Confronting Cognitive Abilities in Well-Rounded Estate Planning

Blank Rome LLP

Blank Rome LLP

Ask anyone how they would define “trusts and estates law” and the odds are the answer will uniformly focus on the act of making the plan as to who will receive a person’s assets when he or she dies.

What happens, however, when the person who makes the so-called plan loses the cognitive ability not only to plan, but further, to carry on with the tasks of ordinary daily living. When that happens, the person we expect to be planning may be taking actions that unbeknownst to him or her are, in fact, jeopardizing the financial well-being of the estate in question and the ultimate inheritance that he or she intends for his or her loved ones to receive upon his or her death.

A recent decision from the Supreme Court, Suffolk County (Acting Justice Chris Ann Kelley), In the Matter of the Application of T.K., 2024 N.Y. Slip Op. 50045 (Suffolk Cnty. Sup. Ct. 2024), illustrates what can happen when the person whom we expect to make the estate plan is no longer competent to protect the very assets contemplated for disposition under that plan.

In T.K., a petition was filed by T.K. (son of K.K.) seeking the appointment of a guardian for his father’s personal needs and property management under Article 81 of the New York Mental Hygiene Law. The basis for the petition was that T.K.’s father was suffering from “severe delusions,” which put his well-being at risk of imminent harm, and which could cause “catastrophic financial loss.”

K.K., the alleged incapacitated person (“AIP”) was an 80-year-old retired advertising executive. He resided with his wife of more than 50 years. T.K. testified that his father had deteriorated mentally over the past 10 years, including more regular consumption of alcohol in large quantities. Of most concern, the AIP had a 15-year business relationship with “Hugh Austin” (“Mr. Austin”), who lived two miles away from the AIP.

T.K. testified that his father had given Mr. Austin approximately $2,500,000 as part of a so-called investment in Mr. Austin’s businesses, which the AIP believed would result in an “imminent return” to the tune of millions of dollars—the AIP never received any money back from Mr. Austin.

Mr. Austin (and his son), meanwhile, was indicted for fraud crimes against 20 victims in excess of $10 million. Yet, the AIP insisted that Mr. Austin “has done nothing wrong.” While Mr. Austin was under house arrest, the AIP continued to meet with him.

The Court Evaluator reported that the AIP had become a “willing participant” in the exploitation perpetrated by Mr. Austin, luring the father into investments coupled with promises of major returns. The evidence also showed that the AIP’s funds were used to pay Mr. Austin’s personal expenses, including trips to Las Vegas. Cash App payments, and various other non-“business-related” charges.

The Court ultimately found that there was a substantial likelihood that the AIP would continue to engage in self-harming activities as a result of years of being psychologically victimized by Mr. Austin. Such victimization caused psychological stress to the AIP, which manifested itself in the forms of “substantial weight loss, excessive consumption of alcohol and diminished abilities to concentrate and communicate.”

In view of the foregoing, the Court appointed a property management guardian to prevent the AIP from self-harm “by reason of his functional limitations and lack of understanding and appreciation of them.”

Many of us have lived the experience of having a parent, or grandparent, lose cognitive functioning to the point where it is inconceivable that such a person could be in any position to properly plan for the disposition of his or her assets.

The T.K. decision presents another reminder as to why a critical element of estate planning is not just the plan to dispose of one’s assets, but also, defining how to implement that plan when the individual himself or herself is no longer able to carry out the directives of that very plan, and to ensure that a plan is in place to address the situation where the individual lacks the necessary capacity to continue to make decisions with respect to his or her own personal affairs.

These are difficult discussions to have, particularly amidst a culture that walks on eggshells when topics such as death and divorce enter the fray. But to ignore these discussions within our own families, and separately, with our trusts and estates counsel, is a mistake; they are elemental to proper estate planning, not to mention the acceptance of reality.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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