Three Critical Mistakes to Avoid in Inheritance Planning for Dementia

If you’ve taken steps to put your affairs in order, you might believe your inheritance planning is sorted, especially if you’ve appointed an Enduring Power of Attorney (EPA) for peace of mind. But when dementia enters the picture, even well-intended plans can fall apart. Retirement planning in Australia is complicated enough without unexpected legal battles and family conflict. Missteps around powers of attorney and family dynamics can derail your security and legacy if you’re not careful.

Here’s what you need to know to avoid the most common mistakes in inheritance planning for families facing dementia:

1. Choosing Attorneys Without Considering Family Dynamics

Many people assume that naming close family members, like a spouse and adult child, as joint attorneys will ensure their best interests are protected. But if those individuals have complicated relationships, this setup can quickly turn into a battleground. When trust is shaky or old resentments linger, joint decision-making can backfire. The result? Costly court battles and delays, just when you need support the most.

Real-Life Example:

Joe, in his late eighties, appointed his second wife and daughter from his first marriage as joint attorneys under his EPA. When dementia struck, his daughter challenged her stepmother’s decisions in court, leading to the EPA being revoked. Joe lost his independent representation, and all his financial affairs fell under state control.

How to avoid this mistake:

• Think beyond titles. Choose people who have a proven track record of working together, not just those closest by blood or marriage.
• Communicate intentions clearly, explain your choices in writing to all family members to minimise suspicion and resentment.
• Consider appointing a professional or independent attorney if family dynamics are strained.

2. Not Understanding the Legal Powers You Grant

There’s a big difference between joint and several powers of attorney. Giving multiple people the ability to act independently (“several”) can create confusion, conflict, or even abuse of power. If disputes arise, a court may step in, stripping all attorneys of their authority and handing control to a government body. This can freeze your finances at the worst possible time.

Real-Life Example:

After the EPA was revoked in Joe’s case, neither his wife nor daughter could act on his behalf. All financial decisions, including those for the family’s self-managed super fund (SMSF), required approval from the State Administrative Tribunal. Delays put the fund’s compliance; and Joe’s retirement income, at risk.

How to avoid this mistake:

• Get tailored legal advice before signing any EPA, understand exactly what powers you’re granting and the risks involved.
• Review your EPA regularly to ensure it aligns with current laws and your family situation.
• Ask your adviser about the implications for SMSFs; trustee rules are strict and non-compliance can have severe tax consequences.

3. Underestimating the Financial and Emotional Toll of Legal Disputes

It’s easy to assume that legal safeguards will prevent family struggles, but when emotions run high, disputes can drain both finances and wellbeing. Legal challenges over powers of attorney can cost tens of thousands in fees, delay critical decisions, and damage relationships beyond repair. Inheritance planning is about more than documents, it’s about family peace and your own dignity.

Real-Life Example:

Both Kerry and Sue, Joe’s wife and daughter, spent large sums on legal fees during their court battle. In the end, neither could help Joe directly, and the family faced more stress and fewer options than before.

How to avoid this mistake:

• Talk openly about your wishes, have courageous conversations with all affected parties before dementia or incapacity strikes.
• Involve neutral mediators or professional advisers to facilitate difficult discussions.
• Document decisions and reasons to reduce misunderstandings and future disputes.

The Bottom Line: Empower Your Future Self

Inheritance planning for dementia isn’t just about ticking legal boxes. It’s about protecting your autonomy, your family’s relationships, and your legacy. If you’re unsure about the best approach, or if your situation involves blended families or complex assets like SMSFs, seek independent advice from experts who understand the landscape.

For guidance on finding a trusted adviser, visit the financial advice page. Don’t leave your future to chance.

Vanessa Stoykov | Courageous Conversations About Money