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In general, a person with dementia can sign a power of attorney designation if they have the capacity to understand what the document is, what it does, and what they are approving. Most seniors living with early stage dementia are able to make this designation.
Typically, as long as dementia is minor or nonexistent, a person in the beginning stages of a dementia-causing disorder will be deemed mentally competent in the eyes of the law.
A dementia diagnosis doesn't necessarily mean you're unable to make important decisions at that point in time. But as symptoms of dementia get worse over time, you may no longer be able to make decisions about things like your finances, health or welfare. This is sometimes referred to as lacking mental capacity.
In most cases, if a person living with dementia is able to understand the meaning and importance of a given legal document, he or she likely has the legal capacity (the ability to understand the consequences of his or her actions) to execute (to carry out by signing it).
Advance directives for financial and estate management must be created while the person with Alzheimer's or a related dementia has legal capacity" to make decisions on their own, meaning they can still understand the decisions and what they might mean.