Whether the person can still make a valid power of attorney depends on a number of facts.
The standard for the necessary mental capacity is the same as that required
to make a legal contract. Basically, a person must be able to understand the nature of the transaction and its effect upon his or her rights and interests. So when making a power of attorney, a person must be able to comprehend that another individual is being authorized as an agent to take over managing and controlling financial or medical matters.
Generally, the issue of mental competence comes up only when someone questions or challenges an agent's authority. Courts called upon to judge whether a particular person is competent to make a power of attorney for finances may broadly consider almost any evidence, including opinions of family members and friends, expert opinions, and any previous and subsequent adjudications of incompetence by a legal or medical authority.
Specifically, courts can consider:
--The person making the document's physical condition
--Whether the transaction was sensible or imprudent
--The trust and confidence between the people involved, and
--The maker's mental state as judged by all other acts within a reasonable time before and after finalizing the document.
But as you mentioned, if no alternatives are in place, for some people, securing a guardianship or conservatorship is the best and only option"”particularly if the person who lacks capacity also needs help managing other aspects of life in addition to his or her finances. Close family members must be given legal notice of a conservatorship or guardianship proceeding"”and if there is a relative or close friend who is willing and able to take on the job, a court will usually be swayed to appoint that person rather than an agency or person who is unfamiliar with the person who needs care.
For more detailed information, see Caring.com's Adult Guardian and Conservatorship page at www.caring.com/adult-guardianship.