It’s very important for individuals who are diagnosed with dementia to appoint a trusted family member or friend to make a commitment to help them make important financial and medical decisions when they no longer can do these tasks. According to an article in Money, "5 Essential Documents for Protecting a Loved One with Dementia," the time to make this assignment is when the person is still mentally competent and has the legal capacity to make sound decisions.
If you delay with the paperwork, your family member's dementia may progress to the point where he or she cannot legally turn over power. At that point, your only option is to petition for guardianship and ask a judge to declare the person incapacitated. That can take about two months and may be expensive. It can get even worse if your loved one—or another family member—contests the application.
Laws vary by state, and mistakes can be costly. You should draft these documents with the help of an experienced elder care attorney. Here are the key documents that are recommended:
Durable Power of Attorney. This gives you the authority to make financial decisions for your loved one, like writing checks to pay his or her bills, handling tax returns, and selling a home. A "durable" power remains in place if the person for whom you are making decisions becomes incapacitated and can't make decisions for himself or herself, as opposed to a regular power of attorney, which terminates if the person who issued it becomes incapacitated. Avoid some headaches and visit the institution with the family member granting you power of attorney to complete any proprietary forms in advance. If your loved one spends a significant amount of time in another state, you should also have a power of attorney drafted by your estate planning attorney according to that state's laws.
Medical Power of Attorney. This is a power of attorney for medical decisions, allowing you to make choices about treatments, doctors, and other health-related matters.
Living Will. This is also called an advance directive for health care. It lets your loved one specify the medical treatment that he or she wants—or doesn't want—near the end of life.
Updated Will. A will gives instructions as to what happens to any of your assets after you pass away. Your will needs to be reviewed periodically to reflect changes in your life.
Living Trust. A living trust may be a good solution if the person with dementia has significant non-retirement assets, i.e., real estate and investments. The benefit of the living trust is that it may allow the estate to avoid probate when the person dies and assets are to be distributed. It can also make it easier for the trustee to manage the person's assets. However, this is not a do-it-yourself project. Meet with an experienced estate planning attorney to find out if this kind of trust is appropriate for your situation.
Reference: Money (December 11, 2015) "5 Essential Documents for Protecting a Loved One with Dementia"