This second article on ageing clients was to be about my mother, but she refused her permission after hearing the topic -- a power of attorney and an ageing parents assets.
So instead, it is about, Alex's mother. Alex is an economist who sat next to me on a recent flight. We got to talking and he told me when he called his mother, who is in her mid-sixties, on Mother's Day he was surprised to learn her line had been disconnected. He immediately called her cellphone and was relieved to hear her voice.
Melmira, it seems, had made a sudden decision to move because of the deteriorating health, including signs of dementia, of her 87-year-old mother, Teresa. She didn't trust her stepfather to give Teresa the care she needed. Furthermore, Teresa had a substantial estate of which Melmira was the sole beneficiary and power of attorney. Melmira didn't want her stepfather to get his hands on her mother's assets. Having learned Teresa's assets had been moved into joint accounts with her husband to avoid probate, Melmira went to Teresa's investment advisor.
The advisor said that the document Melmira had appointing her Teresa's power of attorney with sole responsibility for her financial matters in the event she became ill or incapacitated, had been replaced by one in which the stepfather had power of attorney. However, the advisor claimed it would be a breach of privacy to show her the new document signed by Teresa.
Alex immediately sent his mother to a lawyer. Five days later, Teresa passed away. Alex joined his mother for the reading of her Last Will and Testament, which had not been changed. Unfortunately, the liquid assets in the joint account belonged to the stepfather.
Melmira sued the dealer, the advisor, the lawyer and her stepfather. Through litigation, she learned the advisor had a copy of the original power of attorney and her mother's will. However, when the stepfather appeared at the advisor's office with a new and updated version signed by Teresa, the advisor had no choice but to follow the instructions, even though recent meetings with Teresa had revealed signs of dementia. The advisor moved the assets into joint accounts, changed Teresa's risk tolerance to high, and transferred the assets into futures and options from balanced funds and blue chip stocks. Approximately 50% of the capital was lost. Alex is concerned that three years later the litigation against all three continues with no end in sight.
With a large segment of the population ageing, such problems are common. Recent Supreme Court of Canada decisions deal directly with the issue of whether money in a joint account with a deceased person is owned by the joint account holder or whether it should be divided among the deceased's beneficiaries. The courts have the difficult task of examining evidence relating to the intention of the deceased when the assets were moved into the joint account and, where the evidence is insufficient, apply complex trust laws to arrive at a conclusion.
Already complex relationships among blood relatives can be even worse in a blended family, but there are steps advisors can take to ensure clients' wishes are met:
Know your client at every stage of the relationship Fulfilling this regulatory duty will avoid problems, such as those experienced by Melmira and Teresa. If Teresa's advisor had spent the necessary time with her, and asked the right questions, he would have known who her lawyer was and who she had appointed power of attorney. And with written permission from Teresa, he could have contacted her lawyer when the new power of attorney was presented, before the account was moved into risky investments.
Be alert for signs of dementia In all decisions affecting the client's account, the client's interests must be protected. The advisor should advise compliance or legal to ensure steps taken accord with the advisor and dealer's obligations to the client. The compliance department should have been alerted when a second power of attorney was presented to Teresa's advisor and before any investments were changed. While the effect of a new power of attorney is to revoke all previous ones, in circumstances where the client may not have had capacity, this may not be the case. But, it is not for the dealer or advisor to decide which power of attorney rules. If the client has dementia, such matters must be resolved in court, preferably with the advisor playing a passive role.