Dementia: How to future-proof your finances
As life expectancies increase, dementia will become an ever-more important issue. The good news is that it is normally a condition that progresses slowly, thus giving families plenty of time to prepare for it. Don’t fall for the myth that your spouse or next of kin can make financial decisions on your behalf in the absence of an enduring power of attorney. Don’t fall for the myth that your spouse or next of kin can make financial decisions on your behalf in the absence of an enduring power of attorney. The bad news is that there is no current cure and that many people move to avoidance, instead of preparation, and thereby leave themselves at risk of huge financial problems down the track. It is critically important to have an enduring power of attorney (EPA) in place long before it appears to be needed. The person giving the EPA must have the capacity to do so.
Power of attorney explained: Who would you trust to control your affairs? SISTERS-IN-LAW Power of attorney explained: Who would you trust to control your affairs? Add to shortlist My legal friends tell me that early diagnosis of dementia is not necessarily evidence of lack of capacity but, as dementia progresses, there must obviously come a time when capacity to make an EPA has been lost. So, why take the punt – get it done now. Don’t fall for the myth that your spouse or next of kin can make financial decisions on your behalf in the absence of an EPA. That’s a dangerous delusion: in the absence of an EPA the only decision-maker will be a tribunal, and legal costs will almost certainly be involved. The absence of an EPA can cause problems if a family has a self-managed super fund. The regulations require all members of the fund to be trustees, but they also prohibit a person without capacity from being a trustee of a fund. If an EPA is appointed and the member becomes incapacitated, that person can remain a member, and the EPA can become the trustee. Without an EPA, the fund will have to rely on a tribunal to make important decisions. While EPAs can be set up using a standard form, this is often inadvisable. A common issue is that, under standard EPA clauses, the person deemed to hold the EPA cannot take action to benefit themselves. R researchers have looked at how proteins build up in brain cells, as part of the search for a cure for dementia.
ALZHEIMER’S New research helping to untangle the problem of dementia Add to shortlist While this seems sensible, when the attorney is a spouse or family member, it can cause problems. Think about a situation where a couple jointly owns an expensive property, one party loses capacity, and it becomes necessary to sell that home and move to another one. An EPA would facilitate the process because an incapacitated person would not have the power to sign a contract. However, if the family is best advised to put the new property solely in the name of the spouse with capacity, this transfers one spouse’s assets to another and is a possible conflict of interest. Heavy chilli consumption linked to dementia, study says A customised EPA can handle this in advance by having a more nuanced conflict of interest clause in the EPA document. Binding Death Benefit The next issue that must be addressed by people early-onset dementia is a Binding Death Benefit Nominations for your super fund. These are well worth having in certain cases when a member of the fund dies, but some of these nominations have to be renewed regularly. While incapacity does not revoke such a document, it may be necessary to renew it before it lapses. An incapacitated person cannot take this action, and there is some doubt as to whether their EPA has the power to do so. The consensus appears to be that it depends on the wording of the trust deed. A major issue, which often causes difficulty, is who to choose as the EPA. A spouse is often the first choice but they may also lose capacity as they age. This problem can be overcome by appointing some or all the children as the EPA. However, it is essential to consider family conflicts that may arise.
These can culminate in some huge family fights, possibly ending in legal action. The person appointed as an attorney must be someone you trust to make decisions on your behalf, and sometimes a non-family member may be a wiser choice. What I have written is just a taste of the many issues that can arise if essential estate planning documents are not completed. Treat this as a wake-up call, seek expert advice, and get your affairs in order as a matter of urgency.