Protect Aging Clients and Family Members with a Power of Attorney
About 76,000 Canadians are diagnosed with dementia each year. Even without a firm diagnosis, as many as 35% of those aged 70 or older show signs of cognitive decline. Let’s talk about one of the ways you can protect aging clients or family members from financial pitfalls in part two of our three-part series on estate planning.
In some ways, the brain actually gets better with age. Our “crystallized intelligence” which is the accumulated knowledge that we often call wisdom, increases throughout most of our adult lives. However, where we may notice negative changes over time is in the “fluid intelligence” that helps us quickly grasp concepts and solve problems. We may also struggle with memory.
Although you can’t change the realities of aging, as a financial advisor, you can help older clients – or younger clients with aging parents – take steps to bring generations together and build financially stronger families. Here is the “what, when and how” of an important tool to have in your financial planning kit.
What? A Power of Attorney
A Power of Attorney is a legal document that gives someone the authority to manage the affairs of another person when they are unable to do so for themselves. There are two types of Power of Attorney:
A Power of Attorney for Personal Care grants the power to make decisions about health care, housing and other aspects of personal life.
A Power of Attorney for Property grants the power to make decisions about financial affairs, including investments, insurance, banking, real estate and taxes.
A Power of Attorney does not replace a will. Rather, it is used while someone is still alive but either temporarily or permanently unable to make decisions for themselves.
When Power of Attorney has been granted to a child, sibling, relative, friend or other trusted individual, it empowers that person to do what is needed during a difficult time – whether that means selling property, paying bills, changing investments or any other financial task.
When? Before it is too late
Deciding the best time to name a Power of Attorney is a bit like deciding when to buy fire insurance – if you wait until you smell smoke, it’s already too late.
This is because the person granting Power of Attorney must be of sound mind when they do so. If they are already exhibiting signs of dementia or Alzheimer’s when they sign the Power of Attorney, it may not be legally binding and could be challenged in the future.
Since signs of cognitive decline can be subtle at first and can sometimes progress rapidly, the best way to manage risk is to talk to your clients about naming a Power of Attorney sooner rather than later.
Keep in mind this does not mean they will immediately relinquish their decision-making abilities. It is more like an “insurance policy” so that if they eventually lose the ability to make decisions, there is already a safety net in place.
How? It starts with a conversation
Many families will avoid this potentially upsetting topic, especially when parents are still healthy. This is where you may be able to assist. As a trusted advisor, you can gently introduce it onto the agenda since it is such a necessary and important aspect of financial planning.
If you are helping to familiarize a client on how to approach the subject with a parent, you might suggest ways of finding the right moment. For example, when a parent mentions a friend or relative who’s been in the hospital, or by mentioning someone else who’s been through end-of-life planning with their parents.
When it comes to making concrete decisions and putting pen to paper, it’s wise to engage an experienced legal professional. When family, money and emotion mix, you want to make sure everything is clearly understood and carefully documented as there are significant legal and financial planning issues and considerations.
In many cases, older generations control a significant amount of family assets. You can assist them by raising awareness of how a Power of Attorney can help protect their financial security now and in the future.