This blog was written by Paula Lester – Estate and Trust Consultant with Scotia Wealth Management
As an Estate and Trust Consultant who works closely with financial advisors and their clients, I find myself being asked increasingly often to help clients whose capacity has become a concern. This seems to be an instigator as the advisor becomes aware that the client may no longer be able to understand their finances or give proper instructions. Only then do we learn that the client’s incapacity and estate plan is either non-existent or does not meet their current needs.
Unfortunately, engaging in estate or incapacity planning with clients who have diminished capacity is a very difficult process. For example, a client may require or benefit from a more complex estate plan that would be difficult enough to understand under normal circumstances. Such strategies may simply be off the table when clients’ capacity is diminishing. Furthermore, clients with diminished capacity are much more vulnerable to pressures from other individuals, leaving them open to financial abuse while also preventing them from agreeing to planning safeguards that would protect them from that same financial abuse. Estate plans developed under these circumstances are also much more likely to be challenged later by unhappy would-be beneficiaries, with claims that the testator either lacked capacity or was unduly influenced.
In the worst case scenarios, clients may have altogether lost the legal capacity to update their estate plan, in which case we are left trying to fill the legal void with much more onerous and less effective measures, such as a guardianship application where no Power of Attorney has been executed or where the currently named attorney cannot act.
Having a loved one, or a client, whose capacity is declining is a very challenging and stressful thing to deal with. One of the biggest hurdles to obtaining appropriate help for the person with declining capacity is simply having this conversation with that person. I find that individuals are often unaware of their declining capacity or else they try to hide it in an understandable effort to maintain their autonomy.
As difficult as the conversation is to have, it needs to be had. The consequences of delaying are just too serious. Clients who no longer have capacity to update their legal estate documents – including their Will and Powers of Attorney – will have lost the opportunity to provide for the management of their finances and of their life the way they would have wanted.
Too often, I have seen clients whose finances have been left unattended – taxes not filed, bills not paid and investments left without proper management – simply because they have no one assisting them at a time when they can no longer manage these items on their own. I have also seen cases where clients have allowed an ill-intentioned individual to unofficially take over their finances because it was psychologically easier than admitting that they needed structured help. Finally, I have seen families torn apart litigating over mom or dad’s finances, with this being the legacy of the parent’s final years.
I cannot overstress the importance of implementing and maintaining an updated incapacity and estate plan early on. These plans should be reviewed every 3-5 years, and potentially more often as a person ages or their health begins to decline. If cognitive issues start to appear, do not delay – seek out good professional help early on to ensure the best possible outcome in an undoubtedly difficult situation.