How does dementia affect your ability to manage your finances?
From 15 – 21 May the Alzheimer’s Society’s annual awareness campaign Dementia Action Week takes place, encouraging everyone to “act on dementia”. The campaign is designed to raise awareness and help more people to receive support if they or someone they know has the disease.
According to research shared by the charity, around 900,000 people in the UK had dementia in 2019; that number is expected to rise to 1.6 million people by 2040.
Alongside its health implications, dementia can pose a significant challenge when it comes to managing your money. Even though it can be tough to think about the possibility of developing the condition, it’s important to factor it into your plan so that you’re prepared if it does happen.
Dementia can make you vulnerable to scams and money mis-management
There are lots of different types of dementia, but the most common symptoms include:
Memory loss
Confusion
Difficulty understanding others and articulating yourself
Changes in behaviour
Symptoms like these might mean that you need a little bit more time to make decisions, or some support to help you understand the implications of a decision. Because of this, dementia can make it more difficult for you to manage your money by yourself and makes you more vulnerable to scams.
Research shared by the National Institute on Aging shows that those with dementia are more likely to have had a lower credit score and to have missed credit card payments up to six years before their diagnosis than those who don’t develop dementia.
Since the condition has the potential to affect your finances and your future plans, it’s important to consider how you and your family might cope with its effects if you develop it later in life.
Early planning can help to reduce your risk of financial problems in the event that you are diagnosed with dementia
Dementia is a progressive condition, which means that having it doesn’t necessarily mean that you aren’t capable of managing your own money. In the early stages, you may still be able to make decisions with some help from a relative or a friend.
There are two types of legal documents that are very helpful to create as soon as possible, since you must show that you have the mental capacity to make the required decisions in order for them to be legally valid. These are:
A Will
A Lasting Power of Attorney (LPA).
While a dementia diagnosis doesn’t automatically mean you are not permitted to create these documents, you do need to meet a set of criteria to be able to do so.
A Lasting Power of Attorney allows a trusted person to manage your money for you if needed
An LPA is a legal document in which you can nominate a person (or persons) of your choosing to take care of important decisions for you in the event that you lose the mental capacity to do so.
There are two different types of LPA: one for financial matters, and one for healthcare decisions.
To be permitted to create an LPA, you must have the required mental capacity to make this decision if the document is to be legally valid. This means that you can still write an LPA after a dementia diagnosis provided you are able to understand and retain information about the following:
The effect of the LPA
Who your nominated attorney(s) is/are
What powers your attorneys have, and the restrictions in place on how they can use these powers
When the attorneys are allowed to exercise these powers, including the need for the LPA to be executed before it can come into effect
The extent of the assets the attorneys have responsibility for under the LPA
Your right to revoke the LPA if you have capacity to do so
The advantages and disadvantages of executing the LPA
The consequences of making or not making an LPA.
You must register your LPA(s) with the Office of the Public Guardian, and this can take up to 20 weeks to be approved.
If you don’t have an LPA in place and your dementia has already progressed to a stage where you aren’t able to create one, a family member, friend, or professional such as a financial planner or solicitor can apply to the Court of Protection to be appointed your “deputy”.
This is a much longer and more costly process, costing £371 to apply, and there are greater restrictions on what a deputy can do compared to an attorney under an LPA.
For a Will to be valid, you must have the required “mental capacity” when writing it
If you have dementia and need to write a Will, you must show that you have “testamentary capacity”. This means that you must understand:
The nature of the Will you are writing
The impact of the decisions you are making
What is included in your estate
Who could make a claim if they are not named in the will (such as a dependent child).
You must also be able to show that no disorder of the mind poisons your affections, perverts your sense of right, or prevents you exercising your natural faculties when deciding how to dispose of property under your will.
If you or your family are unsure whether you meet these criteria, a solicitor can help you to navigate the process.
If you have already reached the later stages of dementia and aren’t able to write a Will, when you pass away your assets will either be distributed according to a previous Will that you wrote, or if you hadn’t written one before you became ill, according to the laws of intestacy. Depending on your circumstances, this means that your loved ones may not receive the inheritance that you wanted them to.
You can read more about wills, LPAs, and other important documents that you should create to give your family peace of mind on our website.
It’s also important to plan for later-life care fees
In its later stages, dementia can mean that you require care with many day-to-day tasks.
In this scenario, if you live in England or Northern Ireland and you own more than £23,250 of assets (£28,000 in Scotland, £24,000 if you receive care in your own home or £50,000 if you receive care in a care home in Wales), you won’t be eligible for free healthcare from your local authority.
Self-funding a place in a care home can cost around £1,000 a week. So, it’s sensible to think about how you might cover the fees of part-time or full-time care sooner rather than later.
Get in touch
If you’re concerned about how future events, such as a dementia diagnosis, could affect your family’s financial stability, we can help.
Email theteam@fortitudefp.co.uk or call us on 01327 354321.
Please note
The Financial Conduct Authority does not regulate estate planning, tax planning or Will writing.