Understanding Capacity Issues: Protecting Against Potential Litigation and How to Prepare Should You (the Financial Advisor) Be Called as a Witness The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC (314) 644-3200 | calsop@alsopelderlaw.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 1
To view PDF Presentation, visit www.AlsopElderLaw.com. Mouseover Firm News and then click Events and Seminars. The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 2
Click Capacity Issues - PDF Presentation. This link can be found underneath the March 15, 2016, seminar entry. The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 3
Introduction • The U.S. Census Department projects that by the year 2050 , the number of Americans who are aged 65-years and older will have more than doubled to 83.7 million which is 20.9% of the population. • Those who are aged 85-years and older are the fastest growing segment of the population. • Baby Boomers control more than $15 trillion in household assets which is over 50% of the total amount of U.S. household investment assets. From Diminished Capacity: Recognizing and Responding to the Signs. RegEd. www.reged.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 4
Client Identification: Who is Your Client? In order to ensure proper representation of your client, it is important to understand who your client is, how capacity is defined and whether or not your client has capacity . The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 5
Duties to Your Client CFP Board Code of Ethics & Professional Responsibilities: • Confidentiality: You must ensure that information is accessible only to those who are supposed to/authorized to have it. • There must be a mutual agreement as to the services to be provided. • Define goals , gather data , examine the consequences of a course of action, formulate recommended actions and implement and monitor responsibilities . • You must disclose to your prospective client accurate and understandable information , including disclosing the assets that you are going to take control of and of which you will ofger investment advice on. The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 6
Legal Capacity • Legal determination of capacity is not the same as a medical determination. • Legal capacity is determined at the moment of execution of a document. • Lucidity at the moment of execution creates a valid document. • Generally, the principal (person signing the document) must understand the nature of the act and its consequences. The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 7
Legal Capacity “ But weaknesses and diseases incident to old age are not necessarily inconsistent with sanity . Merely to show that one sufgers from senility, confusion or forgetfulness, or is possessed of a mental weakness, is not enough to avoid a gifu , although these are factors to be considered. One must go further and show that the donor did not possess sufgicient mind to understand , in a reasonable manner, the nature and efgect of the act in which she was engaged .” Flynn v. Union National Bank of Springfield, 378 SW 2d 1, 8–9 (Mo. App. S.D. 1964). The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 8
Diminished Cognitive Capacity Financial capacity involves the cognitive abilities of your client to conduct financial business, including being able to: • Understand personal financial needs and goals • Understand investment and product choices • Contract for the purchase of a particular product • Give professionals the discretion to manage an account From Diminished Capacity: Recognizing and Responding to the Signs. RegEd. www.reged.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 9
Signs of Diminished Cognitive Capacity Client shows signs of disorientation: • Forgets how to get to your ofgice when he or she has visited on several occasions previously • Is unable to follow directions • Has trouble navigating around your ofgice • Lacks the ability to focus Client shows signs of short-term memory loss: • Forgets appointments • Repeats the same information or asks the same question numerous times • Relies on personal notes more than usual Client has trouble communicating: • Has difgiculty finding the right words • Has trouble staying on topic • Engages in unconventional or uncharacteristic reasoning • Is consistently deferring decision-making to someone else , such as another family member From Diminished Capacity: Recognizing and Responding to the Signs. RegEd. www.reged.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 10
Signs of Diminished Cognitive Capacity Client exhibits problems with comprehension: • Has trouble comparing alternatives • Has trouble following basic concepts • Has trouble paraphrasing and following a presentation • Has difgiculty with abstract concepts Client shows signs of emotional distress: • Appears anxious , depressed and slow to respond to questions • Exhibits a wider range of emotions beyond what is normal • Moves quickly between laughter and tears without reason • Displays feelings inconsistent with the topics at hand • Shows an unreasonable degree of fear of change • Shows increased paranoia From Diminished Capacity: Recognizing and Responding to the Signs. RegEd. www.reged.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 11
Signs of Diminished Financial Capacity The signs of diminished financial capacity specifically include any of the foregoing signs of diminished cognitive capacity, generally, plus one or more of the following: • Has trouble understanding investment statements • Evidences a decline in checkbook management skills (e.g. forgets to record transactions in the check register, incorrectly or incompletely fills out entries or incorrectly fills out the payment amount) • Refuses to follow appropriate investment advice when the advice is consistent with the client’s previously agreed upon investment objectives From Diminished Capacity: Recognizing and Responding to the Signs. RegEd. www.reged.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 12
Signs of Diminished Financial Capacity The signs of diminished financial capacity specifically include any of the foregoing signs of diminished cognitive capacity, generally, plus one or more of the following (cont’d): • Is not aware of , or does not understand , recently completed financial transactions • Makes financial decisions that are inconsistent with his or her current long-term goals or are out of character in terms of riskiness (e.g. a newly found interest in get-rich-quick schemes) • Has trouble with basic addition and subtraction • Expresses difgerent wishes at difgerent times (e.g. last week he or she wanted to sell out of everything, but, this week, he or she wants to buy more) • Repeatedly gives the same order , as though for the first time • Is alarmed about missing funds in his or her account, where reviews indicate that there were no unauthorized money movements or no money movements at all From Diminished Capacity: Recognizing and Responding to the Signs. RegEd. www.reged.com The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 13
Duties to Your Client Code of State Regulations: You have a duty to ensure the suitability of a recommended security. It is important to note the rules against: • inducing trading when the size of the trading is excessive • ordering the sale of a security without authority • ordering a purchase or sale of a security, with a third-party’s instruction, without first receiving client authorization in writing The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 14
What Would You Do? Prospective client, Tom Brady, a 95-year old gentleman, walks into your ofgice with his new girlfriend, Lola, who is 39-years old and unemployed. He states that he wants to add Lola’s name onto his investments, which are valued in the range of $850,000. You have known Tom for quite some time through your father, but you never served as his financial advisor before and have had no real relationship with him. You are aware that Tom has three children, one of whom is an attorney. Do you retitle the account and make Tom and Lola joint owners? What if Tom was 52-years old and newly divorced? Would your answer change? The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 15
Client Representatives • Does your client still have the ability to make decisions? • Does the person who is representing your client (i.e. an attorney-in-fact under a power of attorney) have the legal authority to do so? • What are the motivations of the family members who are speaking on behalf of your client? • Are there other family members absent from the conversation and what possible issues could arise amongst the family members? The Elder & Disability Advocacy Firm of Christine A. Alsop, LLC | 16
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