Proceed with caution when aging seniors request account changes

This article was co-authored by Rebecca Cicco and Tim Brisibe.

Aging baby boomers and an increase in life expectancy make seniors the fastest growing Canadian demographic. As a result, instances of mental incapacity are likely to increase, with more clients potentially falling victim to fraud and undue influence.

The Alzheimer Society of Canada expects the number of aging seniors with dementia to double to almost one million in 15 years, which would represent about 10% of seniors, based on StatsCan projections.

Advisors serving these seniors might find themselves in foreign territory as they grapple with this new reality, especially when aging clients request account changes, such as changing beneficiary designations on registered accounts and insurance policies, and making joint tenancy arrangements on non-registered accounts. If clients make these account changes when their cognitive abilities are impaired or when they are unduly influenced, their estates become vulnerable to potential litigation, draining resources and perhaps damaging family relationships.

Clients generally request such account changes for well-intentioned estate and tax planning reasons. However, as a result, the bulk of a testator’s assets might bypass the estate, leaving little for residual beneficiaries. When residual beneficiaries or family members believe the testator lacked capacity or was unduly influenced, it’s increasingly common for them to file claims against an estate, the surviving joint tenant or the designated beneficiary. Even smaller estates can be subject to claims from disappointed family members with a genuine lawful right to inherit.

In an ongoing B.C. case, a sole residual beneficiary discovered estate assets were transferred to the testator’s gardener. During trial, the testator’s long-time lawyer testified the client lacked capacity, so the lawyer didn’t proceed with the requested asset transfer. The gardener escorted the testator by taxi to another lawyer who completed the request.

In court proceedings, the residual beneficiary claimed the testator lacked testamentary capacity and was unduly influenced when the transaction took place. If that argument is successful, the property will revert to the estate. The gardener will then be liable for replenishing the value, and the residual estate value will transfer to the sole beneficiary named in the testator’s last will.

The case highlights the importance of knowing your client throughout life’s changes, including their family dynamics and disputes, and their logic for disinheriting family members. Maintaining regular documented meetings develops good rapport with clients and also helps you better understand them and recognize sudden shifts in cognitive ability or behaviour, including changes in relationships.

The Ontario Securities Commission plans to implement precautionary measures so advisors can help mitigate issues facing aging seniors. For instance, the commission may require investment firms to obtain the name and contact information of a client’s trusted contact person in case financial abuse or diminished capacity is suspected. The trusted contact person could be the individual named in the enduring power of attorney.

While clients of any age can demonstrate poor decision-making, precaution should prevail when an aging client is unable to understand pertinent information or appreciate the implications of a decision. Diligently exercising precaution in your practice—for example, by collecting thorough KYC information and reaching out to trusted contact persons—helps protect clients from undue harm and questionable decisions, and can preserve your reputation and business in unforeseen circumstances.

Further, since diminished mental capacity is of real concern for many seniors, discussing a client’s estate plan early can go a long way in protecting their last wishes.

Tim Brisibe, TEP, and Rebecca Cicco, CPA, CA, are directors, tax and estate planning at Mackenzie Investments.

Rebecca Cicco

Tax & Estate

Rebecca Cicco, CPA, CA, is Mackenzie Investment’s director of tax and estate planning. She can be reached at recicco@mackenzieinvestments.com.