’ve all seen documents that refer to, for instance, if a trustee develops incapacity if a trustee develops a disability, and things like that. Those definitions can be very important and should not be placed in documents without good thought.
I did a survey of law around the country looking at the Uniform Act, things like that, and I found that there are a number of definitions that we see built into documents that trigger the succession from one trustee to another. And these can be full of ambiguities subject to challenge. My favorite one, an example I’ll give to the audience today, is that we often see a person is incapacitated, incompetent or what have you for purposes of triggering a succession, a successor trustee provision of the trust. And it says if the person’s treating physician says that they are.
So, what’s the treating physician? I looked around a lot of state statutes. And one of my favorites is this example from Montana. In the Montana Medical Marijuana Law, it identifies where a treating physician may write a prescription for a person to receive marijuana at an approved dispensary. Basically, all it requires to be considered a treating physician is that the person has a bona fide physician-patient relationship with the person for whom they’re prescribing. That sounds like something that is not a terribly high bar. And if you had a document that says incapacity or lack of competency as determined by a “treating phsician” and you didn’t have a definition in the document, perhaps you would say, well, in the absence of some type of definition, here’s one from a statute that we might try. And that physician might not have much history with the person at all. Yet a treating physician is whom we’re going to look to in a document to determine whether someone’s got the capacity to keep serving as trustee or not.
Brad Gallant: Well, that is surely, you know, a situation that none of us want to be in.
Julia Meister: Well, Brad, as they say, the best laid plans. We’ve talked about what you can do. We’ve talked about what your objectives are, what you’re trying to avoid. At the end of the day, a lot of this depends on the human beings involved and the courts involved, if it unfortunately winds up in that situation.
And next week, you’ll be hearing from Kim Kamen and Tara Pleat on Tips for Dealing with and Drafting for Clients with Diminished Capacity as a wrap-up to this series on diminished capacity. Thank you.
Toni Ann Kruse: Thank you so much, Brad and Julia, for this wonderful discussion regarding practical tips and considerations in dealing with incapacity litigation. I really appreciate your perspective.
Podcasts for Professionals:
- Professional Responsibility Rules When Dealing With Clients Who Have Diminished Capacity (Dec 2023)
- Steps a Lawyer Can Take to Identify, Understand, and Deal With a Client With Diminishing Capacity (Dec 2023)
- Interacting With Clients and Beneficiaries When Determining Incapacity (Dec 2023)
- Lessons From Lisa Marie Presley’s Estate: Why Use a Corporate Trustee (Mar 2023)
Videos to Share with Clients:
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