Introduction to Capacity Issues and Guardianship of Property

Arthur Fish

IFB Toronto Fall Summit

November 4, 2015

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Outline

• The Challenge

• Brief Overview

• What are “capacity” and “incapacity”?

• How to take effective action• Planning • Informally (once a problem has appeared)• Why and how to refer to a physician• Why and how to seek legal advice

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Litigation Over Capacity: “A Growing Social Problem”

• Kirk Makin, Globe & Mail, Wednesday, March 30

• “In a blistering decision Wednesday that shed light on a growing social problem, Judge Brown said there has been a huge increase in litigation regarding elderly people's ability to manage their own finances”.

• He said the Abrams case shows “just how badly things can go off the rails”.

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Litigation Over Capacity: A Growing Regulatory Issue

• Increase in regulatory complaints arising from provision of financial services to older Canadians

• Many complaints raise issues of suitability and\or capacity

• In fact, the 2 issues are closely related

• More estate litigation drawing advisors in as witnesses or parties

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The Challenge: Can we help keep things “on the rails”?

• A legal and social disaster looms

• This is the family law of our millennium

• Capacity issues are deeply intertwined with family breakdown

• People exaggerate another’s capacity or incapacity as it suits their needs

• Both liberty and security of the person are at risk

• Professionals\advisors too often make bad cases worse

• We’re all on the front line for the rest of our careers

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How to make things worse

• Pretend the issue doesn’t exist

• Do favors to keep everyone happy

• Take sides without analysis or reason

• Avoid seeking appropriate medical and legal guidance at an early stage, which means:• While person still has some ability to make decisions• Before family positions have hardened into distrust and

anger

How to make things better

• Incorporate planning and consent in your standard practices

• Adopt good practices in dealing with elderly clients• Listen carefully and take good notes• Where appropriate:

• Suggest clients seek medical advice • Refer clients for legal advice

• Understand the mechanics of “substitute decision-making”

• No “muddling through”: seek legal advice yourself

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Older Clients

•Listen Carefully to your customer

•Pay attention to gut reactions

• BUT test those reactions

•Set and setting

• Hearing Aid?

• Quiet

• Lip readers

• Meds\surgery

•Test: tell me why…

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Basic Approach

•Be Proactive

•Identify the SDM

• Copy of the power?

•Consent to disclose confidential info

•Ask WHY power of attorney presented

•If incapacity –

• Document

• Update KYC: revisit suitability

• Update insider trading and money laundering

•Clarify reporting obligation

When may you release confidential information? *Note: this is incomplete and deals only with circumstances commonly encountered in providing financial services.

1.With the person’s consent, if the consent complies with the rules in section 4 Schedule of PIPEDA.

2.Without consent where the disclosure is requested “for the purpose of communicating with the next of kin or authorized representative of an injured, ill or deceased individual.”

When may you release confidential information? (cont’d)

3. Without consent “on the initiative of the organization to a government institution, a part of a government institution or the individual’s next of kin or authorized representative and• (i) the organization has reasonable grounds to believe that

the individual has been, is or may be the victim of financial abuse,

• (ii) the disclosure is made solely for purposes related to preventing or investigating the abuse, and

• (iii) it is reasonable to expect that disclosure with the knowledge or consent of the individual would compromise the ability to prevent or investigate the abuse.”

When may you release confidential information? (cont’d)4. Without consent “…to another organization and is

reasonable for the purposes of detecting or suppressing fraud or of preventing fraud that is likely to be committed and it is reasonable to expect that the disclosure with the knowledge or consent of the individual would compromise the ability to prevent, detect or suppress the fraud…”

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Complex Laws

• Complex Laws • Statutory reform in every province and territory• Family law, powers of attorney, probate

avoidance, joint ownership• Increased probate fees = Increased use of Joint

Ownership = further increase in estate and capacity litigation

• Much more estate and mental capacity litigation• Affects every financial services firm and every

