As you grow older, your aim may be to live a long, happy and healthy life. This is hopefully with the mental capacity to make your own financial and lifestyle decisions, and the appropriate superannuation to fund it.
But not everyone is always able to do this as they grow older. In the worst-case scenario, you may find yourself unable to make those choices yourself due to a diminished mental capacity (such as from mental deterioration, illness etc). If you can’t make your financial decisions, this could be bad.
There is often a misconception that people who lose their capacity to make, for example, financial decisions will simply be able to have their partner or spouse step in to make those decisions on their behalf. This is not the case.
Even if you are in a relationship with someone or own property jointly with them, they do not automatically have the power to make those financial decisions for you. This is where estate planning comes into play.
An estate plan records what you want to be done with your assets after your death. It can include documents such as:
- your will
- a testamentary trust (as part of your will)
- superannuation binding nominations
It also covers how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:
- any powers of attorney
- a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)
- an advance healthcare directive (your needs, values and preferences for your future care)
You may also choose to create an Enduring Power Of Attorney, which is a substitute decision-maker on your behalf. An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF).
The SMSF regulations require that members of the SMSF are either a trustee of the fund or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or a Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.
Depending on your state of residence, powers of attorney may have different rights and obligations, particularly with respect to financial matters. Doing research and consulting with us about what your course of action could be if you were to lose your mental capacity for financial decisions could be a great start.