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It's a subjective issue for attorneys and judges. They have to make a judgement as to the persons competence and it's no trifling matter. Most attorneys won't draw up legal documents for someone who is clearly not able to understand the issues.. The penalties can be severe, however there are some bad apples who may have an interest in financial gain. Be careful with this.
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It depends on the degree of impairment. In earlier stages of dementia there can be memory loss and problems doing certain tasks, but a person is still competent to carry on certain things like assign POAs and write wills. Her doctors and legal team would be the best ones to advise you on this. Someone may want to check behind her to make sure her judgment appears to be sound -- choosing POAs that make sense and no surprises in the will.
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