IA in the country

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Canada's Aging Population

•Urban

•House rich

•Wealthy & Very Wealthy

•Growing

•High Divorce Rates: Quarrelling Children

•Long-lived

•High incidence of Alzheimer's disease & Dementia

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Older Canadians are Wealthy

• Wealth concentrated in older population

• Older Canadians over-represented in top 1%, .1% and .01% of Canadian taxpayers

• They are both asset and income rich

• Average life span is increasing

• Boomer children (and grandchildren) have taken an economic hit and many need inheritances

• Few have defined benefit pension plans

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Longer Life, More Dementia

• Average life span is increasing

• More people live long enough to develop diseases of old age

• Rates of “Dementia” and “Mental Incapacity” have been underestimated

• Law of mental capacity has not yet caught up to science

• Commercial practice has not yet caught up to science

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Canadian Alzheimer’s Society 2009 Study

• An estimated 500,000 Canadians have Alzheimer's disease or a related dementia. Over 70,000 of them are under age 65 and approximately 50,000 are under age 60.

• 1 in 11 Canadians over age 65 has Alzheimer's disease or a related dementia.

• Women make up almost three-quarters of Canadians with Alzheimer's disease.

CONCEPTS & GLOSSARY

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Capacity

Capacity is the ABILITY TO UNDERSTAND information relevant to a decision and the ABILITY TO APPRECIATE the reasonably foreseeable consequences of a decision, or the lack of a decision.

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Mental Incapacity to Manage Property

• Defined in “Substitute Decisions Act”

• Applies to people age 18 and over

• “Mental incapacity” means: • the inability to understand information relevant to

a decision; OR• to appreciate the consequences of a decision or

lack of decision.

• Failure on either arm = legal incapacity

• All adults are presumed to be capable

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Control: Continuing Power of Attorney for Property

• “Continuing Power of Attorney for Property” - a document by which:

• one person (the “grantor” or “principal”) • appoints another (the “attorney(s)”)• to manage the grantor’s property• if the grantor becomes mentally incapable• always a fiduciary, but “Trustee-like” if Grantor is

mentally incapable• overturns common law rule, agent loses authority

on principal’s incapacity

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Control: Power of Attorney for Personal Care

• Attorney for Personal Care: A Substitute Decider with the authority to make decisions re Personal Care (health care; admission to long term care; other aspects of personal care).

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Incapacity & Fiduciary Duty in Real Life

Incapacity in the Real World

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Key Issues and Concepts

• Mental Capacity to Manage Property

• What’s the issue?

• Who’s your client?

• Should you intervene informally?

• Does the situation require formal intervention (assessment, power of attorney, guardianship)?

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When Does (In)Capacity Manifest in Real Life in Ontario?

• Estate Planning (Will; POA – property or personal care)

• Gifting to spouse or children – INCLUDING JOINT OWNERSHIP

• Investment Decisions

• Ability to manage finances (instructing bank\broker)

• Choosing sides in family quarrels

• Operation of family business

• Instructing lawyers

• Remedying abuse

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How Incapacity Presents Itself

• Presumption of Capacity: people are assumed to have capacity until….

• “...conduct that would cause a reasonable person to think the client’s incapable”: “I never told you to do that.”

• Actual Notice:

• A lawyer’s letter stating that a customer has been found incapable

• A doctor’s letter with a notarial copy of a power of attorney

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How Incapacity Presents Itself

• Actual Notice (continued):

• Client's child alleges

• Deemed Notice: someone in an organization knows but has not circulated the information

• Large Organizations need systems that incorporate ability to disseminate information or “flag” troublesome files

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How does Mental Capacity Become an Issue?

• Mrs. Jones calls you at 10:00 a.m. to issue sell instructions. Sale confirmed at 10:10 a.m. and she denies giving instructions. She’s asked what day of the week it is and doesn’t know.

• Sophisticated customer with history of complex hedged transactions suddenly appears confused and forgetful; tells IA that “my son stole all information re trading accounts” while customer was recently hospitalized. Customer denies that anything is wrong with him.

