For some of us, age-related cognitive impairment could disrupt even a well-thought out Estate Plan. Kim Parlee speaks with Nicole Ewing, Director, Tax and Estate Planning at TD Wealth, about some steps you can take that could help ensure your advisors and loved ones have the tools to assist you when you need it most, including the appointment of a “trusted contact person.”
- It's something we're all going to face. We're getting older. And for many of us, that could mean losing some capacity, both physical and unfortunately mental, as we get older. It can be a real challenge. It can also be real challenge to estate planning if you leave things too late and perhaps the challenges to your mental capacity might be more serious.
Here to give us her perspective on what we should be thinking about perhaps today is Nicole Ewing. She's director of Tax and Estate Planning at TD Wealth. Nicole, always great to have you with us. Maybe you could just start by giving us a quick take on how our reduction in mental capacity, or cognitive decline, can really disrupt things from your perspective.
- So I'm thinking of this from a few different perspectives. So if you have not done your plans, of course, and you don't have the ability to change that, now we don't have the ability to do our tax minimization, to name our executors, our attorneys for property. We can't name our beneficiaries or protect our beneficiaries the way that we want to. And so clearly, if we haven't done any planning at all, then the cognitive decline is a very serious event.
If we have done planning, it, so too, can have that same result if we haven't revisited it for changing circumstances or changing laws. And so I think here of a case I was working on just very recently, where a brilliant man had done some incredible planning that made perfect sense at the time that he did it, but he didn't revisit it. And recently, there was a diagnosis of dementia, and his family was looking for some guidance on what to do.
And because of the way that the plans had been drafted and because he hadn't gone to revisit it, really, their hands were quite tied. And so now, they're facing a tax bill that's going to be much larger than it would have otherwise needed to be. And then again, recently, just this week, my mom was actually targeted for one of these granny scams. This is where somebody calls up and says that they're your grandchild, and they're in jail, and they need money immediately.
And fortunately, she recognized those red flags. But if she was in a position of cognitive decline, she might not have and she may have been vulnerable. And of course, a situation like that is going to make you vulnerable to losing all of your assets potentially and not having any estate to leave at all. So it's a very serious issue.
- It's scary enough, the granny scam, as you call them. But when you think about preying on someone who has dementia, it's incredibly troubling to think of what could actually come out of that. Maybe you could just explain a bit more about the gray area between normal aging, when we slow down-- we don't like to, but we know it's happening-- and dementia and just how that really complicates the financial side.
- Well, certainly, if we have a diagnosis that the individual doesn't have capacity to make decisions for themselves anymore, then we know what to do. We know that we can get our continuing powers of attorney in place. We can apply to the courts to have authority to act in that circumstance. We know with dementia and cognitive decline that it's not an on/off switch, and so there might be days, or times of day even, where the individual has a better or worse chance of understanding really what's happening.
And that can be very difficult for the individual to recognize themselves. It can be difficult for their family to recognize. We know that depending on the circumstances, if it's a high-stress situation or a familiar situation, the cognitive ability might present differently. And so there are situations where it might actually be your financial advisor, it might be the teller at your local branch who knows you better than anyone when it comes to your normal way of dealing with your finances. Who do you normally come in with? What are you normally spending?
And so the industry has recognized that there's an opportunity here for an additional tool, and this is something called the trusted contact person. And when you open an account now, you will be asked if you want to name a trusted contact person. And that's an individual that you've given the permission to the financial institution to reach out to. They're not going to share your confidential information.
This person's not going to be able to make any financial transactions for you, but they will be able to highlight whether this is normal behavior for you or whether additional steps need to be taken. So we're taking some steps to help in that gray area, but again, it's very challenging.
- Yeah, and it's challenging too, I would think. That's a great idea. But if somebody is already incapacitated, how can a family assist you beyond that? And even how could a lawyer or a financial advisor help you at that point? It's much trickier.
- It is much trickier. So again, your financial advisor might be the person who's identifying that this might be a challenge, so they can use that trusted person contact-- or trusted contact person. They can reach out to your POA, your attorney, if it's on file with them. Certainly, if you already have that documentation with them, they will be able to identify who that person is, and reach out, and contact them, and get the ball moving.
If you don't have those documents in place, then your family members are going to need to reach out to the courts and make an application to the courts because nobody has the ability to act on your behalf if you have not given them the authority to do so. And so we would need to go to court and get that recognition. Now, even if you have the documents in place, documents are drafted in a way, based on your circumstances, to hopefully give your attorneys the maximum authorities they need and the maximum flexibility that they need to be able to maybe do some things to help minimize those taxes, to continue gifting, for example, to family members.
If clauses aren't inserted in your documents to allow your substitute decision-maker to make those gifts for you or to make gifts to charity, their hands might be tied there. So again, this is an area, really, where I would encourage people to use professionals. I know there's a lot of DIY plans out there. You can print things off the internet. But your professional legal advisors are going to be able to identify whether there's any additional clauses that should be in your documents that will allow your substitute decision-makers to be able to continue acting on your behalf the way that you want them to.
KIM PARLEE: I've only got about 30 seconds, Nicole. That was chock-full of, I think, really valuable information for people. But just any next steps in 30 seconds people need to think about?
- Well, if you don't have your wills and powers of attorney in place, please do that. Make that a priority. Make sure that you're revisiting them to ensure that they are up to date, and accurate, and that the laws haven't changed. Make sure that you are considering things like the trusted contact and getting those on your files. If you're opening new accounts, then that should be a question that's prompted to you.
But if not, you can certainly reach out to your financial institution and ask for that to be added to your file. There's also just don't allow not knowing who to name to stop you from taking next steps. We have private trust companies, professional advisors who can step in and act on your behalf. But you need to take those steps today to ensure that they're able to do that when the time comes.
- Nicole, always a pleasure. Thanks so much.
- Oh, my pleasure.