Wealth of Wisdom

CHAPTER 26Managing the Risk of Diminished Capacity

Patricia Annino

Many families undertake planning to alleviate the common risks, such as death, divorce, out-of-date governance or documents, lack of liquidity, lack of proper estate planning, and lack of succession planning, to name a few. Risk management for diminished capacity is as important as any of those and yet less often considered.

Diminished capacity in the years prior to death is also common enough that families should prepare for its risk—yet few do. Even the families that one would think would understand its importance (such as Sumner Redstone, Donald Sterling, Lilianne Bettencourt, and Brooke Astor) faced major obstacles when the question of diminishing capacity arose. Advanced planning can mitigate the risk of fraud, loss of financial resources, possible litigation, family stresses, reputation risk, business failure, and thwarted life and estate plans.

The Risks of Not Planning to Mitigate the Risks Associated with Diminished Capacity

Given the severity of the consequences and the benefits of advance planning to mitigate these risks before the crisis occurs, why do so few families properly prepare for diminished capacity?

Here are some of the most common rationalizations that keep this in the “maybe someday” category versus “do it today” priority:

• Procrastination kicks the can down the road.
• Money—No one wants to pay for planning if there is no current compelling need to plan.
• Denial/narcissism—This will never ...