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How does Fiduciary Obligation Become an Issue?

• You are presented with a power of attorney for property and a doctor’s letter confirming RRSP 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 corporate account, which you manage.

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Capacity as a Legal Construct

• Capacity is a specific test (Ability to Understand & Ability to Appreciate)

• It is not an assessment of risk• It is not a functional test• It is not the score on a cognitive screening test (e.g.

Folstein: Mini-mental state exam)• It is not defined by a disease entity• It is TASK and TIME specific

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Capacity as a Medical Construct

• Capacity is not an assessment of rightness or wrongness of decisions

• Lawyers see only external patterns of behavior and are more likely to base assessments on perceived correctness of decisions than are medical experts (“ordinarily expected to benefit”)

• Medical experts assess what is happening inside

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So is Capacity Medical or Legal?

• It’s both• A standard that protects individual liberty and

justifies intervention on legal and ethical grounds• A legal structure (elements + presumptions +

process) with a medical sub-structure (What is happening inside this person?)

• What’s the story? – Does this person really NEED help?

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Expert Advice on Capacity

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Seeking Expert Advice Re Capacity

• Capacity Assessor: s. 16 SDA; Judicially mandated assessments pursuant to SDA; Power of Attorney for Property contingent on incapacity but does not specify mode of assessment• contact capacity assessment office for list (See handout)

• Other experts: • Is capacity really the issue?• Does the client need some other kind of help • If it is in issue, is the person legally incapable, i.e. should

I be taking instructions from his\her attorney for property

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Seeking Expert Advice Re Capacity

• Confirming client’s ability to instruct

• Eliminate possibility of remediable incapacity

• To HELP the client grasp his\her true situation and make appropriate preparations

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Who to Pick?

• Capacity Assessors: obtain list from PGT• General:

• Referral from lawyers• Qualifications related to specific issues (head injury\bi-

polar type 1\stroke)• Training (Neuropsychologists; Psychiatrists; Geriatric

Psychiatrists; Geriatricians)• Experience (Resume; Referrals; Search decided cases)

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What to do?

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Other People’s Battles

• Rule # 1

• People who are mad at one another will eventually end up mad at you

• Rule #2

• If you assist one combatant, the other will threaten to sue you

• Rule #3

• The combatant you assist will ultimately blame his\her misbehaviour on you (see Rule #1)

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When Capacity is in Issue...

• NO Dithering (keep the client at all costs)

• Keep no secrets

• Communicate allegations of incapacity

• Protect and respect the client’s privacy

• Revise forms

• Notify the customer before\while taking action

• Some capacity issues should be addressed as suitability issues: say no to investment that’s wrong for the client

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When Capacity is in Issue...

• Rule out false appearance of incapacity (deafness, language, delirium)

• PATIENCE: let people tell their stories – form a general impression

• Careful documentation

• Suggest medical intervention to clarify situation

• Require medical confirmation before acting on POA

• When “stuck” seek legal advice

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Families & Guardianship

• Can you play a role in heading off capacity disputes?

• YES• Follow good practices re Power of Attorney\

consent to release information• Maintain high standards in acting for people who

are vulnerable and whose capacity is genuinely in issue

• Spot the dysfunctional family, refuse to “play” their games and offer early intervention

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Families & Guardianship

• Spotting Means:• Suggest appointment of non-family decision-

makers• Offer non-legal facilitated discussion\

mediation • Treatment of precipitating factors

(alcoholism, mental illness)• Planning Wills and estates so that all legally

and morally relevant needs are addressed and communicating this to the potential combatants (last stage is high risk)

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Conclusions

• Capacity is messy• No single profession has a monopoly on expertise• Demographic and social factors are pushing us in a

dangerous direction• The courts are not the place to address capacity

disputes• To head off a social disaster, we all need to be well-

trained, hold to high ethical standards, invite cross-disciplinary collaboration and emphasize planning