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Jennifer Lamb Borden Ladner Gervais LLP IFB Alberta Spring Summit April 8, 2014 Mental Capacity Issues in a Commercial Setting.

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Presentation on theme: "Jennifer Lamb Borden Ladner Gervais LLP IFB Alberta Spring Summit April 8, 2014 Mental Capacity Issues in a Commercial Setting."— Presentation transcript:

1 Jennifer Lamb Borden Ladner Gervais LLP IFB Alberta Spring Summit April 8, 2014 Mental Capacity Issues in a Commercial Setting

2 Topics to be Covered 1.Setting the stage 2.Introduction to terminology and concepts 3.Potential issues 4.Recommended approaches and practices 5.Review case studies 2

3 The Social Backdrop Aging Society long-term care and management arrangements need to be implemented as needs and abilities change More multiple marriages, common law couples, separation and divorce Potential complications of blended families Greater use of Enduring Powers of Attorney Accumulation of Wealth Elderly can be vulnerable to caregivers and family members who may try to take advantage of them 3

4 4 Why does this matter to you? Know your client Act on instructions Fiduciary obligations Risk of litigation Privacy concerns

5 How can mental capacity become an issue?  Mrs. Jones calls at 10:00 a.m. and gives sell instructions. Sale confirmed at 10:10 a.m. and she later denies giving instructions. You ask her what day of the week it is, and she doesn’t know.  Sophisticated client with history of complex transactions suddenly appears confused and forgetful. Tells IA that “my son stole all information re trading accounts” while client was recently hospitalized. Client denies that anything is wrong with him. 5

6 Fiduciary Obligations You are presented with an Enduring Power of Attorney and a Dr.’s letter confirming client’s incapacity: (a) Attorney instructs you to designate him as beneficiary. (b) Attorney instructs you to cash out the RRSP account and transfer funds to attorney’s personal account, which you manage. 6

7 Core Lessons Focus on the client/owner – then look at any changes to the situation – capacity, Power of Attorney documents. The family that fights with one another will also fight with you. Unfortunately in many cases ‘it is about the money’. You are a “trusted advisor”. 7

8 Core Lessons (Cont’d)  Don’t facilitate a family member trying to take advantage of the situation.  Red Flag – action results in personal benefit to someone other than the client.  Opportunity to serve clients in an especially valuable way.  Significant risk of liability.  Need to train front line staff to spot, monitor and address high risk situations. 8

9 Why are the Core Lessons Sometimes Ignored?  Desire to be helpful in a bad situation.  Confusion over who the client is, especially when acting for more than one family member.  Desire to keep the client.  Desire to have the fiduciary (Attorney) become a client. 9

10 Terminology & Concepts 1.Mental Incapacity – Definition 2.Documents Power of Attorney Personal Directive 3.Trustee and Guardian appointed by the Court 4.Confidentiality and Privacy 10

11 Terminology & Concepts (cont’d) 1) “Mental incapacity” Inability to understand relevant information and appreciate consequences of decision or lack of decision Relevant questions include: What are my assets and what is their value? Who are my family members? Who do I have an obligation to support? Do I understand the consequences of my actions? Are my wishes consistent? Gradual decline, memory problems, day-to-day differences, etc. 11

12 Terminology & Concepts (cont’d) 2) “Power of Attorney” Donor is the person creating and signing the Power of Attorney Donor names and appoints an attorney to manage their property 12

13 Terminology & Concepts (cont’d) a) “Power of Attorney” Broadest powers that can be given The Attorney can do anything that the Donor can do with respect to their property except create a new Will or other type of testamentary disposition (includes beneficiary designations or changing to joint ownership) POA can include wording to permit the attorney to complete an estate plan that includes: reorganization of corporate assets, creating family trust, donations, etc. 13

