Five tips to save your clients from the same fate
Financial advisors who watched Britney Spears’ conservatorship battle with her dad were likely relieved they don’t have clients in the same boat, but they can pass on five tips to ensure they never repeat the pop star’s recent experience.
Melanie McDonald, BMO Trust Company’s Vice-president and Regional Director (Western Canada), says Canadian “conservatorships” are called guardianships and are based on competency. They look at people’s capacity to either manage their property (including art, house, cars, and jewelry) or their health and personal care (medications, operations, treatment, and end-of-life decisions, such as legal matters and where they will live or who they will associate with).
Clients don’t have to be wealthy to end up in Spears’ situation. They, or their families, can also set up guardianships if they’re concerned about their mental health, addiction issues, rapid spending, dementia or Alzheimer’s. People who feel vulnerable after receiving a financial windfall can also opt for a guardianship if they’re uncomfortable addressing financial requests from friends and family.
“More attention should be spent on these areas because they impact the quality of your life,” says McDonald, noting anyone could potentially end up in a guardianship, so advisors should recommend their client follow these five tips.
1. GET A POWER OF ATTORNEY AND HEALTH DIRECTIVE
Clients should have a power of attorney (POA) and health and personal care directive drawn up when they write their wills. That was Spears’ biggest mistake.
“Since Britney didn’t have documents in place for her personal capacity, the court appointed her father and terms that she might have chosen,” says McDonald. “If you don’t do your own documents, then you can get a court order and court-ordered guardian.”
“When you do the documents yourself and you have capacity, you can change them for any reason. Once it’s in the court system, you have less flexibility.”
Legally, the different tasks require different capacity levels. The highest is to write a will. It takes less capacity to develop a POA, and even less to develop a health care directive. “The lowest level of capacity is to get married,” says McDonald.
People can also be temporarily incapacitated by mental health, medication, or treatment issues, and regain their capacity, and rights, once those issues are resolved, particularly if they’ve dawn up these documents. It’s harder, as Spears discovered, to get the court to change its terms.
2. PICK THE RIGHT GUARDIAN
Clients should pick a guardian who has the time and willingness to do the job, but also understands their values, particularly religious ones that may impact health decisions. They could also choose a trustee, such as a trust company, rather than naming a family member or friend.
The guardian also needs to be willing to make critical decisions. “Don’t pick someone who’s not comfortable making difficult health care decisions,” says McDonald.
If a client doesn’t choose someone, then Canadian law names a hierarchy of who can make decisions. Usually, it’s the spouse, then children, or parents if there are no spouse or children.
“You may have someone in your family whom you want to do it or not do it,” says McDonald. “Our default rules don’t look at the family situation, just the guideline to start the process. You want someone responsible with the time and attention to do it. With health care, you also want a person with the right values to do your wishes.”
3. CLEARLY STATE YOUR WISHES
Clients need to clearly state their wishes, then share them with their guardian(s). That includes end-of-life decisions plus whether gifts, loans, or charitable contributions should continue.
If clients designate different guardians for their property and health, they should also name a third person who can break ties in accordance with their wishes, particularly in any overlapping areas, such as how health issues may impact property issues.
McDonald warns there can be different capacity issues for dealing with children. Parents can state their wishes for a child to have a particular guardian, but the court will decide what’s in the child’s best interest. It may consider a parent’s wishes, but also the spouse’s or grandparents’.
“In the world of children, you don’t have complete control over that,” adds McDonald. “The court is ultimately responsible.”
4. SPECIFY THE GUARDIAN’S COMPENSATION
If clients ask someone to manage their property, they should also ensure the guardian is paid – either an hourly or annual amount.
A trustee would be compensated at the market rate.
5. BUILD-IN CHECKS AND BALANCES
Finally, recommend your clients’ guardians report to someone else, such as a friend or family member, who can check transactions or expenditures, to ensure everything is above board.
“There is a lot of fraud out there,” says McDonald. “People may want to take money early, so that check will reduce the temptation.”
