This blog has been written by Robert Boyd, Director, Scotiatrust.
When one assumes the role of power of attorney for property, it is often taken as a duty or even an honour. The fact that someone is willing to bestow the responsibility to take care of their financial affairs in their greatest time of need is a recognition of a trust that you will act in their best interests. This can be somewhat flattering. Unfortunately, the risk and liability associated with acting as someone’s POA is not always very well understood.
When dealing with existing investment accounts, one school of thought is to keep the status quo, while a more conservative approach would be to move to a fixed income portfolio. The truth is that there is no “one size fits all” approach. The circumstances of each situation must be weighed and an appropriate investment objective or investment policy statement achieved that considers the financial needs of the individual.
Keep in mind, incapacity changes an individual’s needs dramatically, and at the same time imparts significant responsibility and liability on their power of attorney or guardian.
The following are some examples of what should be considered before making investment decisions:
- Review the provisions of the power of attorney document in detail.
- What are the current income and expenses requirements (liquidity needs)?
- Have health/nursing care needs escalated or could they in the future?
- What are the specifics of the individual’s Will, does it include bequests of certain bank or investment accounts?
- Who are the designated beneficiaries on registered accounts?
- Who are the beneficiaries of the Will (Financial decisions may impact their ultimate inheritance)?
- Has an asset depletion projections been completed?
- What is the current investment objective and why was it originally chosen?
- Is there an ability to consolidate accounts and minimize overall fees?
- What is the individual’s tax situation?
- What assets are held outside the investment account?
- Is the investment advisor an appropriate choice?
- Is the account managed on a discretionary or non discretionary basis?
By considering the above, a prudent approach to an investment strategy can be taken that aligns with the best interests of the incapable individual. Once a plan has been implemented, it is important to document it and review at least annually.
Fiduciary Investing Series
The blog is the third in a series focusing on Fiduciary Investing that will cover a range of practical topics.
Blog #1 How to avoid compounding liability in trust accounts
Blog #2 Fun, fun, funds
Blog #3 Powers of Attorney and Investment Portfolios
Blog #4 Don’t REIT around the bush