14 Terminology & Concepts (cont’d) 2) “Power of Attorney” Is it legally valid? Do I have to follow it?  What is your company’s process to confirm the validity of a Power of Attorney?  Legislation governing Powers of Attorney varies province to province  Evidence – need to view the original and keep a notarial copy of the POA in your file 14

15 Terminology & Concepts (cont’d) 2) “Power of Attorney” – 2 Types: i.Immediate – used for convenience  Donor is mentally capable while it is being used  Examples - appoint Attorney while out of the country or if needs assistance with managing property as a result of mobility issues  Can be time-limited or enduring after incapacity 15

16 Terminology & Concepts (cont’d) 2) “Power of Attorney” – 2 Types: ii. Springing into effect upon mental incapacity  Donor signs while mentally capable  Intended to start and continue to be used when Donor is incapable  POA will outline the evidence that must be produced to confirm incapacity (i.e. doctor’s letter) 16

17 Terminology & Concepts (cont’d) 2) “Personal Directive”  Donor is the person creating and signing the Personal Directive  Donor names and appoints an agent to manage their health care and personal care decisions  May include specific wishes regarding health care and end of life issues: religious beliefs or organ donation 17

18 Terminology & Concepts (cont’d) 2) “Personal Directive”  Agent can be given the power to make decisions regarding: Where the Donor lives Who the Donor lives and socializes with Donor’s participation in social activities, work, educational or other training Makes decisions regarding the Donor’s health care, diet, clothing decisions  Interplay between Attorney and Agent if not the same person – some decisions require the input of both – i.e. where the Donor lives 18

19 Terminology & Concepts (cont’d)  Mental Capacity required to have a valid: Will Power of Attorney Personal Directive Marriage 19 Most capacity required Least capacity required

20 Terminology & Concepts (cont’d) 3) Appointment of Trustee  Client does not have a POA  Becomes mentally incapable  Has property that needs to be managed  A family member or friend makes a Court Application to be appointed as “Trustee” pursuant to the Adult Guardianship and Trusteeship Act Need to have a doctor, psychiatrist or psychologist’s written assessment confirming mental incapacity In Alberta, legislation defines the mentally incapable person as a “Represented Adult” 20

21 Terminology & Concepts (cont’d) 3) Trustee vs. Guardian  Trustee manages all property, assets, liabilities and investments  Guardian instructs doctors, makes health care decisions and decisions about where the person lives, social activities, etc.  Both Court-appointed  Often same person appointed Guardian and Trustee but not required 21

22 Terminology & Concepts (cont’d) 4) Confidentiality and Privacy  Legal owner of account and their authorized representative (attorney or trustee) have the right to access information  The following persons do not have the right to the client’s information: Spouse (if not an owner of the account) Adult children Executors or beneficiaries named in the Will Client’s professional advisors (accountant or lawyer) Caregivers  Get authorization signed by client while they have capacity to allow others to have access to information 22

23 Approaches and Practices  How am I supposed to know if my client is mentally incapable?  What am I supposed to do to confirm capacity?  I don’t think my client is mentally capable – what next?  Other General Practices 23

24 How am I Supposed to Know? Capacity:  All clients are presumed to be mentally capable unless proven otherwise by: Qualified & independent medical professional/assessor or Court order  Red Flags: Your observations Views expressed by family members or friends This evidence should cause you to take further steps to inquire about capacity 24

25 How am I Supposed to Know?  Actual Notice: A lawyer’s letter informing you that a client has been found incapable by the Court and a Trustee has been appointed – with a copy of the Court Order A doctor’s letter confirming mental incapacity with a notarial copy of a Power of Attorney  Deemed Notice: Someone else in your organization has actual notice even if they haven’t circulated the information Important to “flag” the file, change name, etc. so that others in the organization have all necessary information 25

26 What am I Supposed to Do? Actual Notice:  Review original copy of document  Obtain a notarial copy of document  Read the documents, noting any restrictions  Follow firm procedures regarding validation of documents  Disseminate the information internally as required and flag the file  Update the client information or open new accounts as required 26

