Generally, according to act such as Income Tax Act, “incapacitated person” means a minor or a person adjudged under any law to be in a state of unsoundness of mind, whereas for some circumstances, we may use incapacitated to refer to “persons with disabilities” include those who have long term physical, mental, intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society.
However, in any given instances, incapacitated person generally means person who has undergone unfortunate event that either caused them to lose sanity of mind, or physical impairment that ultimately resulted activity limitations.
Normally, the assets will be maintained just as it were prior to the occurrence of the incapacitation. Our family member cannot simply think that they have inherited the rights or duty to help us to make conscious decision for us on how to manage our assets when one became incapacitated. Having said that, you cannot sign on behalf of your spouse who was incapacitated even though you have a medical officer certified on the condition. I have helped a client completed a permanent disability life insurance claim before, in doing that, we had to get the thumbprint of the incapacitated person in place of signature, the spouse could not help to sign on behalf despite the obvious close relationship.
All movable and immovable assets shall remain in the ownership of the incapacitated, thus rendering them in passive state. Any stock investment will be riding the volatility and next of kin can only watch in pain as the family wealth shrink in a falling market.
Many people have not thought about this consequences but it will be hugely impactful and could be worse than the event of death because at least we could distribute the assets to the beneficiaries in that case.
Power Of Attorney (POA)
Power of Attorney (POA) is a legal document where the principal appoint an agent to act on the principal behalf to deal with certain things and scope that will be outlined in the document. Related to healthcare and incapacitation, a special type of power of attorney that is used frequently is the “durable” power of attorney. A durable power of attorney (DPOA) differs from a traditional power of attorney in that it continues the agency relationship beyond the incapacity of the principal. Most often, durable powers of attorney are created to deal with decisions involving either property management or health care. One can use durable power of attorney to appoint a family member or friend to make medical decisions if one cannot make them for him. Of course, you must be legally competent at the time you sign a DPOA for it to be legal.
If the incapacitation is on physical impairment or disability then you will pretty much still have a say on how to handle your stuffs, but if it is related to mental incapacitation, then of course the patient will not be able to make informed and sound decision as he or she is of unsound mind. Interestingly, even if the incapacitated person who are of unsound mind had the awareness and wrote a will in that condition, the will would not stand and assets are going to be ‘frozen’ as well since no one could do anything to those assets.
The assets will still be at its status quo, as of prior to the unfortunate event. Next of kin also cannot do anything to ‘represent’ the patient to do any decision on how to manage the asset, unless there was a power of attorney signed prior to this.
A will is a legal document. For it to be valid, some conditions must be fulfilled. For instance, there must be two witness (who are not the beneficiaries of the will), and more importantly, the person who write the will (Testator) must be in sound mind. A person can be conscious, have awareness, but he may not be having a sound mind and be able to make independent decision and thought process, if such is the situation, the will will not be valid if it is challenged because the Will is resulted from someone who is not able to think independently and logically.
What’s In My Mortgage Agreement?
Obviously, liabilities of the incapacitated person will continue to be liable against his wealth and capacity. Generally, in our mortgage agreement there is a clause stating “any legal limitation, incapacity or the borrower or the power of any attorney, partner, agent, or other person purporting to act on behalf of the borrower or irregularity in such borrowing or the incurring of such liabilities shall not affect the borrower’s liabilities under this agreement”. So, someone has to come out to help on the repayment, or that most conveniently and wiser way is that there will be insurance proceed that is planned for the purpose of debt cancellation, if the incapacitation has its root in being permanently disabled or due to critical illnesses such as cancer.
If the properties are still under encumbrance, such as mortgaged to a bank, then the bank may execute its rights and execute its power of attorney to foretell the property and recover the bank’s stake in it, should the repayment ceases.
If the property is not mortgaged to bank, then it means the part-owner will have to be stuck to the property for good until the other part-owner who is incapacitated regain the capacity or pass away (and that shareholding will be inherited by the beneficiary, who may cause some challenges to the part-owner, such as objecting to sale of the property, or insisting to have the right to reside in that property since they hold equitable share of the said property).
If the property is shared, and mortgaged to bank, then the part-owner will have to make sure the repayment will continue to be made or the property will be repossessed or simply, be force-sell, if the proceed from foreclosure exceed the total debt, the balance will have to be divided and share among the part-owner and the other owner who is now incapacitated. Therefore, it is imperative that we have a properly planned debt cancellation program such as MRTA or MLTA in place.
Cases and numbers related to mental incapacitation are on the rise one part is that we are culturally lacking the awareness of consulting with psychologist or psychiatrist, be open to communicate on our personal stress and pressure with loved one, their supports could mean a world when we are facing mental stress, do not let it develop into serious issue.
The obvious one, consult medical advisor, and the not so obvious but equally important one, consult a legal advisor as well as financial planner, both will be able to help you to deal with different aspect of the problems.
Under financial planning practices, we will conduct our first line defense by conducting a comprehensive Financial Plan for our client. By doing such processes, we are able to identify areas of financial concerns and find ways to address them before it happens. It will limit or even address most of the financial concerns we talk about earlier.
Read more next month to understand what property owner and their family member can do to prepare themselves before to or after the onset of such unfortunate event. (Click here for the follow up story)
The above was an interview on the topic responded by Kevin K. M. Neoh, a Licensed Financial Planner of VKA Wealth Planners to Property Insights Malaysia and published on Feb 2015 issue.