Every client is unique. Each one presents his or her own individual challenges and advantages. This is particularly true for lawyers with elder clients. As we age, our minds tend to slip. But at what point is this a concern for attorneys? Working with clients with questionable mental wherewithal is a recurrent concern amongst elder law and estate planning attorneys. Concerns are justified, as legal malpractice suits regarding the capacity of elder clients are swinging toward a higher burden of diligence by attorneys in the field.

What guidance do attorneys with aging clients have? How do they handle a client lacking the requisite mental capacity to transact? Can an attorney truly be certain that they have found a sufficient degree of lucidity?

There are steps that elder law and estate planning attorneys can take to protect themselves – and the client – when concerns of diminished capacity arise. The bottom line is that a diligent attorney will use common sense and established rules of assessments and conduct to decide whether their client is cognizant enough to utilize their services, and how to proceed from there.

Indications of Diminished Mental Capacity

In a recent post, I discussed the concept of a Grantor Trust. Now I will take a brief look into Nongrantor Trusts. Although neither of these are client-facing terms that you’re likely to use as an elder law attorney, it is important to have a grasp on these concepts and to be able to offer an explanation to your clients.

Like the Grantor Trust, the term Nongrantor Trust is a tax term. It has little to do with the trust itself or who receives income or assets, and everything to do with the tax liability of the trust. A Nongrantor Trust is a trust that is not taxed to the grantor (the person that creates and donates assets to the trust). Again, this is an income tax concept only — not a gift tax or estate tax concept. In this type of trust, the grantor is not treated as the owner of any portion of the trust.

Grantor Trusts can be a source of confusion for elder law attorneys and their clients alike. That’s because they are not a typical type of trust. The biggest difference to note about a Grantor Trust is that it is about how the trust’s income is taxed rather than who receives the income or assets of the trust.

In short, a Grantor Trust is a trust in which the grantor, or the originator of the trust, retains control over the trust. Therefore, the income is included in the income of the deemed owner (usually the grantor) rather than the trust or any other person. This distinction places Grantor Trusts into the "revocable" living trust category. The goal of establishing a Grantor Trust is to tax someone other than the recipient on the income that is generated by the trust.