Plan to protect RRIF in case of dementia

What would happen to your registered retirement income fund (RRIF) if you had dementia?

Let’s say, for example, you or your parent is age 88 with a $500,000 RRIF. Having a RRIF means that an older person remains responsible for deciding how to invest and how much to withdraw each year.

With the increased possibility of diminished mental capacity as we get older, we might fail to make wise investment choices. Worse yet, we could become vulnerable to financial abuse. It would be nice to know that someone you trust could step in to protect you and your RRIF from abuse.

POWER OF ATTORNEY

The first step to take to protect your RRIF is to appoint someone you trust to act on your behalf in case of mental incapacity. It could be your spouse or an adult child or a trust company. Have a power of attorney (POA) drawn up at the same time as you update your will.

A POA is a powerful document that typically gives another person immediate access to, and authority to manage, all your finances. But what if the trusted attorney you appoint ends up becoming the abuser?

PUBLIC TRUSTEE

In Saskatchewan, a government official called the public guardian and trustee (PGT) works to protect vulnerable adults’ property and can investigate allegations of financial abuse. The PGT has the authority to investigate suspected wrongdoing. The PGT has the power to freeze the vulnerable person’s bank accounts as well as demand an accounting from a person who is taking advantage of a power of attorney to dip into an older person’s savings.

The abuser could be the older person’s new best friend, a caregiver or the unsuccessful son in the basement.

TRUSTED CONTACT PERSON

Your financial adviser, who helps you manage your RRIF investments, may actually be the first person to become aware of your diminished mental capacity.

However, your financial adviser is not allowed to report concerns about suspected financial abuse to the PGT or to the police because of the need to safeguard client privacy.

While you have a sound mind, you could be proactive by introducing your children to your financial adviser and give permission for the adviser to discuss concerns about unusual investment instructions or unusually large RRIF withdrawal requests.

PROFESSIONAL MANAGER

For a significant fee, you can hire a trust company to manage your RRIF and take care of all your finances for you. That should eliminate the danger of being exploited when you are vulnerable.

ANNUITY

Another simple way to safeguard your registered savings and make your money last longer is to convert your RRIF to a life annuity that pays a guaranteed dollar amount per month for the rest of your life.

Many people resist buying annuities because they want their children to inherit any savings that they don’t spend. Of course, you can choose a guarantee period of 10 years, for example, when you buy annuity. That would ensure your family inherits the balance of the payments if you die before the 10 years.

MEDICAL EXPENSES

When your mental capacity declines, your medical expenses could rise dramatically, especially if you need long term care. To stay in a private care home that can accommodate someone with dementia, rent could easily exceed $5,000 per month. On the other hand, if you prefer to stay at home, 24-hour live-in care costs from $21 to $30 per hour. Indeed, RRIF withdrawals could increase until there is eventually nothing left.

Long-term care costs would be more affordable if you eventually qualify to move into a government subsidized special care home.

Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional adviser on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.