Planning for cognitive decline

Did you know that dementia is the second leading cause of death of all Australians[1] with data indicating that it will likely soon be the leading cause of death?

It’s a scary thought but at some point in the future, you may not have capacity to make important legal or medical decisions. This article summarises what you should do before that happens.

  1. Nominate an enduring power of attorney

Incapacity should be planned for by putting in place an enduring power of attorney (EPOA). This is a legal agreement allowing a nominated person to make financial, health and personal decisions on behalf of someone who has temporarily or permanently lost ‘capacity’, and as a result is unable to make these decisions for themselves.

Note there are differences between the rules among various Australian State and Territories, where some allow an EPOA to only make legal and financial decisions, while others require another attorney or guardian to make medical and lifestyle decisions for you. In any case, EPOAs allow a trusted person to continue to make legal and financial decisions in the event you’re unable to do so.

Tip – key differences between Australia’s States and Territories:

  • In VIC, QLD and the ACT – an EPOA can make decisions about personal matters (such as where you live and health care matters), or financial matters (such as paying bills, making and selling investments, etc) or both.
  • In NSW, WA and TAS – an EPOA can only make legal and financial decisions, whereas an enduring guardian will have the power to decide on any medical, health and lifestyle matters on your behalf.
  • In SA – an EPOA can make decisions about legal and financial matters, whereas an advance care directive will allow you to write down your wishes, preferences and instructions for future health care, living arrangements, personal matters and end of life.
  • In the NT – a decision maker can be appointed under an ‘advance personal plan’ who can make decisions around finance and property matters, lifestyle needs and health care matters.

If you have an SMSF, your EPOA can run the SMSF as your legal personal representative (LPR) in the event you lose capacity. Should a member lose their mental capacity without an EPOA, the position of that member may become vacant with the risk that the SMSF may become non-complying, in which case its assets may be taxed at 45%. For this reason, it is important that the SMSF trust deed is reviewed to ensure it provides members with the ability to have an EPOA.

  1. Nominate an enduring guardianship

An enduring guardianship (EG) is a document authorising someone to make lifestyle, health and medical decisions for you. This could be if you are unable to make or communicate those decisions for yourself.

An EG can influence or decide:

  • Where you live
  • What health and personal services you receive
  • The medical treatment you get.

As mentioned above, an EG is mainly used in NSW, WA and TAS.

  1. Create an advance care directive

The last option to consider is creating an advance care directive. This is an official recording of your wishes and values that need to be considered before medical treatment or health care decisions are made on your behalf.

Most States and Territories have their own version of a health care directive which may come under a different name, but they all generally allow you to set out your directions, wishes and values that must be considered regarding your future health care needs. It’s also worth noting that in some cases, an advance care directive can override any decisions made by your EG.

Final thoughts

It’s not always easy to make these kinds of decisions but its best to be prepared to ensure you have options available to help in managing your affairs. Its best to seek advice from a legal professional who can help you appoint a trusted person to manage your affairs when you lack capacity to do so yourself.

[1] Australian Institute of Health and Welfare (2022) Dementia in Australia, AIHW, Australian Government, accessed 20 January 2023