How do you decide whether or not somebody has lost or is losing legal capacity to look after themselves? Well the answer to this is not as straightforward as you might wish.
Legally speaking capacity is not an all or nothing thing. Capacity is assessed according to the actual thing that you want to do. So, for example, it's perfectly possible legally to have capacity to do most things, but not have capacity to make a will.
So in practical terms if you have any doubt you ask a doctor to give an opinion, and if you apply to the Court of Protection for the appointment of a deputy, a doctor's opinion will be required.
If you have a lasting power of attorney then this only comes into force when capacity starts to be lost. At that point it must be registered at the Court of Protection or it will be invalid. The Court of Protection do not require medical evidence in this situation, they just take your word for it, unless anybody objects to the process.