Fitting it all Together

1. Mental Capacity, Powers of Attorney and TRUSTED CONTACTS Fitting it all Together Arthur Fish, Partner, BLG LLP IFB 2018 Toronto Fall Summit November 7, 2018

2. Agenda • Serving Our Aging Population • Mental Capacity and Mental Incapacity • Capable but Dangerous • Enduring or Continuing Powers of Attorney for Property • Attorney for Property versus Trusted Contact Person • Claims, Complaints & Interpleading • Ask me questions or I’ll keep talking

3. Mental Capacity, Powers of Attorney and trusted contacts Fitting it all Together

4. Our Aging Population • North America is Aging (More people 65+ than -15) • Extrapolate forward 20 years and… • We are living longer, healthier lives • Risk of outliving savings • Increased prevalence of “dementia” and “delirium” • But maybe less dementia than we feared… • Greater workplace mobility for Children leads to Isolated Senior Parents • “Sandwiched” Boomers eager for inheritances • Divorce and Separation are increasing amongst people 70+ • Historically unprecedented Canadian divorce rates (1968 – 2004) • Wealth “clustered” in older owners

5. Legal Backdrop:autonomy and taxes versus security • Law of mental incapacity focuses on autonomy • Regulation and Claims focus on security • High Probate Fees • Joint ownership, Need for reform • Inadequate Privacy Laws (address fraud but not possible mental incapacity) • Inadequate Adult Protection Services (in contrast to U.S.) • Access to legal services: the community generalists are retiring • Financial Advisors are retiring and how to deal with more and smaller accounts • Expensive and difficult to access the courts when things go wrong • Heightened regulatory focus, more complaints, more claims

6. What This Means for You • No older customers means no business, but Opportunity brings Risk • Criminals have also spotted the Opportunity • Convergence in service provision (insurance & securities) means you offer a broader target • Many older Customers need to invest in the market • Damned if you do, Damned if you don’t. • Autonomy versus Security: Privacy versus Disclosure • Bad Judgment is much harder to deal with than mental incapacity • High rates of financial abuse of the elderly (rates of altruistic self sacrifice are probably even higher) • Social or family pathology becomes focused on advisors and firms

7. Mental Capacity & Compromised Judgment

8. What is Mental Capacity A person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision. Substitute Decisions Act, (Ontario) s.6 A person of the age of majority or older is presumed to be mentally capable of managing property. Mental Capacity is usually defined as understanding the meaning, purpose and effect of a legal act (for example, signing an agreement to sell your home.) Specialized definitions of capacity apply to making medical decisions, Powers of Attorney for Property and Personal Care, Wills or gifts. Transferring assets into Joint Ownership is a gift.

9. The Grey Zone • The ability to make good decisions tends to decline with age. • The Grey Zone: when Age-related cognitive decline causes people who are mentally capable of making decisions to become more likely to make bad ones. • Cognitive decline may impair the ability to learn and result in a tendency to overrate one’s abilities (“I’m a good driver”). • Grey Zone issues are often much more difficult to address than actual incapacity. • The worst case: a client who is legally entitled to “go to hell with her rights on” leaving you exposed to liability for implementing the client’s money-losing bad decision. • The goal here is loss mitigation. • Sometimes that means severing a client relationship. • The cure is prevention - build solid client relationships.

10. Mental Incapacity Inability to understand information or appreciate consequences. Failure on either ground = legal incapacity. People are presumed to be capable UNTIL there are (objectively) reasonable grounds to think they MAY not be, Your job is NOT to diagnose incapacity. That’s for the medical professionals. Your job IS to recognize the signs that someone MAY be incapable and react appropriately. Those of us who deal with the public are usually pretty good at recognizing normalcy – or noting its absence. The better you know the customer, the better you will be at spotting possible incapacity and the more likely to find a straightforward resolution to capacity related issues. to be able do something straightforward to assist the customer.

11. Incapacity may be episodic • Capacity may fluctuate. • “Dementia is the progressive decline of memory and other thinking skills due to the gradual dysfunction and loss of brain cells.” • “Delirium is a serious disturbance in mental abilities that results in confused thinking and reduced awareness of the environment. The start of delirium is usually rapid — within hours or a few days. Delirium can often be traced to one or more contributing factors, such as a severe or chronic illness, changes in metabolic balance (such as low sodium), medication, infection, surgery, or alcohol or drug intoxication or withdrawal.” (Mayo Clinic) • A useful overstatement: dementia typically gets worse, delirium often gets better. It can be hard to tell them apart. • Someone who is legally incapable today because of delirium may be legally capable next week. • Delirium is especially common for older people during or following hospital stays.

12. Incapacity – useful rules • Capacity may fluctuate • It is “task specific” – it is assessed in relation to particular decisions, e.g. capable of driving but incapable of investing. • It is assessed in relation to the individual’s own habitual standards and wishes, and with financial matters will typically appear as a departure from the individual’s own normal standards of behaviour. • We do not judge others by what we think to be a good or bad decision, but by what they usually think is good or bad. • Question, listen, repeat, probe for reasoning “I know you want to sell. Can you tell me why?” • KEEP NOTES!!! (please) • Incapacity may be masked by charm or passivity. • Issues with communication may create a false appearance of incapacity.

13. Powers of Attorney

14. What is a power of attorney? • A legal document by which one person (the “Grantor” or “Principal”) appoints another (the “Grantee” or “Attorney”) to make decisions regarding the Grantor’s property if the grantor lacks mental capacity, or has mental capacity but cannot or does not want to make his or her own decisions. • Mom has advanced Alzheimer’s disease versus Mom is spending the next three months in Arizona. • May become effective when signed or only when Grantor loses mental capacity. • A “Continuing” or “Enduring” Power of Attorney for Property remains valid even after the Grantor loses the mental capacity to manage property. • In Ontario a person may be incapable of managing property but still capable of making a power of attorney. • It SEEMED like a good idea at the time. • Occasions much mischief – “power of attorney wars.”

