Self-managed super fund (SMSF) advisers should be aware of the impact that dementia can have on a client’s ability to make sound financial decisions, and develop a range of strategies for both identifying problems before they become unmanageable and helping clients plan.
Joanne Earl, Associate Professor at Flinders Business School, says one in 10 people aged over 65 is likely to suffer dementia, and as many as three in 10 people aged over 85.
Looking at these numbers the other way around, she said, it means 90 per cent of people aged over 65 and 70 per cent of people aged over 85 won’t suffer, but the absolute number of sufferers is likely to increase simply because of an ageing population.
It’s likely to become a bigger issue for SMSF advisers because the disease is likely to strike as individuals enter the pension phase of superannuation.
“Decumulation coincides with a greater proportion of people going into decline,” Earl says.
Most vulnerable
“We think it could be a problem because of the size of the market and when people are starting to decumulate their funds is when they are likely to be most vulnerable.
“We will potentially have a lot more people presenting with this problem over time just because of the size of the population.”
Earl says the progress of dementia typically moves through three stages: mild or early; moderate or middle; and severe or late. It can often take 36 months to progress through the stages.
Earl says there are steps advisers can take to mitigate the worst of the potential problems, including preparing clients early on to discuss the best course of action; promoting retirement planning across multiple domains, not just financial; recognising that finances are important but so is health, emotional, motivational and cognitive wellbeing; and planning ahead to avoid more complicated scenarios later, such as having to apply to the Guardianship Tribunal for a financial management order.
Anyone, any time
While the incidence of dementia in the population is reasonably predictable, incapacity can strike anyone, anytime, and all SMSF advisers must be prepared in advance to deal with the consequences.
Scott Hay-Bartlem, a partner in Cooper Grace Ward, says incapacity is not just an issue that affects people who are getting older. “It can strike people of any age,” he says.
When an individual becomes incapacitated, it affects their ability to be a trustee of a self-managed super fund and if they cannot be a trustee they cannot be a member of the fund. Likewise, it affects their ability to be a director of a company that acts as a trustee for an SMSF – and if they cannot be a director, they cannot be a member of the fund.
Hay-Bartlem says that as a bare minimum, every SMSF trustee should have an enduring power of attorney, and every adviser should have a detailed understanding of the trust deed of the trustee’s fund and what it says about removing a trustee and installing a new one – or how to change directors.
“What happens if you lose capacity?” Hay Bartlem says.
“If you can’t be a trustee or a director, what does that mean? It means you can’t be a member.”
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Good planning
But good planning “allows us to have someone who is an enduring power of attorney to be a trustee in our place”, he says.
“Any trustee that can suffer incapacity – that’s all of them – need an enduring power of attorney in preference to tearing the SMSF apart,” he says.
“We need to get the incapacitated person [out] and the attorney or attorneys go in and become trustees or directors of the trustee company.”
But Hay-Bartlem says it is important that the incoming trustees or directors understand that they assume all of the responsibilities and liabilities that the original trustees or directors had.
This article originally appeared in the SMSF Association National Conference Daily News – Issue 4.
