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, behavior and emotion and results from a variety of diseases and injuries that affect the brain, including Alzheimer's disease or a stroke.
Why planning is important
Jerry Zhao, head of Trust Administration at RBC Wealth Management in Hong Kong, sees two aspects – medical and financial – that need to be managed when a person is experiencing diminished mental capacity as a result of dementia.
He 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?”
Zhao 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,” he 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 to protect your loved ones
When it comes to wealth planning discussions, they usually focus on during and after one's lifetime. “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?” 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, Zhao explains that you'd still needs to consider who would step into the caregiver role.
Enduring power of attorney versus a trust
Another way to ensure decisions about your finances and personal care are made by your loved ones is through an enduring power of attorney.
An enduring power of attorney is a document that gives one person (or more) the authority to manage your financial affairs if you lose mental capacity. Without an enduring power of attorney in place, there may not be anyone with the legal authority to manage your financial affairs in the event that you lose mental capacity.
Zhao explains that “an enduring 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 an enduring 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 an enduring 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 an enduring power of attorney. In all likelihood, you won't be putting all of your money into the trust,” Zhao notes.
Always plan ahead
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,” Zhao 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,” Zhao says. He 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,” Zhao explains.
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