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March 13, 2018 | Duty of care

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Mom is 83, has the dreaded A-disease and stays in the ‘memory care’ wing of a retirement home in the burbs. “It’s tough to visit her now,” Nolan told me. “Not much there.”

I said I knew. My father, Archie, ended his days in a similar state. He’d always been a statuesque figure, chairman-of-the-board type guy with a signature white moustache. One day I visited and half of it was gone, shaved off. “Mother told me to do it,” he said. She’d been dead for sixty years. But that’s what the curse does to you. Jumbles the brain. Old becomes immediate. Five minutes ago is gone. The past bubbles up to smother the present. It’s not peaceful. The frustration in his eyes as he fought the swirl, tethered to a wheelchair, is with me still.

Decline and demise are inevitable. Elderly parents are a burden. Expensive, too. Nolan is discovering along with so many other adult children what the end of life can mean to the entire family. “I knew about situations like this,” he says. “But I never thought conflict would happen here. To us.”

When Mom could no longer manage, her two boys sold the house and put her in the facility. The $600,000 in real estate money went into a high-interest, 1.5% savings account, where it’s sat for two years. Every month the cost of her care ($5,000) exceeds her pension income by $3,100 – money which comes out of the bank account. But the real problem is she now needs 24-hour supervision, for which the tab is an extra three grand.

I asked Nolan what twisted logic kept him from investing the funds to gain growth (to support her) rather than draining away the principal. “My brother,” he said. “He refuses to allow it since there could be losses and he wants his share intact.” In other words, bro is counting on Mom’s timely exit, which also has him blocking her access to needed care.

Turns out both are executors of her will, and both hold power of attorney for her personal care. A lawyer told Nolan the only way he can act unilaterally, in the best interests of his mother, is to obtain a court order. Good bye brotherly ties, forever.

There are some lessons in this small story, now oft repeated amongst many families.

First, understand what being a POA means. In accepting the appointment as someone’s power of attorney, you have a legal duty for their well-being. This fiduciary responsibility requires that you put their interests ahead of your own. To do otherwise would be illegal, as well as amoral and unethical. You cannot act in a manner that will create a conflict of interest. Instead every decision must address this question: “Is what I am doing completely for the benefit of that person?”

Second, appointing multiple, equal POAs is probably a dumb idea. Especially your kids, or anyone else who may become a beneficiary of your estate. Find a knowledgeable, trustworthy, independent and make them the primary POA. If they’re unable to perform this task later, have a secondary (alternate) POA nominated.

Don’t make your kids your executors. Another awful idea. You can read all the reasons why here.

Understand what memory/brain diseases – dementia, Alzheimer’s – are all about. They’re progressive, incurable, disturbing, relentless and don’t actually kill anyone. The body does that. It can take years, even decades for the long goodbye to occur. If there’s a history in your family, prepare. This could require oodles of money, plus a healthy conversation before it begins.

Speaking of which, Nolan and his brother would be smart to invest Mon’s cash in the same kind of balanced, diversified portfolio that they’d set up for themselves. She could live another decade, during which a return of 6% or 7% could bridge the gap in her care cost, still leaving the bulk of her wealth as a potential estate.

Given the piteous level of interest on ‘safe’ investments, having an all-bond or GIC-only portfolio risks running out of capital. Sticking it in equities magnifies market risk. So a 60/40, low-cost, tax-efficient balanced ETF portfolio could be perfect. Monthly income could be structured as return of capital, keeping taxes low – as would ensuring the TFSA is always topped up and revving.

Finally, kids, expect zero. No legacy, no windfall.

It’s not your money. You earned none of it, so anticipate nothing. When a parent struggles and needs help at the end of the day, extend it freely. Spend it all on their behalf. Be selfless and giving. Treat him or her as you would wish to be treated. That is your inheritance.

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March 13th, 2018

Posted In: The Greater Fool

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