27 DO NOT DELAY!  Proper course of action will depend on the nature of the situation, assets and immediate issues that need to be addressed Your potential liability:  Client capable – you don’t follow instructions and financial losses to client due to your delay  Client incapable – you do not take proper steps to protect their interests and financial losses result 27

28 Plan and Act:  Protect and respect the client’s privacy  Notify the client before taking any action  No secrets: send the Power of Attorney to the client/donor and advise of instructions you have received from the Attorney  Ask client questions about health and current situation – call back over a few days to see if information is consistently given  If genuine concern about capacity, ask client to get an opinion from their doctor confirming mental capacity  Refer client to their lawyer if there are ongoing issues  May need to refer family members to their own lawyers 28

29  Report internally to risk manager/compliance/legal and seek advice Proper legal response Risk management issues – review urgency Fraud/theft – notifying the police  May need to freeze the account (partial) and/or pay assets into Court if client incapable and dispute regarding who has authority  Document your file As detailed as possible – all contact and conversations Ask a manager or another person at the office to attend meetings with you Ask others who contact you to put their requests/positions in writing for you to respond to 29

30 General Practices  Internal Regulation/Risk Management Circulate contact information for “Go to” persons (risk management/legal) Review policies on validating POA’s and “flagging” files Revise account opening forms to include information about POA’s and other authorizations to release information Training to recognize common signs of declining capacity Policy on stalling to clarify instructions and freezing accounts – are there alternatives to a complete freeze? Willingness of managers to act and back up front line staff on the problem files 30

31 General Practices (cont’d) Internal Regulation/Risk Management  Case by case review Type of transaction – risk, urgency Client – background and family information Capacity – evidence produced POA – certainty that it is valid and no competing documents 31

32 General Practices (cont’d) Battle of the Powers of Attorney  Check dates  Is there a Trusteeship Order that overrides the POA’s?  Other evidence of a dispute Complaints of spouse or family members Unusual or suspicious behaviour of attorney, trustee or caregiver 32

33 Additional Concepts and Issues  Fiduciary Relationship  Duties regarding Investments  Estate Basics  Joint Ownership of Property  Overview of Distribution of Property on Death 33

34 Fiduciary Relationship:  In addition to providing proper investment advice you may have owe your client additional obligations  Be loyal, fully advise with honesty and good faith and in the best interests of the client while avoiding conflict of interest  Includes: Disclose personal benefits: fee and compensation arrangements Disclose your personal interest in investments/companies Be vigilant in protecting the client’s rights (i.e. privacy rights and asking the attorney questions) 34

35  Examples of Fiduciary Relationship: executor/beneficiary attorney/donor - POA director/corporation  Advisors: Depending on the nature of the relationship, you may owe fiduciary obligations to your client 35

36 Advisors: The following factors could indicate a fiduciary relationship: 1)Advisor has some discretion or power 2)Advisor can unilaterally exercise the discretion or power to affect the client’s interests 3)Client is vulnerable to the advisor who holds the power 4)Other characteristics – a relationship of trust, confidence, discretion, influence, sophistication, vulnerability, or complexity 5)Case law: fiduciary relationship found where the advisor’s client was elderly, mentally or physically incapable, unsophisticated to the extent that they were vulnerable or heavily reliant on the broker 36

37  Client who was very risk tolerant while capable – review appropriateness of investments with Attorney/Trustee  Be as clear as you can about your fee and commission arrangements You never want to be accused of being motivated by your personal interests Have Attorney approve fees in writing and ensure statements clearly outline fees/commissions  Clearly disclose any personal interest you or your firm have in companies that the client is investing in 37

38 Summary: Both advisor and Attorney must be guided by the best interests of the Donor Consider those persons that the donor has a legal obligation to support (spouses and dependent children) Other key responsibilities of Attorney: follow the terms of the POA and Will Keep client’s assets separate from the attorney Maintain an up-to-date accounting of all transactions in and out of the accounts Each transaction – must list: 1) date, 2) payor/payee, 3) description, 4) amount 38

