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Wife's sister has form of dementia and is encountering demands from her children to turn over her financial resources and move from her home.
Can a child do this without court order and declare child or wife of child as guardians of his mother?

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Well, it may be that your sister in law really does need help - is she refusing the help that might keep her reasonably safe in her home? Is she managing her finances OK or are there big troubles with bills and maintaining the home? Would your wife be a far better person to become POA if she can still designate one, or guardian if not? Those are not easy questions but they are the things to ask yourself and face the honest answers as head-on as you can. I can see where it would be a very emotional issue if it leaves you wondering how your wife is doing and what might happen, or if you are worried about you, too...but being in any denial (not saying you are!) or fighting something that might really be the best thing could do a great deal of harm.
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A court order is necessary to appoint a child or anyone else as a guardian.
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Only a court can deem a person incompetent to handle their own affairs. Are the children possilby seeking Power of Attorney?
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Eek. No. There is a look-back period if Medicaid will be involved, and that results in a penalty period for "gifting" which is what this would be considered. It is 5-10 YEARS, depending on the state, so what the SIL and BIL are wanting will likely totally backfire if she already has early dementia. That said, I had a Baptist minister friend whose mom and dad could trust him absolutely, and did get those things done well over a decade before anything was ever necessary. Made everyone's life a lot easier. Get thee to a competent estate planner or eldercare attorney NOW while you all probably still have good options. Get POA into the hands of a reputable and knowledgeable person - it may be that the in-laws just need education, as this is uncharted territory for nearly all of us as we first start to face it.
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Your wife seems to understand that acting on information given by a person with dementia requires care and caution. It may well be that her sister is not safe home alone and may need to have help with her finances. Her son may not be trying a money grab, but trying to preserve her assets.
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Autopay...not autopsy...lol
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My FIL sat them down, explained he had consulted an elder law attorney and matters had been arranged to his satisfaction. ( That is to say, his money and assets are still his. Hahaha.) It might be too late for the LW's sister in law to consult an elder law attorney but I would certainly do something like that before getting restraining orders on the relatives.
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Is wife's sister competent? Do her children want to take care of her and make sure her assets are protected? Many questions. Seems a little late to be giving away money. If she has dementia, she is not going to get better but more than likely need money for memory care. If her children are freaking out because they see the possibility of losing an "inheritance". Well, that ship has probably sailed.
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My SIL and her husband are also strongly suggesting that my in laws organize their assets as to minimize the amount available to pay for a nursing home should that become necessary in the future. They do not have evil intent, they think they are being helpful.
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I would get a restraining order against my child, if push came to shove. What they are doing is not helpful. They are making it worse, by suggesting that she organize her assets. She could pre-pay funeral costs, if that would satisfy them.
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