June marks Seniors Month, a time to celebrate the contributions, wisdom and vitality of older persons in our communities. At the same time, celebrating aging means recognizing the importance of preparedness. That’s why this month is not only a time to honour the journey of aging, but also a reminder to make thoughtful plans for the future – whatever that may hold.
Many of us avoid conversations about illness, incapacity or end of life decisions, but making a plan doesn’t mean expecting the worst – thoughtful preparation for the unexpected will ensure your lifestyle and legacy stay protected.
Start by aiming for a healthy lifestyle
Building wealth affords you the opportunity to pursue interests you enjoy, and good health helps make that possible. For example:
- Lowering financial stress results in less risk of a heart attack, while reducing debt can reduce the risk of depression and anxiety disorders.
- Getting adequate sleep can lead to stronger decision-making, memory and reaction time.
- Exercising regularly improves cognitive function and drive.
Be prepared by planning ahead
While good habits can help prevent negative health outcomes, nothing is guaranteed. It’s important to have plans in place to mitigate the stress that can result from a change in your physical or mental condition. Here are steps you can take to help ensure you and your family’s financial interests are taken care of.
1. Assign powers of attorney
No one wants to think about becoming incapacitated, but it’s always a good idea to prepare for the scenario. A power of attorney (POA) is a legal document that allows you to appoint someone to make health or financial decisions on your behalf if you become unable to do so. The laws and terminology regarding substitute decision-making vary among the provinces and territories. The document may be referred to as a POA, health-care directive or mandate and the person being appointed may be called an attorney or mandatary.
There are two types of POAs, and while they can be the same person, you can also split the responsibilities.
A POA for property, sometimes called a continuing or enduring power of attorney, designates someone to make specific financial decisions. The individual named in the POA for personal care, sometimes called a living will, who tends to be a friend or family member, can make health-care decisions and provide direction around your wishes for care.
The powers can be as broad or narrow as you decide and can cover many aspects of your personal and financial life. For example, you can use a POA to name an individual to:
- Manage your investment and bank accounts
- File tax returns
- Manage your real estate
- Make healthcare decisions for you
When selecting someone to make decisions on your personal care, consider choosing someone who lives close enough to assist you in emergency health-care decisions.
Finding someone who lives nearby is less of a concern when you’re naming someone to keep watch over your finances, but it should be someone you trust to execute your wishes and is financially responsible. Depending on your circumstances, you can also appoint a professional, such as a trust company, as your POA for property.
Another option is to appoint two people jointly as a check and balance to prevent misuse of funds. This can reduce the chances of one person misusing the funds, as they must agree on every choice they make, financial or otherwise.
2. Review your Will and estate plan
Your estate plan outlines how your assets will be distributed and who will carry out your wishes, but it only works if it’s kept up to date. It’s important to review your Will and any related documents, such as beneficiary designations and trust arrangements, while you’re still in good health and have full mental capacity. If your health declines or you become cognitively impaired, you may no longer be able to make changes. That means you could miss the opportunity to add or remove beneficiaries and make sure your estate plan reflects your current relationships and financial priorities. Working with your professionals to review these documents regularly will help ensure your legacy is protected and carried out according to your intentions.
3. Protect your business
If you’re a business owner, it’s crucial to have a written buy/sell agreement in place and name someone who will keep your business running if you need to step away from the business due to a serious health event.
Buy/sell agreements outline the conditions of transferring business ownership in the case of specific triggering events, such as death, disability or incapacity. This allows other owners or key employees to purchase your interest (known as a cross purchase) or for the company to purchase your interest (known as an entity purchase) at the agreed-upon price and terms in the document. Consider the circumstances that would trigger a buy/sell agreement for your business. For example, define the length of any incapacity that would activate the agreement and whether it applies to mental or physical health, or both. Consult your legal advisor(s) and business partner(s) to ensure everyone agrees.
If you’re considered a key person in the business, life and disability insurance can be strategically designed to give the business the resources to cover your absence until you’ve had time to recover or help cover any terms laid out in a buy/sell agreement if you need to stop working entirely.
In addition to buy/sell agreements, review shareholders’ agreements (which govern the operations of a business and may include the terms of a buy/sell agreement), trust documents, and POAs with your legal advisor(s) to ensure they align. For more information, ask your BMO Private Wealth professional for a copy of our publication, Shareholders’ Agreement – An Important Business Succession Planning Tool.
4. Understand the impact of changes in your income
A health crisis can result in lost income and increased expenses, causing significant lifestyle disruptions. To determine how you’ll be affected, your advisor can help you calculate the cost of your current lifestyle and identify all sources of income, including employment wages, investment earnings, business income, employer pensions and government benefits. A financial professional can also help you assess long-term costs and income and ensure you adjust for inflation and the expected growth of your savings and investment assets.
Next, identify which assets will be available to support your needs and how you will utilize them. Consider these strategies to ensure you draw down tax efficiently from assets:
- Access provincial health plans first, then supplemental or employer health-care policies.
- Work with your accountant to manage tax deductions and the timing of expenses. You can maximize available tax credits for qualifying medical expenses by paying them all in one year rather than over multiple tax years.
- Focus on prudent savings, utilizing non-registered and registered accounts to ensure you are equipped to support unforeseen life events.
5. Do you need critical illness insurance?
Thanks to scientific advances and lifestyle improvements, we’re living longer, healthier lives, but the risk of a critical illness remains – especially as we age. This can result in significant financial consequences. Your health may prevent you from working, and medical bills not covered by insurance can mount.
Critical illness insurance pays out a tax-free lump sum if you’re diagnosed with a specific illness or disease covered by the policy and survive for the prescribed qualification period. Receiving this tax-free benefit doesn’t affect the amount you may also receive from disability insurance, and once the claim is approved, you can use the funds to meet any needs required.
6. Protect yourself from financial abuse
As we age, our mental capacity can diminish, leaving us at risk of becoming a victim of elder financial abuse. Whether it’s someone at your door who’s claiming to sell a water heater or a loved one asking for a large loan for some kind of emergency, many people believe that seniors can be tricked out of their hard-earned savings.
In addition to appointing a POA you trust, consider naming a Trusted Contact Person (TCP) – preferably someone other than your POA. The TCP is an emergency contact your financial advisor can reach out to if they can’t get in touch with you or have any concerns about your health; however, they do not have permission to make financial decisions on your behalf.
Other best practices to protect yourself from financial abuse:
- Don’t let yourself be convinced to buy things or lend money if you don’t actually want to, even if the person trying to convince you is a loved one.
- Stay up to date on the latest fraud alerts and scams.
- Don’t trust unknown callers.
Seek advice
Good habits, access to the latest and best information and support from professionals are all connected to physical well-being. As you take steps to protect your health, it’s equally important to have a clearly defined wealth management plan for peace of mind. For more information, speak with your BMO Private Wealth professional.