39 Attorney Must act in accordance with the terms of the Power of Attorney may include specific instructions about what types of investments are authorized may have other specific instructions regarding the management and sale of their assets 39

40 Trustees and Attorney (where the POA does not provide instructions about investments)  Comply with Trustee Act (Alberta)– s. 2 to 8  Standard of care - obtain a reasonable return while avoiding undue risk, having regard to the circumstances of the case  Exercise reasonable skill and prudence  May delegate to an advisor the degree of authority that a prudent investor might delegate – review at regular intervals 40

41 Trustees and Attorney (where the POA does not provide instructions about investments)  In case of a Trustee, must ensure, so far as it is practicable, that any record evidencing the ownership of securities also indicates the trust relationship – i.e. account should be “Bob Smith, in trust for Jane Smith”  Potential claims by Trustee/Attorney and against advisor if the advisor has breached their duties 41

42 Summary  Who owns the account?  Is the client mentally capable?  If not, who is asking for the information or providing instructions to you? Do they have the authority? Is there a valid POA or Court Order? Are there competing documents?  Address the situation promptly and with care as you may also have fiduciary obligations 42

43 Issues Related to Estates  Before death, Attorney has the power to make decisions  After death, the Executor has the power to make decisions  Transitions – in your files 1 st – client to Attorney (but account remains in client’s name) 2 nd – attorney to Executor (account name changes to an estate account) 43

44 Issues Related to Estates Grant of Probate  Not required in all cases – only required if institution demands it or deceased was sole owner of land  Confirms Executor is authorized to administer the estate  Often accounts of any size in deceased’s name alone are “frozen” until Probate issued by Court Exceptions – the institution may release funds: Pay legitimate expenses – funeral bills, taxes, etc. Small amounts to support spouse/children Trading may be allowed if high risk investments need to be addressed 44

45 Disputes over Wills:  Client mentally incapable when Will was signed  Beneficiary exerted undue influence to change the Will  Spouses or other dependents are making claims for a larger share of the estate because needed for their support  The Will was not properly signed or the terms of Will have more than one interpretation 45

46 Asset Management:  Who is the executor? Who has the authority?  Are there immediate transactions that need to be completed?  - Send letter with suggestions to all parties  Interim administrator may be appointed by the Court while disputes being addressed  Situations where there is no Will 46

47 Joint Ownership of Property  Definition Both owners have interest in the jointly owned assets Survivor receives 100% of interest on co-owner’s death  Common for spouses/adult interdependent partners to own their house or accounts jointly 47

48 Common Misconceptions  Good way to manage a elderly parent’s affairs Use Power of Attorney instead Attorneys have duties and responsibilities with respect to the management and accounting of the property  Avoids Probate fees Alberta fees maximum $400 regardless of the size of the estate 48

49 Risks of adding a joint owner  Joint owner can deplete the account  Risk of loss if joint owner is bankrupt, sued, separated/divorced, or dispute between owners  May causes issues in the estate – beneficiaries can be suspicious about actions of joint owner (i.e. account jointly owned by parent and one of a number of children)  Not easy to remove a joint owner that has been added and reverse transactions 49

50 What should you do if asked to add a joint owner?  Ask client why they want a joint account? Why not sign a Power of Attorney?  Confirm that they want the joint owner to receive the property on death as a gift As compared to the property being distributed to the beneficiaries named in the Will  Have client confirm intentions in writing at time joint account is opened – understand your company’s forms for joint accounts 50

51 Adult child and parent holding property jointly  Supreme Court: there will be a presumption of resulting trust – Pecore decision  This means property will be distributed in accordance with the Will (ignoring that it was jointly held) unless the adult child can prove that their parent intended to give the property to them as a gift on their death  Adult child must produce evidence to prove that parent intended to gift the property – showing that it was not just done for convenience or to avoid Probate fees 51

