“It is not the load that breaks you down. It’s the way you carry it.” (Lena Horne)
It’s common knowledge that life expectancies are on the up, but few people realise that this also means a significant rise in cases of dementia. Studies show that the global prevalence of dementia ranges between 5 and 7% in people aged 60 to 85. Once you pass 85, more than half of the population displays symptoms.
Dementia isn’t something that only happens to other people. Your financial planning should reflect this fact.
Busting the Power of Attorney myth
Many people think that they’ve got nothing to worry about because they’ve signed a Power of Attorney to grant a family member, friend or colleague the authority to manage their financial affairs.
This is a huge mistake. A general Power of Attorney only applies if you’re of sound mind and have contractual capacity. If you’re hospitalised with cancer and want to sell your boat, for example.
If, however, you are diagnosed with any condition which compromises your mental capacity, the Power of Attorney will immediately lapse.
Consider setting up a Special Trust
Setting up a Special Trust is probably the most comprehensive way of protecting yourself and your family against the financial ravages of dementia. In many ways a Special Trust is the same as a normal trust, as it’s for your benefit if certain circumstances come to pass (being diagnosed with dementia, in this case). The major difference is that a Special Trust is largely taxed as a natural person (not a trust), so the tax rates are lower.
You’ll have to appoint a trustee/trustees to administer the Special Trust. We’d recommend going with two trustees: a family member and a qualified financial planner who’s close to the family.
You can also protect your spouse from dementia by including instructions for the formation of a Special Trust for their benefit in your Will. The funds will pass directly from your estate into the trust, and the Trust Deed will be preserved within the Will.
Too late for Special Trusts?
If you haven’t made plans for a Special Trust before you’re diagnosed with degenerative brain disease, a family member will have to apply to the High Court to appoint a Curator to manage your affairs. This is a lengthy process which can easily cost R60 000.
The other option is for a family member to apply for the appointment of an Administrator to manage your estate. This only costs around R5 000 but your family has no control over who the administrator will be and this option is normally only used in smaller estates.
The costs of dementia
Legal matters aside, living with dementia is expensive. Most medical aids don’t view treatment for dementia as a prescribed benefit, so the bills will be coming your way. Full-time care can easily run to between R40 000 and R 50 000 every month.
From a financial planning perspective, including equity in your portfolio is the key to ensuring growth that outstrips inflation. But it’s equally essential to have a sizable medical emergency fund made up of low-risk, easy-to-access investments like money market funds.
Legal changes on the horizon?
With dementia becoming increasingly common and the cost of care being so exorbitant, one would hope that the Medical Health Act might be amended to require medical aids to pay for care. This is probably wishful thinking, however, since it would send medical aid rates even higher.
On the legal side, some countries give residents the option of signing an Enduring Power of Attorney, which remains valid if you become mentally incapacitated. South Africa looked at this issue in 2001, but no concrete steps have been taken to amend our law.
The long and the short
You can only plan for the law as it currently stands. Good financial planning starts with eliminating risk, including the risk of dementia. It also makes sense to do everything in your power to stave off the possibility of dementia by keeping your brain fit – you’re never too old to learn new things!
For assistance in preparing for the possibility of dementia it makes sense to speak to a professional. Our door is always open.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.