How to avoid the Financial Effects of Dementia


Letting go of our finances may be unthinkable; yet without adequate planning, dementia may result in our money being taken away at a huge personal and family cost.

Dementia is a general term used to describe a decline in mental ability severe enough to reduce our ability to perform everyday activities. Presently 1 in 20 people over the age of 65, and 5 in 20 over the age of 85, will develop dementia. Whilst Alzheimer’s is the most common form of dementia, it can also occur as a result of a stroke, or specific illnesses such as Parkinson’s disease.

What goes first in dementia?

Research has shown that financial decision-making capacity erodes early even when someone can still function appropriately in social situations. People in the early stages of dementia often feel locked out of the system, as they struggle to remember passwords and bank details needed to manage their affairs.

Should you develop dementia, a long-standing relationship with a trusted independent Investment Planner who not only focuses on your financial affairs, but also gets to know your personal and lifestyle goals can prove particularly valuable.

Are your financial affairs in order?

If you have a family history of dementia, plan early to get your affairs in order. Even if you have no such history, it is advisable to ensure that your financial and legal affairs are kept up to date. This includes having investments and assets consciously and appropriately structured to achieve your long term financial goals, having adequate health cover, providing to keep your partner and/or children financially secure, ensuring that your Will reflects your current wishes, and having a valid Power of Attorney in place.

But a Power of Attorney is not enough

In South Africa a Power of Attorney is only valid while the signatory is of sound mind and able to act. As soon as you are unable to act, the Power of Attorney is invalid and one has to ask the Supreme Court to appoint a curator to act on your behalf. We have found that leaving it this late can be financially disastrous – the court application itself is expensive, the money may already have been misspent and in addition, under a curator any investment strategy may need to be altered to include only cash and fixed interest instruments, which means that your portfolio is then denuded of all essential, inflation-beating growth investments.

What else can you do?

A trust created during your lifetime while you are capable of sound decision-making is a useful alternative to trying to retain control with failing mental ability. It is valuable from a tax and estate planning point of view, and it allows you to appoint trustees who will guard your interests and protect your assets and the investment strategy if you begin to have difficulty making such decisions on your own.

In the absence of a trust, it may be possible to put financial and legal plans in place whilst you are of sound mind that will ensure that should you develop dementia or any other chronic illness, you and your loved ones are not financially crippled or faced with the difficult decisions related to your care.

Debbie Netto

Article by:

Debbie Netto I Financial Planner CFP®

Financial Planner of the year 2001


This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice.

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