Dementia is one of the leading causes of disability and dependency among older people globally. Planning ahead can help you prepare for a smoother tomorrow.
Dementia can be devastating not only for people diagnosed with it, but also for their caregivers and loved ones. The World Health Organization describes dementia as a syndrome in which there is deterioration in cognitive function beyond what might be expected from normal aging. It affects memory, thinking, behaviour and emotion and results from a variety of diseases and injuries that affect the brain, including Alzheimer’s disease or a stroke.
Michelle Lau, wealth planner at RBC Wealth Management in Asia, sees two aspects – medical and financial – that need to be managed when a person is experiencing diminished mental capacity as a result of dementia.
She explains that these can be answered by asking two key questions: “Who is going to take care of me and who will be providing that medical care? Secondly, who is going to manage my finances?”
Lau points out that it’s important to avoid a scenario where one has money in bank accounts without adequate planning in place. “You may have the funds to afford good medical care but if your loved one doesn’t have access to those funds, they may not be able to get that care for you,” she explains.
Through wealth planning, you can help ensure your loved ones have access to your financial resources if the time comes when it’s needed.
Wealth planning discussions usually focus on what happens during one’s lifetime and after they’ve passed away. “In the case of dementia, this is somewhere in between – a phase where one may be incapable of taking care of oneself,” explains Vivian Kiang, head of Wealth Planning at RBC Wealth Management in Asia.
She highlights the importance of having enough funds in the event that one no longer has the capacity to generate income. “But having funds set aside isn’t enough because what if you aren’t able to manage those funds anymore?” she says. Kiang explains that the next key step is to set out a way for family members to have access to those funds which is where wealth planning becomes important.
Through wealth planning, you can determine what sort of structure would best support you if the time comes. The structure doesn’t need to be complicated and “can be as easy as sharing a joint account with a younger family member,” Kiang says. Should anything happen, this would give your family member the ability to access and use the funds to help support you.
For larger and more complex funds, a trust structure may be beneficial in managing your assets and providing long-term support.
Kiang points out that through a trust, an independent corporate trustee will help to manage the funds and if needed, use them for your medical expenses.
“The trustee can also use the funds for the beneficiaries so there is more flexibility in how the funds are managed,” Kiang adds.
While a trust effectively covers the risk areas from a financial standpoint and can be used as a multi-purpose tool in the wealth planning toolbox, Lau says that you’d still need to consider who would step into the caregiver role.
Another way to ensure decisions about your finances and personal welfare are made by your loved ones is through a lasting power of attorney.
A lasting power of attorney is a document that gives one (or more) person(s) the authority to manage your financial affairs as well as to make decisions in relation to your personal welfare (for example, decisions in relation to medical treatment) if you lose mental capacity. Without a lasting power of attorney in place, there may not be anyone with the legal authority to manage such financial affairs.
Lau explains that “a lasting power of attorney only becomes effective when a person is mentally incapable and ceases to be effective when a person regains mental capacity.”
The key difference between a lasting power of attorney and a trust is the scope of the authority to manage the assets. A trustee can only manage the assets within a trust and the role remains in effect even after the trust owner’s passing whereas a lasting power of attorney is only effective when a person loses mental capacity.
“They are not mutually exclusive. Having a trust doesn’t mean that you don’t need a lasting power of attorney. In all likelihood, you won’t be putting all of your money into the trust,” Lau notes.
The complexity of a dementia diagnosis can be eased with proper planning along with the support of a financial advisor.
“The first step is to always seek professional advice to discuss the situation,” Lau explains, noting that everyone faces different and circumstance-specific situations. Sharing information honestly and openly with your advisors will help the planning process.
Kiang adds that documenting your assets and liabilities can go a long way. “List all your assets and the locations of your properties and update the list from time to time,” she says. She further explains that this list provides an organized way for family members to know where your assets are in the event of cognitive decline.
Planning early on how you structure your wealth is also vital. “It’s always dangerous to be reactive,” Lau says. She points out that it’s better to have plans in place when one is mentally capable.
“These plans can be withdrawn [at] any time, can be refreshed or names can be replaced so it’s not something that is set in stone, but it is always good practice to have plans in place,” Lau explains.
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