It sounds like your FIL needs to sit down with an estate planning attorney to go over his own estate plan. From your description, the fact that he got the funds through a settlement has no effect. If the prior case is settled and he has received the funds, the funds are his, period. At this point, you have to make sure that your FIL has proper valid powers of attorney and perhaps a revocable living trust so that assets can be used for his benefit while he is alive and if and when he is incapacitated. If he already lacks capacity and doesn't have proper estate planning, it is very possible he will need a guardian appointed and his wife may not be the right person due to advanced age. See a lawyer about this right away.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/
As usual, Mr. Zelinger has offered stellar advice, and I agree with him. A durable POA is likely to completely resolve this situation. If your FIL lacks capacity to sign a POA, then your may be stuck going to probate to obtain guardianship/conservatorship for him. I would have him meet with an attorney during one of his lucid intervals, to make sure all his estate planning is in order.
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The other attorney have offered sound advice. Take your wife's mother and father-in-law to an estate attorney when he is lucid to complete their estate plan. Without the proper estate documents in place, you may have to seek a guardianship to ensure proper care of your father-in-law and to protect his assets, which could be costly.
Answer does not constitute legal advice. Please call (727) 471-0039 or contact me at email@example.com, if you would like to discuss your Florida legal matter further. This answer is provided for informational and/or educational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Adam is a Florida Attorney practicing in areas of Estate Planning, Elder Law, Trusts, Probate, Guardianship, and Business Law. Actual legal advice can only be provided after completing a comprehensive consultation in which all of the relevant facts are discussed and reviewed.