Money out of mind

As with many families, my partner and I contribute to the living situation of an aged relative, who is currently living in a facility for seniors. We share this contribution with other members of her family, and in addition to paying directly for things like laundry service and supplemental meals, we also manage her pension and other social service income, which are directly deposited into her savings account. Another member of the woman’s family has the bank ATM card, with which that person can make money transfers to cover her care. In our case, we have the passbook, which can also be used to transfer money but not to withdraw cash from the account. Often we make necessary payments on her behalf and then transfer money from her account to reimburse ourselves.

This system is not uncommon, but it isn’t really legitimate, either, since we are not registered proxies for the woman. Because she has a cognitive disability owing to her age, she cannot handle her assets herself and thus relies on family to manage her finances, but legally speaking we—meaning not only my partner and I, but the other members of her family—should have registered as proxies with power of attorney well before she started losing her mental faculties. Now it is too late, and we are basically gaming the system. No one has prevented us from doing this because no one has complained, but recently banks have started phasing out passbooks in order to save money and paper. All records are being transferred to online systems, so we are afraid that once the current passbook fills up, we will not be able to get a new one, and thus will not have access to her account, since we can’t apply for an extra ATM card without her written compliance, which, legally, she can’t give because of her mental state.

A recent article that appeared in the Asahi Shimbun discussed this problem in more general terms, and it appears that our dilemma is one that many families also face. In principle, cash savings, real estate, and other assets owned by people who lose their cognitive functions cannot be touched except by people who have been granted such access by a court. The Civil Code says that if a person has no ability to make judgements regarding legal actions, those actions are not recognized. According to Mitsui Sumitomo Trust Bank, as of 2020, the amount of cash in Japanese bank accounts that has been frozen because their signatories have lost cognitive faculties amounts to ¥175 trillion. In terms of real estate and other assets, ¥80 trillion. That’s the equivalent of 8 percent of all household assets in Japan. By 2040, frozen assets are projected to reach ¥349 trillion, or 12 percent of all household assets. “Frozen” means that this money cannot be spent or otherwise circulated in the economy, which will slow down even further as a result. 

According to a notary public interviewed by Asahi, when a person loses the ability to make decisions, a court will determine if that person can be responsible for their own supervision. If the court determines that they cannot be responsible, then they cannot withdraw money from accounts, deal in real estate, or carry out other financial transactions. How does the legal process get to this stage? According to the notary, often an employee of a financial institution that has a monetary relationship with the person in question will “make a judgement” as to whether that person’s cognitive state is deteriorating based on “observation,” and the bank will proceed accordingly. Then, a family court will endeavor to set up an adult guardianship, which means a guardian-proxy is appointed to tend to the person’s financial affairs. In essence, that is the only way to access assets by proxy. 

In February 2021, a nationwide association of banks announced a new set of guidelines for families of elderly depositors who wanted to supervise those depositors accounts in the event that they lost cognitive abilities. If the bank could determine that the family was carrying out the supervision for the express benefit of the depositor, then the bank would consider a request for supervision, but such matters would be decided on a case by case basis. In principle, banks would still prefer to use the legal guardian system. 

The problem is that guardianship is granted while the depositor in question is still in enough control of their mental faculties so that they can consent to the guardianship. In essence, the depositor should choose for themself the person who will be the guardian in the event the person loses cognitive functions. Then, a family court studies the application and carries out the procedures for designating the proxy guardian. In many cases, the selected guardian is not a family member but a lawyer or other legal professional. Another method is for the depositor to set up a family trust through a contract system in which the person’s family is legally charged with managing assets and attendant processes.

Anticipating Japan’s rapidly aging society, some banks have attempted to devise their own systems in cooperation with social service organizations. In 2021, Mitsubishi-UFJ Financial Group started planning its own proxy service for family members of depositors, but, again, the system has to be set up while the depositor is in control of their faculties. Once the person is determined to be cognitively unable to make such decisions, it is too late. 

Given the amount of assets at stake and the likelihood that most families are not aware of the legal restrictions on asset management for seniors with cognitive issues, it seems vital for the relevant authorities to amend the law so as to make it easier for families to manage the financial matters of senior family members who can no longer do it themselves. Obviously, provisions should be made to prevent those family members from being exploited by third persons or even relatives who would drain their bank accounts, but as it stands a lot of these assets will just end up sitting uselessly in institutions. Cynics may think that such an eventuality will be to these institutions’ benefit, since after a specified length of time, acounts that have not been touched can be seized by the institution or even the government, but we’d like to think that both the private and the public sectors would rather have that money circulating and making everybody’s life a little better. 

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