15. Kinds of Power of Attorney • Continuing or enduring powers are made under provincial, territorial or state law. The details differ in important ways from place-to-place. However, they are available and broadly similar in form and function in most provinces, states and territories. • The Quebec power of attorney for property is called a “mandate.” It substantially differs from its common-law cousin. If unfamiliar with Quebec law get advice. • In general, get advice before acting on a power made outside Ontario. • Bank or brokerage powers of attorney deal only with a particular account. You should avoid offering “form” powers to customers. • Powers of Attorney for Personal Care give the Attorney the authority to make health or personal care decisions.

16. What to Do with a Power of Attorney • If possible, get a notarial copy. • Have the Attorney confirm in writing that the power has not been revoked or terminated. (E.g. the power of attorney is terminated by the Grantor’s death or making of a new power.) • Read it!!! • Is it a continuing power for property? Under what law? • Multiple Attorneys? • Effective immediately or on incapacity? • Restrictions on Attorney’s power? • Compensation for Attorney? • Restrictions on gifts to third parties? • Share it with all who need to know: failure to share invites liability.

17. Next Steps • Is the Attorney Canadian resident? • Get the story • Irremediable loss of capacity • Permanent withdrawal from decision-making in favor of Attorney • Short term (usually recovery from illness\ surgery or travel) • Confirm incapacity (Doctor’s letter) • Confirm in writing address to which statements are to be sent • In all cases update money laundering and insider trading compliance • With incapacity or withdrawal also redo KYC and reassess suitability • Suitability means for the Grantor NOT the Attorney – even if she or he expects to inherit it all

18. Common Errors • Facilitating unlawful transfers to third parties, e.g. power of attorney says “no compensation” and a financial institution transfers funds to attorney’s account “for compensation” • Attorneys are fiduciaries. Assisting an attorney to breach his or her duties exposes you to liability. • Facilitating “gifts” by the Attorney to himself or herself or near relatives, e.g. grandchild’s university tuition or child’s mortgage payments. • Gifting is a complex topic. It is sometimes permissible. Seek guidance before acting. • An attorney transferring assets into joint ownership is a form of gifting. Seek guidance. • Allowing the attorney to change beneficiary designations on a registered plan or insurance product. Be careful when moving accounts. • Falls within the prohibition on Will-making. • Failure to update KYC and suitability – e.g. rely on incapable Grantor’s old instructions • Investments suitable for the Attorney but unsuitable for the Grantor

19. Trusted Contact Person (“TCP”) • Asking the wealth management customer to appoint a TCP is a “best practice” and likely to become mandatory. • The TCP is NOT a decision maker. • Obtain the customer’s consent to the release of confidential information to the TCP. • The TCP assists you and the customer in addressing concerns over capacity or abuse. • Your 84 year old customer appears to be confused and forgetful. You call her daughter, who is the customer’s TCP. She takes her mother to a doctor who treats a respiratory infection. • The appointment of a TCP complements the creation of a power of attorney. • The TCP may also be the Attorney for Property. If so, the TCP is not useful if the Attorney is the problem. • The TCP is useful but not a panacea.

20. Complaints, Claims & Interpleading

21. Common Claims and Complaints • “Complaint” means invoking an internal investigation and response, e.g. by Ombudsman or subject to regulatory obligations. • “Claim” means regulatory investigation or charges or lawsuit claiming damages. • Inappropriate investments resulting in losses or excessive costs. • Facilitating improper withdrawals or third party transfers. • Facilitating inappropriate joint ownership, beneficial designations or third party transfers. • Advisors subject to third party examination in power of attorney or estate litigation. • May lead to disappointed beneficiary claims, e.g. we spent money on lawyers because you didn’t ask the right questions. • Best protection is following best practices and keeping good notes.

22. The Wars • Power of Attorney War • Joe is your client. His son A has been his attorney for property for 10 years. Joe has told you he does not trust son B. Joe appears to be ill, confused and forgetful. Son B presents a power of attorney appointing him alone. • Joint Ownership War • Jane is your customer. She has two daughters. She put her bank account in Joint Ownership with daughter A. Jane dies. Daughter A says the account is hers. Daughter B says it is to be shared with her. A and B are co-executors of Jane’s estate. • You are not an adjudicator. The combatants need to agree or ask a court to resolve matters. Some people prefer self-help. They will press you to choose sides or do “favours,” e.g. release funds to meet pressing needs. Choosing sides or doing favours inevitably exposes you to liability.

23. Interpleader A legal proceeding in which an account holder (i) who has no financial stake and (ii) is subject to competing claims over an account, asks a court for permission to go to cash and pay proceeds into court. The benefit is it takes you out of the middle and eliminates or mitigates exposure to risk. It is often less expensive and risky than sitting passively in the middle and paying for external legal advice. The risk is that it costs you the client and legal fees, may leave the client with a tax bill and, in the short term, makes a tense situation worse. Often the prospect of an interpleader causes the combatants to settle or seek a court’s assistance themselves so you don’t have to proceed. Interpleading is useful where you are (i) uncertain who has the authority to make decisions and (ii) assets are exposed to market risk OR where the war is prolonged and the combatants refuse to settle or proceed to court.

24. Arthur Fish Partner 416 367 6178 afish@blg.com