Last month, finance expert Noel Whittaker discussed the importance of having a valid will that reflects how you would like your assets to be disposed of when you die. But that’s just one part of estate planning, and comes into force only after death. This month, Noel highlights the estate planning issues that affect you while you are still alive, and can become increasingly important as you get older.
It’s a sad realitythat some people lose mental capacity, which renders them unable to make financial and personal decisions. The way to handle this challenge is to give a trusted person or persons an Enduring Power of Attorney (EPA). This document gives up to three other people the right to make decisions on your behalf if you are unable to do so because of incapacity. It can also be used if you are absent due to travel, or temporarily too ill to deal with things.
Two important decisions for seniors may be the sale of the family home, and/or putting together documents for admission to aged care. If you don’t have an EPA, and you have lost capacity to make decisions, it will be necessary to seek court approval if decisions need to be made – this can be costly as well as time-consuming.
Dementia is growing more common as life expectancies increase. Fortunately, it usually progresses slowly, giving families plenty of time to prepare for it. But many people move to avoidance, instead of preparation, and thereby leave themselves at risk of huge problems down the track.
Many people move to avoidance, instead of preparation, and thereby leave themselves at risk of huge problems down the track.
It is vitally important to put EPAs in place long before they appear to be needed, because you cannot give an EPA if you don’t have the capacity to do so. An early diagnosis of dementia is not necessarily evidence of lack of capacity, but as dementia progresses, there must 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 Enduring Power of Attorney (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.
An EPA is especially important if the family has a self-managed super fund. The regulations require all members of the fund to be trustees, but also prohibit a person without capacity from being a trustee of the fund. In the event of a member/trustee losing capacity, all decisions will need to be made by a tribunal if no EPA has been executed by the member who has lost capacity.
While an EPA can be executed using a standard form obtained online, a better option is to have it done by a solicitor, who can explain the implications involved and insert a conflict clause if it may be needed in the future.
A common example is when a couple owns a house in joint names. If one loses capacity, and their spouse decides to sell their home and buy a different property to live in, the partner with capacity will probably be advised to put the new property in their sole name. This is only possible if the EPA permits a conflict of interest, as the effect is to transfer assets owned by both parties to just one.
A major issue for many people is who to choose as your EPA. Your spouse is often your first choice, but they may predecease you, or also lose capacity as they age. You can get around this by appointing some or all of your children, if you have any. But it is essential to consider family conflicts that may arise. Elder abuse is not uncommon – and we regularly hear of cases where one child ingratiates themselves with the ageing parent and talks them into giving an EPA to that child only. Next thing you know, they are changing the locks to prevent other siblings making “unwanted visits” — then continue down the path of taking total control.
It is essential to consider family conflicts that may arise.
The choice should not be a problem if you have a totally functional family, but if friction is a possibility, you may consider appointing a non-family member, such as your lawyer or accountant, as your EPA if they are prepared to act. You may also decide to appoint more than one attorney, who work jointly, but this can become unworkable if they do not live in the same area, as both would have to sign any documents.
Another major issue for older folk is what medical treatment they want to accept if they have reached a stage in their lives where death is imminent, and their lives are becoming more uncomfortable each day. Now I appreciate that people have different attitudes to these topics, but during my 30 years in practice as a financial advisor, the statement I heard most was: “I want to be kept alive as long as I’m healthy, but after that, I do not. The last thing I want is to be lying in bed as a vegetable.” Just keep in mind, if you feel like this, that doctors are obligated to do everything they can to keep you alive unless you have made specific instructions to the contrary in a document such as an Advance Health Directive.
An Advance Health Directive – which has various names, depending on the state in which you live – sets out your wishes for your future health care. It is particularly important in the event of your becoming terminally ill. This is a document which is executed by you, and requires an interview with your doctor. It will usually cover such issues as whether you wish to be resuscitated if you are near death and there is no chance of recovery, orders to the physician regarding life-sustaining treatment, and your desires regarding organ and tissue donation.
Like all your important legal documents, it should be readily accessible at all times. Your nearest and dearest should be able to put their hands on it quickly, and be familiar with its contents. It is common to hear of situations where a person no longer wishes to live, but the family has to leave the parent in the hands of the doctors – who will do their best to prolong life unless an Advance Health Directive specifying other wishes is shown to them. If you can’t find it, it is useless.
I appreciate we have covered some major topics today, but take the time to get your mind around them. There is a price to pay in terms of time and legal costs to get these issues right from the start, but they will more than pay for themselves in the money and problems they save, if they are done properly.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. firstname.lastname@example.org. Seek advice from a professional before making any important financial decisions.