I just saw the news about a dementia patient whose fixed deposit worth $48,000 was “gone.” ("Woman's bank account closed without her knowledge ", Straits Times, 6th September 2010) . Well, it was not really gone but the account was supposedly to be held in a POSB joint account with her daughter but the bank permitted the dementia patient to close the account and open as a new joint account with another family member. It appears that the dementia lady suffers from cognitive impairment and did not have the mental capacity to make such decisions. What is disturbing is that the bank allowed the transaction to take place and deny all responsibility citing “bank staff cannot pass credible judgement on the psychological or mental well-being of any customer”.
Once again, the importance of financial planning cannot be ignored because through proper financial planning, such problems would not have happened. I have incorporated the usage of Lasting Power of Attorney into all my financial plans for clients since July this year. The usage of Lasting Power of Attorney will allow proxy (or Donees) to have the power to act on behalf of the person (the Donor) who has lost their mental capacity. However, having a Lasting Power Of Attorney is not enough because of two weak links.
First weak link is that the donees can die or lose mental capacity themselves. Second weak link is that if the financial institution does not do its own due diligent to determine the mental capacity of the individual, the Donor’s money can still be lost without the Donee even knowing it. Thus, assets can still be lost regardless of whether is there an Lasting Power Attorney or not.
The solution is to setup a standby living trust with minimum assets initially. Upon mental incapacity, the donee can transfer the donor’s assets to the trust so that the trustee can manage the assets for the benefit of the Donor. In this way, two of the weakest link are removed. Alternatively, the individual can transfer a significant sum of his assets as Settlor to the living trust when he still have the mental capacity to do so. If the trust is structured as a revocable trust, he can always change his mind later on. Of course, once he loses his mental capacity, revocating the trust is no longer possible. For more information, read this: Specific Needs Planning & Advanced Estate Planning
This blog article was also posted on CPF's IMSavvy IM$avvy:http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid={1073487591-137-7685052751}
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