Listen to Lawrence Letter: Are the assets in my father’s trust protected if he makes poor decisions due to decreasing cognitive ability?

May 27, 2022
Dear Clients and Friends:
It is hard raising parents, as reflected in the following question:
About three years ago you set up an irrevocable trust for my father; I am the trustee. I am getting concerned about my father’s cognitive ability, and wonder whether the trust protects the assets contained in the trust from him being taken advantage of, or him making poor decisions. I think I know the answer, but thought I should check to be sure that something different doesn’t need to be done.
This is always a tough question. Advanced age sometimes leads to a decline in cognitive function. Advanced age can also make people seem like they are losing cognitive function, but in fact may just be acting increasingly stubborn as they cling to control what they can, knowing that they cannot control their bodies. Decisions in this state may seem off base to others. Who knows what is going on in their heads? On the other hand, some people made bad decisions when young and they continue to make bad decisions when they are older. The point is, now that you are your father’s fiduciary (trustee, power of attorney), it is your responsibility to be involved in his financial and personal life and this can be very frustrating to watch and navigate. If there is cognitive decline, a lot will depend upon the degree of decline, the lesser the decline the more difficult the issues.
So what should you do? The first thing I might do is discuss the problem with your father and see where that gets you. He may cede additional controls and allow additional safety measures to be put in place. The second thing I would do is to encourage your father to get a full cognitive workup from a geriatric psychiatrist and/or neurologist. Armed with a diagnosis, you will have more authority, moral or otherwise to put safety measures in place.
More to your question, the assets in the trust enjoy heightened protection from people taking advantage of him and from his own poor decisions. Assets in the trust will not be readily available to him to spend, pledge or retrieve. Your signature would be necessary for all trust transactions. On the other hand, if he gets upset with your meddling, and remains competent (enough), he can replace you as trustee, he can change trust beneficiaries, and otherwise create all kinds of havoc. Of course, it is a completely different matter and concern for assets outside the trust, but trust assets should be relatively safe. As for protecting assets from long-term care costs and Medicaid, the trust assets are protected if he needs home care/community Medicaid but you have about 2 years to go to get beyond the 5-year look back for nursing home Medicaid.
It is not an easy road you are going down with your father and I empathize with you. Also, know that I have had thousands of clients who share the same issues. Keep in touch and we will help you along the way.
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Until next time…
peace, health and happiness,
Lawrence Eric Davidow