52 Overview of distribution of assets on death 52 Estate -Assets that are in the name of the deceased alone - Property owned as Tenants in Common - the Will governs distribution - Probate may be required (if institution holding assets insists or land needs to be transferred) Assets Passing outside the Estate - life insurance, pensions, RRSP’s or other assets with named beneficiary that is not the Estate - accounts or land that are owned in joint tenancy - death certificate needed to transfer assets and funds (watch beneficiary designations in the Will)

53 Case Studies Martha is 84 years old and fiercely independent. She has been your client for 25 years, always making her own decisions. She calls to confirm a “buy” instruction. You call to confirm later that day but she denies having given the instruction. WHAT DO YOU DO? 53

54 Steps:  Confirm that it’s her and not you who made the error. Have a longer conversation asking many questions – call back a few days later and have another conversation  Does she have capacity? Or: is she becoming deaf? is this a memory problem?  If no serious concerns, confirm instructions in writing and follow-up – capable until proven otherwise  If more serious concerns, request an assessment regarding her mental capacity 54

55 Steps:  Review nature of investments and whether any immediate decisions need to be made  Do you have prior consent to contact others – spouse, family members?  Seek Martha’s permission to contact others regarding capacity  Genuine emergency (risk of loss) may permit non- consensual disclosure to family members of situation. Always seek legal advice before taking such action. 55

56 Steps:  Flag the account  What if she appears incapable but won’t consent to assessment and risk of harm: Freeze (partial? – i.e. only allow automatic withdrawals) Contact Public Trustee’s Office Obtain direction from the Court Court can grant permission to contact family members, lawyer for client, authorize payments from the account, freeze account and other remedies that are appropriate in the circumstances 56

57  Martha’s son, Joe, calls and says Mom has “lost it”. He faxes you a Power of Attorney and asks you “not to tell Mom”.  Two days later, Martha’s daughter, Peggy, sends a later dated Power of Attorney and asks you to not tell Martha or Joe. Peggy’s Power of Attorney is made using a kit that she bought at an office supply store. WHAT DO YOU DO? 57

58 Joe’s Power of Attorney:  Ask to see the original POA#1 and ask for a notarial copy for the file  Confirm that POA #1 is valid – consult with risk management/legal  Read the POA #1 – immediate vs. on incapacity? – what powers does it grant? Investments?  So far no evidence of incapacity (a POA does not mean Martha can’t make her own decisions)  No keeping secrets from Martha – contact Martha Assume Joe provides doctor’s letter confirming Martha is incapable. 58

59 Peggy’s Power of Attorney:  Ask to see the original copy of POA #2 and ask for a notarial copy for the file – DATE****  Confirm POA #2 is valid – consult with risk/legal  Notify Peggy in writing of your concerns re: validity of her Power of Attorney 59

60 Peggy’s Power of Attorney:  Notify Martha and Joe  Letter to all parties with deadline: either they resolve their quarrel and provide you with in instructions or you will take action  In your letter make note of any immediate decisions that need to be made  Freeze the account (partial?)  If the parties do not act by the deadline, family should apply to Court for directions regarding how to proceed – if not you/your company may choose to apply to Court 60

61 Your client named Bob has a common law spouse, Susan. Susan calls and asks you to change Bob’s investment account from Bob’s name alone to joint with Susan. Susan says that she regularly deposits money into the account. WHAT DO YOU DO? 61

62 Steps: Has Bob authorized you to discuss account with Susan? If not, call Bob to discuss Susan’s call Bob is owner – spousal status or deposits do not change the account ownership If Bob confirms he wants Susan to be a joint owner: Ask why Ask how he wants the account distributed on his death Discuss risks of having Susan as joint owner Ask Bob to confirm his instructions in writing Include his reasons and what he intends on his death 62

63 Questions and Discussion 63

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