The diagnosis of any serious illness can be physically and emotionally draining for families, however, being diagnosed with dementia can be particularly challenging. As cognitive decline tends to be a progressive illness, the burden on finances over time can be significant and losing the ability to make decisions can lead to difficulties in managing money on a day-to-day basis. Any financial risk can be reduced by thinking ahead, as forward planning can keep your affairs in order and help family members organise your finances effectively, if you are unfortunate enough to lose capacity and the ability to make decisions for yourself.
Sadly, dementia cases are rising rapidly. According to figures commissioned by the Alzheimer’s Society, there were 900,000 people living with dementia in the UK in 2019. This figure is expected to almost double to 1.6 million by 2040. Looking at global figures, it is estimated that 139 million people around the World will be living with dementia by 2050.
Whilst often considered to be an illness developed by older individuals, 42,000 people under the age of 65 in the UK are living with dementia. Early-onset dementia can pose particular risk for family finances since those developing the illness may still be working and need to consider how to cover mortgage costs and pay for the upkeep of dependent children.
It is important to consider what would happen to your affairs, if you suffered from cognitive decline, and were unable to make decisions that impact your finances or well-being. This is particularly important when an individual holds investments, property or other assets that cannot be managed easily.
Given the stark figures for dementia cases, it is important that individuals take responsibility and get their affairs in order by creating a Lasting Power of Attorney (LPA). This is a legal tool that lets you appoint someone (an attorney) you trust to make decisions for you if you are unable to make those decisions yourself.
There are two different types of LPA. The first covers your Property and Affairs and the second covers your Health and Welfare. In both instances, the attorney steps into the shoes of the individual granting the power and has the same legal status. For example, an attorney can undertake relatively simple tasks such as paying a bill or collecting benefits, as well as dealing with more complex decisions, such as selling a property or managing investments.
An attorney is duty-bound to always act in your best interests and consider your wishes in any decisions they make on your behalf. For this reason, most people will appoint a family member as their attorney, as this is someone who knows you well and you trust to make the right decisions for you.
Once the LPA has been created, it needs to be registered with the Office of the Public Guardian (OPG). In the case of the Property and Affairs LPA, this can be used as soon as it has been registered; however, the Health and Welfare LPA can only be used once you are unable to make decisions yourself.
Whilst forward planning can provide reassurance that your affairs are in order, many people do not make a LPA in advance of the diagnosis of dementia. It is important to note that a diagnosis does not prevent an individual from making a LPA, but it is advisable to get the documents prepared as soon as possible. A medical assessment by a qualified professional is likely to be required to ascertain whether the individual has the mental capacity to make an informed decision to be able to create the LPA.
If an individual loses capacity, and no LPA has been prepared, then typically an application is made to the Court of Protection, who will appoint a deputy to manage your affairs on behalf of the Court. Whilst a deputy has similar powers to an attorney, the deputy is appointed by the Court, and not by you. This appointment may, therefore, not concur with your wishes. Furthermore, the process of appointing a deputy is costly and long-winded and this could lead to considerable delays in being able to make financial arrangements, such as paying for care costs.
In addition, a deputy is placed under greater control and supervision by the Court, and needs to prepare an annual set of accounts, covering decisions and financial transactions taken. A deputy may also need to arrange a “security bond”, which is an insurance policy that protects the assets of the patient.
In addition to preparing a LPA, everyone should make a Will. This sets out an individual’s wishes on death and helps make life a little easier for family members at a time of great stress and sadness. As with the LPA, the diagnosis of dementia would not prevent an individual from making a Will; however, it may well be advisable, or even necessary, to obtain expert medical evidence that an individual has the capacity to make the Will.
At MGFP our advice is that all individuals should consider making a LPA. It is sensible planning which can avoid significant cost, delay, and worry for loved ones. You can either prepare LPA documents through the Government web service or contact a Solicitor who can provide advice and prepare the documents and application for you.
We are very familiar with providing advice to attorneys, where planning decisions such as covering the cost of ongoing care, or managing existing investments are needed. Our financial planning team have extensive experience in dealing with dementia cases. If you have any queries or concerns, please do give us a call.
If you would like to discuss the above in more detail please contact one of our experienced advisers here.
Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.
