373 North L Street, Livermore, CA 94551

Defining Diminished Mental Capacity

Before the term “diminished mental capacity” was used in constitutional and political discussions, the legal world made this essential to any valid contract or legal document. Courts have historically required a person to know what they are doing when executing a document for it to be valid. With age, mental capacity sometimes fades and can impact your ability to make your wishes properly known. Thus, estate planning attorneys will often evaluate this early on and throughout the process of finalizing the documents.

What is the Standard?

Judging mental capacity can be very hard. There is no clear test. It’s evaluating all the factors surrounding an individual. Some common questions for an estate planning attorney to ask in the process are:

  • How well does the client know their basic information?
  • Do they know the key information about current events?
  • Do they remember prior conversations between meetings?

These are just a few examples but every interaction creates the question of does this client have diminished mental capacity or do they understand what is going on. Usually, this becomes a “gut” feeling that derives from the client’s ability to understand what is going on and the impact it may have. However, a key thing to remember is that any state of mental capacity can change. For instance, if a person is on anesthesia following surgery, they will likely not be able to decide things but shortly thereafter, they may have gained their cognitive ability to make any decision valid.

Legal Impacts of Diminished Mental Capacity

The impact of diminished mental capacity all depends on the extent. California has two standards. Should someone be so “out of it” that they have no understanding, then any agreement will be void. However, if the individual is just not of the right mindset, but have some understanding, the agreement can be rescinded.  

With regards to estate planning documents, the requirements are a bit different that a mere contract.  The key to prevent having a void document due to diminished mental capacity is to ensure the client understands:

  • What is the document saying
  • The assets that are being discussed
  • their relationship to the beneficiaries

If the trust is complex or there is an amendment to the trust, then other requirements need to be met in order to have full “contractual capacity”. The beneficiary must be able to communicate, understand, and appreciate:

  • What their rights and responsibilities are
  • What the impact or impacts are on them
  • Benefits, risks and alternatives to this course of action

This means that the client must be able to understand not only the terms, but also the potential consequences of terms and their alternatives. As a result, an estate planning attorney plans meetings and questions to ensure there is no diminished mental capacity. If a lawyer suspects such, he/she should refuse to prepare such estate planning documents.

If you have questions or believe estate litigation is necessary due to a diminished mental capacity issue, please feel free to contact John Lewman for a consultation.

Filed under Estate Planning Tips

How to Plan for Special Needs Beneficiaries

Throughout your life, assisting your special needs child or relative can take up a great part of your time and tasks. Depending on the scope of their situation, the amount of assistance they need could vary. However, what happens when you’re not around? How does your special needs child or relative get their needs met? We explore various items to think about when discussing things with your special needs planning attorney.

Uniqueness of Special Needs Planning

Unlike most, special needs clients have several things to consider. Such individuals have benefits they receive from the government and local agencies both financially and healthcare. However, these resources could quickly disappear unless your special needs planning attorney properly creates an estate strategy that avoids the pitfalls of losing these critical benefits.

It would be easy for the estate plan to merely provide the assets to the special needs beneficiary. This risks jeopardizing government benefits. Alternatively, you can merely disinherit the special needs relative. This may preserve the government resources but could put the family assets that help him/her at risk. In addition, most of these public benefits are insufficient to provide all the necessary items a special needs relative requires. Thus, consulting with an experienced special needs planning attorney is important. They can help create a quality, intentional plan that benefits all your heirs.

SSI and Medicaid Basics

Supplemental Security Income (SSI) and Medicaid are two of the most common public benefits a special needs individual receives. SSI provides financial income through the federal government to those who are disabled. How do you define “disabled”? It’s a person who is “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.”  

So what does a special needs planning attorney have to keep in mind with regards to SSI? The asset limit for SSI is currently $2,000. Assets include cash, personal property, and real property that can assist the special needs individual. The exceptions to this list are where you live, furniture, clothes, car, and personal care items. Should a special needs planning attorney keeps these in mind, they can arrange an estate planning that would ensure SSI eligibility and vis-a-vis Medicaid qualifications.

Why is Medicaid important? It is the heart of medical benefits for special needs individuals. They generally have higher medical needs so maintaining Medicaid should also be a critical for the special needs planning attorney.

What should a Special Needs Planning Attorney do?

The key starting point for a lawyer is to establish a special needs trust. Such a trust gives a trustee the flexibility and discretion to distribute assets to preserve governmental benefits. Thus, public benefits like SSI and Medicaid are safe. They would provide extra trust resources in an attempt to support the governmental resources without impacting them.  

Special Needs Trust come in different formats. Some of them assist the special needs beneficiary up until their death using their own assets. These are first-party special needs trusts. Subsequently, they go to the government. Others have assets that come from someone other than the beneficiary and they would then go to someone other than the government. These are called third-party special needs trusts and are the most common sort. The latter usually takes form through a parent bequeathing assets upon their death to a child through a special needs trust and is kept their till the child’s death.

Beyond the above, there are many other factors a special needs planning attorney should determine such as the trustee, basis for distributions, power of appointment, and the many emotional considerations. If you have a special needs child or relative, please don’t go to any attorney but find a knowledgeable special needs planning attorney.

Filed under Estate Planning Tips