Cognitive Decline Risks Compel Earlier Estate Planning 

Hear that sound? It’s the can being kicked down the road. 

Just visit the website of any law firm specializing in estate planning and you’ll likely find a post about how legacy planning is affected by cognitive decline. There’s a simple reason why, according to Scott Rahn, founding partner at RMO LLP, a boutique law firm specializing in estate dispute litigation: People tend to put off such planning until life makes that untenable, and a diagnosis of a disease like Alzheimer’s does just that. 

A diagnosis brings about a scary and emotionally charged time for people and their families, Rahn told Retirement Upside, and they naturally start looking for answers and support. There’s no getting around the challenges that progressive cognitive diseases bring to life in general and estate planning in particular, but the upside is that advisors can help bring peace of mind to clients who are facing the unknown.

Preparation Is the Prescription 

“A lot of the media attention we see about cognitive diseases is dedicated to amazing advancements in treatment for older Americans,” Rahn said. “We’ve moved mountains, but unfortunately, the good news has obscured another reality I’m seeing on the ground in the growing prevalence of early-onset disease.” 

Data from the Alzheimer’s Association backs up the anecdotal experience: 

• The number of individuals developing Alzheimer’s disease has tripled among those aged 30 to 64 over in recent years. 

• An estimated 200,000 Americans are living with younger-onset Alzheimer’s disease and related dementias, accounting for roughly 5% of all people diagnosed with the conditions. 

Greater awareness would motivate more people to do the serious work of building an estate plan, Rahn said. Putting plans in place or updating an outdated strategy after a diagnosis is certainly possible, but that entails planning at a time of tremendous stress and uncertainty — never a good thing in estate planning, he said. 

“Another reality that I’ve seen in my practice is that rapid cognitive decline, at any age, invites exploitation,” Rahn said. “If the client doesn’t have a solid plan in place that all the stakeholders and potential caregivers understand, the result can be pretty disastrous.”

Trust Issues. Legacy planning is inherently more complex at greater wealth levels, especially when trusts come into play. A grantor with diagnosed dementia can create a new trust, but they have to demonstrate the legal capacity to undertake the decision. 

While there are caveats depending on state jurisdiction, proving capacity generally requires that one understands the responsibilities created by a trust, the consequences of creating the trust for both the grantor and others, and the inherent risk-reward tradeoffs in trust creation. Conversely, updating an already established trust is much less burdensome. 

“Therefore, it is always a smart idea to discuss trust creation earlier, when there are no questions regarding you or your loved ones’ legal capacity,” Rahn said.