Pension Vehicles and Enduring Power of Attorneys

We all know the importance of having a will in place (at least I hope we do!), but what happens in the event of illness or disability? Normally, in the event of incapacitation, the individual’s assets are frozen and no activity is permitted until the person recovers from the illness or disability. The only way assets can be unfrozen is by the time-consuming and potentially expensive process of having the person appointed a ward of court and then going back to the court whenever a decision has to be made.

Increasingly, we are seeing advisors become frustrated that they are unable to take instructions from their clients regarding investments in retirement vehicles due to reasons of ill health. In our experience, the advisors can come under pressure from the client’s family for perceived inaction and the pension provider’s hands are also tied in the event of the client being unable to give instructions.

Ideally, all clients who are in post-retirement vehicles should be advised to put an enduring power of attorney (EPA) in place. An EPA is a legal instrument executed by a person (the Donor) when they are in good mental health. It allows for the appointment of another (the Attorney) to take actions on the Donor's behalf in the event of incapacity.

In planning ahead and making an EPA, a person is able to give their instructions whilst they are of sound mind, in anticipation of the possibility of not being capable at some future date of managing their affairs as they would otherwise wish. Obviously, it is difficult for someone to contemplate that they may ever lose their ability to manage their affairs.  However, an EPA can ensure that, if this does happen, a person’s financial affairs will be looked after by someone they themselves have chosen and trust.

An individual can opt to appoint more than one attorney, and if they do, they must decide whether they are to be able to act jointly (that is, all act together and not separately), or jointly and severally (that is, all act together but also act separately if they wish). This ensures there is the possibility of a collective decision.

The EPA can be drafted in a manner that limits the assets over which the EPA takes effect. For instance, the EPA can be limited to investment decisions over the donor’s retirement vehicles. This is particularly useful where the client wants to segregate decision making in the event of his incapacity.

The EPA legislation provides for a number of safeguards for the Donor such as the requirement for a medical practitioner to sign off on the donor’s capacity both at the time of making the EPA and at the time of enforcing it.

The completion of an EPA does not restrict an individual’s right to go on looking after their own affairs for as long as they are capable. But what it does do is give them comfort that their affairs will be managed in the event of their incapacity.  It may never be required and can also be revoked at any time by the Donor provided they are in good mental health.

Overall, a very useful piece of paper to have in place…

Paul Gilmer