The “worst conversation” of Marisa Broome’s life was when her father, David, a former senior banker, acknowledged his rapidly advancing dementia meant he would have to appoint a guardian to look after his affairs.
“We went through a box of tissues as he handed over full control of his life and fortune to make sure there would be no loose ends before he lost his memory,” financial planner Marisa says about her father, who would die at 79, two years after being admitted to a care home.
It’s a discussion that’s increasingly happening across the nation as a rapidly ageing population pushes the number of people with dementia to more than 400,000 with more than 1.5 million involved in their care, according to Dementia Australia, whose Dementia Action Week is held from September 18-24.
Marisa’s father, who took pride in being able to add up a list of 100 numbers without using a calculator, had been attempting to cover up his condition until a “diagnosis came back far worse” than expected when aged 73, she says. That is when Marisa, managing director of Wealth Advice, and her sister Julie agreed to become his legal guardians.
Kay Patterson, outgoing age discrimination commissioner, warns dementia and other problems caused by cognitive decline will become an increasing problem over the next 20-30 years as the population becomes the oldest it has ever been. This ageing will coincide with a record transfer of intergenerational wealth with around $3.5 trillion in assets likely to be bequeathed from Baby Boomers to younger generations, according to the Productivity Commission.
It is already creating complex personal and financial problems for families attempting to cope with their elder’s mental incapacity, take legal control of assets, and arrange medical help and protective accommodation.
The declining cognitive capacity of the nation’s wealthiest generation in history is also being brutally exploited by impatient or greedy family and friends wanting to get their hands on an inheritance sooner, warn specialists. Recent high-profile court cases include attempts by a second wife to switch bequeathal of multimillion-dollar properties from her dementia-stricken husband’s will from his children to those from her first marriage.
Specialists stress the need for families to take tough decisions by putting in place clear legal and financial instructions to smooth the difficult transition before it is too late.
“This is such a sensitive topic,” says Jane Lonie, a clinical neuropsychologist, about the need to discuss an ageing parent’s mental health and put in place strategies for managing its decline.
Lonie says a person’s brain capacity can begin to deteriorate 20 years before obvious symptoms of mental problems emerge, such as memory loss.
Michael Perkins, principal lawyer with Autonomy First, which consults on decision-making capacity and assists in development strategies for the “cognitively challenged”, says there has been a sharp increase in dementia cases. He says he is contacted every day by concerned family members about the decision-making capacity of a parent or sibling.
The guardianship division of the NSW Civil and Administrative Tribunal, which advises on the care of people who have decision-making problems, says the number of cases has spiked by about 16 per cent in the past two years.
The primary driver is dementia caused by old age, which accounts for more than 40 per cent of cases. More than one in four applications involves managing an affected person’s finances. Nearly 70 per cent of applications are on behalf of people aged 55 or over.
Perkins says the problem is “ability-based, not age-based”, with many investors in their 90s easily able to manage complex affairs while others who are decades younger are starting to struggle.
Lonie says identifying the signs of cognitive impairment is often “a complex, sensitive decision”. She adds “At what point should a power of attorney be appointed? Going to the person directly is often fruitless because of their loss of awareness or insight.”
The typical response by a family member, medical or legal professional is to see the local GP who can apply different tests. These might involve capacity to manage legal and financial affairs, lifestyle decisions or medical treatment.
The typical test is whether they are of sound mind, memory and understanding. Another test is the ability to understand the nature and significance of a particular transaction or activity.
But many medical and legal professionals claim the standard medical test is too superficial and doesn’t pick up on changes in the high-level cognitive capacity important for financial decision-making. Lawyers also claim many doctors are unwilling to do the tests because of concerns they might be legally liable for any advice or face legal action if their diagnosis is incorrect.
Lonie says specialists should organise a range of neuropsychological tests and compare the results with established benchmarks for people the same age, educational and social backgrounds.
“There are few cases raised by friends and family where the issues are not real and not a problem,” she says.
Broome says most families are reluctant to consider and plan for death, dementia, and disability. But advance planning, such as a detailed will, can prevent potential problems that can lose fortunes, divide families, and trigger huge legal fees and years of dispute before being resolved.
Suzie Willis, a senior estates and trusts solicitor at Equity Trustees, says around 20 per cent of contested will cases involve claims around a senior’s diminished capacity and ability to write a will.
Broome and Willis say the level of planning depends on the complexity of the estate. For example, if there is a discretionary trust, who will make decisions about assets? Beneficiaries are usually not entitled to any trust income or capital unless it’s distributed by the trustee.
In the case of a self-managed super fund, the binding death benefit nomination is important, as it sets out the deceased trustee’s wishes so is not open to legal challenge.
Another decision for families might involve the sale of a family home to fund accommodation in a nursing home, which can typically cost between $450,000 and $1 million.
Darryl Browne, principal of Browne Linkenbagh Legal Services, which specialises in elder legal issues, warns that SMSFs are a “honey pot” for potential fraudsters. These funds have more than one million members and $889 billion under management. Half of these members are over 65, with most aged 75 and over.
“Problems are almost invisible,” says Browne, SMSFs are regulated by the Australian Taxation Office, which has less capacity for monitoring securities fraud than the Australian Securities and Investments Commission. “Problems can happen for several years before being detected,” he adds.
There is a low awareness of potential problems because most detected issues are resolved by confidential mediation.
Protections includes power of attorney, which gives a person legal authority to manage assets and make financial and legal decisions on another’s behalf.
Claire Thurstans, managing lawyer of the not-for-profit Elder Abuse Response Program at Eastern Community Legal Centre, says the best strategy is planning ahead to protect assets and ensure continued objective advice. “There are things you can do to safeguard against elder abuse and establish control,” she says.
A good place to start is establishing a general, or enduring power of attorney, says Andrew Meiliunas, special counsel for Hall and Wilcox.
A general power gives authority to make decisions for a specific reason, or specific amount of time. An enduring power remains in force when the donor loses their decision-making capacity from dementia, illness or an accident and can no longer manage their affairs.
Marisa Broome says the level of planning depends on the complexity of the estate. The attorney has blanket authority over financial and legal issues if the person becomes incapable and has authorised the signing of legally binding documents, operating bank accounts, paying bills, managing investments, or collecting rent.
Browne says while the power of attorney provides “incredible protection”, in some cases it can be a problem.
For example, in a recent case before the Tasmanian Civil and Administrative Tribunal, an attorney claimed she kept around $150,000 in cash belonging to her mother who was suffering from dementia, in an insulated container about 20 metres from the back door of her home. The attorney, appointed by the court to look after her mother’s affairs, claims the money was destroyed by chemicals spilt on a bag containing the cash, which meant outstanding medical and house bills could not be paid.
In appointing an administrator, the tribunal found that the daughter, who cannot be named for legal reasons, not only depleted her mother’s life savings but accumulated debt of more than $90,000.
According to the Alzheimer’s Association, the best power of attorney is trustworthy, knows the person well, is reliable and has the skills to carry out the role, which might involve managing finances, keeping accurate records, and acting in their best interests.
Choosing someone younger might be sensible because decisions may not be needed until sometime in the future.
Meiliunas suggests appointing two attorneys to act jointly. “That way there are checks and balances on any decision.”
Experts say there are eight ways you can protect family wealth.