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With people living longer, it is important to discuss what happens if a person becomes disabled. What if the person has a stroke and is unable to sign documents, speak, or make medical care decisions? What if a person is unable to perform tasks such as eating, dressing, and handling the normal things of everyday life? Can the person handle his or her financial affairs? Is the person subject to undue influence or fraud by relatives or "friends"?
Most people tend to ignore these matters as long as the person is alert and able to fend for himself or herself. But sometimes children find an aged parent who is throwing away uncashed checks, mail, and other legal documents. Or perhaps a relative is giving funds to people who phone saying that the relative has won a contest or new car and request a $5,000 or $10,000 payment. Or the relative gets a telephone call and it is later discovered that the older relative has purchased $5,000 worth of vitamins, using a credit card. Or the relative puts important papers in the refrigerator or under the bed or in some other hidden place. Or the widowed father in his 80s is giving away large amounts of money to his new 23 year old girlfriend.
Alzheimer's or other diseases can be devastating for a spouse or children who are attempting to cope with the illness and to help the spouse or parent. In addition to all of the emotional problems which are involved, there are many legal questions which arise and must be addressed. If the individual lacks the capacity to understand what he or she is doing, then he or she cannot sign a living trust agreement, will, power of attorney, or other document. Documents must be signed before the person becomes incapacitated. A number of legal options are available if planning has been done prior to incapacity .
It is possible to hold virtually any asset in joint tenancy. Mary Doe places her home, securities, and bank accounts in joint tenancy with her two children. She later has a stroke and is totally incapacitated. What can the children do now in terms of managing her assets?
If bank or savings and loan accounts are in joint tenancy, normally any one of the joint tenants can deposit checks, even without the checks being endorsed, and can write checks or make withdrawals from the account. Dividend and interest checks which are payable to Mary Doe can still be deposited into the joint account. Checks can be written and bills paid. However, stock and real estate which are in joint tenancy require all of the joint tenants' signatures before taking any action. If the children wish to sell a portion of the stock, they must get their mom to sign the stock certificates, have a power of attorney from her, or obtain a court ordered conservatorship.
If any legal matters have to be undertaken, such as signing income tax returns or other legal documents, the children will be unable to do so without a power of attorney or a conservatorship. Joint tenancy works well for bank and savings and loan accounts, vehicles, and United States Savings Bonds, since any one of the joint tenants can take action. It does not work for securities, mutual funds, or real estate because all of the joint tenants must sign before any action can be taken.
California law provides a court procedure if a person becomes so incapacitated that the person is unable to feed or cloth himself or herself or look after his or her financial affairs. This is a complex, costly, and time consuming process. Because the person is alive, the legislature has built in a number of safeguards to protect the person's rights.
Many times people say that their minister or physician recommended that the person act as "conservator" for a relative. In many cases, the person is handling the relative's affairs without difficulty. The general recommendation is not to use a conservatorship unless it is absolutely necessary and there are no other alternatives available
A conservatorship is a legal action filed in the county superior court where the incapacitated person (called a "conservatee") resides. The petition is set for hearing by the court approximately 60 days after it is filed. The proposed conservatee must either appear in court or have a physician declare that he or she is physically or mentally unable to appear in court. If the person is unable to appear in court, the court will appoint an investigator to interview the proposed conservatee and to report back to the court.
In addition, a citation must be personally served on the individual, and a notice of the court hearing must be given to certain other relatives, such as children, parents and brothers and sisters. If the proposed conservatee indicates that he or she objects to the conservatorship, the court must appoint an attorney to represent the conservatee.
Once the conservator is appointed, an inventory must be filed with the court listing the assets and their current value. No assets can be purchased or sold without court approval. An accounting of all funds received and disbursed must be filed with the court one year after the appointment and every two years thereafter.
The conservatorship continues until the person regains his or her capacity to manage assets or until his or her death. Younger people may recover but conservatorships for older people (over age 70) usually continue until death, when a probate is generally necessary.
Because of their costs and cumbersome nature, conservatorships should be undertaken only as the last resort. Unfortunately, if the proposed conservatee had done no planning, such as establishing a living trust or executing a power of attorney, a conservatorship proceeding may be required.
One alternative to a conservatorship is for the person while legally able to execute a "durable power of attorney." A power of attorney is a document signed by the person and notarized, which gives someone the right to legally act for the person. California has enacted legislation which governs the making and handling of powers of attorney.
The power of attorney should also indicate that it continues if the principal becomes incapacitated. This makes it a "durable" power of attorney. If such a statement is not in the power of attorney, then it terminates upon the principal's incapacity. A power of attorney, whether durable or not, always terminates when the principal dies.
The power of attorney can be very broad, and it gives the agent or agents power to sign for the principal, sell assets, make gifts, and other things. It is possible for the courts to review the actions taken by an agent under a power of attorney. This protects the principal to some degree, but it can impose a burden on the agent who must later account for all of his actions and decisions.
Most powers of attorney are "general" powers of attorney. They are effective immediately, giving the agent very broad authority and continuing until revoked by the principal or until the principal's death. The power of attorney can be revoked and canceled by the principal at any time.
A few powers of attorney are "limited" powers of attorney. These either continue for a short period of time, such as when the principal is out of the country on a long trip for six to eight months. Or the power of attorney may be for a specific asset. For example, the principal and his brother own the family home after the parent's death. The brother is attempting to sell the home which is in another state. Rather than have all of the legal documents signed by both brothers, one brother may give the other brother a limited power of attorney which allows him to sign all documents with regard to the sale of the home. It does not extend to any other assets.
The organization the agent is dealing with may decline to accept the power of attorney. Banks and savings and loan association often have their own form of power of attorney for accounts at the institution. Many insist that their forms be used and will refuse to accept any other power of attorney. The choice is to use their form or get involved in a lengthy and costly lawsuit with the financial organization.
Many title companies will not accept a power of attorney if the power of attorney is too old, or "stale." To them, a power of attorney that is more than six months old may not be acceptable.
While California law relieves any person or organization receiving a power of attorney from any liability in connection with the power of attorney, it still is not always accepted by everyone, despite the fact it is legal and valid.
California has enacted legislation which creates a uniform statutory form power of attorney. If the law is followed, a simple form is filled in, signed, and notarized. This form can be obtained from most stationery stores.
Many people use a living trust in connection with the person's estate plan. Under the living trust, a trustee is appointed to manage and run the trust. Generally the creator of the trust acts as his or her own trustee. Upon the person's incapacity, death, or resignation another named trustee takes over the management of the trust. Incapacity is usually defined as a case where two doctors who have examined the trustee state in writing that in their opinion the trustee is not able to manage his or her financial affairs. No court procedure is required.
For instance, Mary Doe establishes a living trust with herself as the initial trustee. She transfers all of the assets which she owns to the trust. She becomes incapacitated and under the trust agreement her daughter is named as the successor trustee. With the two doctors' certification the daughter may legally take over the management of all of the trust assets.
A living trust avoids probate and also avoids problems caused by the trustee's incapacity. For the trust to be effective, the person must have signed the living trust, transferred assets to the trust, and have provision in the trust to cover incapacity.
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