Coping with the financial aspects of dementia

5 June 2020

A diagnosis of Alzheimer’s or dementia is a tough time for any family. But whether you are concerned about yourself, your parents or another elderly relative, it is possible to reduce the financial stress by planning ahead

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When a person’s memory deteriorates it can be difficult to arrange help and support without a full understanding of their financial position. So a good starting point is to write an inventory of all your (or a loved one’s) assets and debts along with account numbers and contact details so that family members can keep track of where investments are.

It also means that hard-earned wealth is less likely to end up among the estimated £850 million currently lying unclaimed in lost bank accounts.

Lasting power of attorney

Next, think about who can help with routine financial responsibilities, such as paying bills, managing bank accounts, claiming benefits, making investment decisions and completing tax returns. 

In order to give a family member or friend the powers to manage your finances you will need to make a lasting power of attorney (LPA). This gives another individual the legal authority to represent you in private and business matters at a point in the future when you can no longer make decisions yourself.

It is easy to think that if you are married or in a civil partnership that your spouse would automatically be allowed to manage your finances or make decisions about your care, but this is not the case. Without an LPA, your spouse would not be able to act on your behalf.

If there is no LPA in place, a friend or relative would need to apply to the Court of Protection to become a deputy before they can deal with matters on your behalf, which is a lengthy and expensive process.

There are two types of LPA: one covers property and financial affairs, while the other looks after health and welfare issues, and you do not have to choose the same people for each one. Both should be established well before they are likely to be needed.

If dementia symptoms are already noticeable, a doctor can test your mental capacity to show you understood what you were doing when you set the LPA up.

Like an executor to a will, it is unwise to choose a representative who is elderly as they may not be called upon for many years, when they themselves may be creaking at the seams. The LPA should also be set up with a replacement attorney should the original die, refuse to act, become unwell or go bankrupt.

Solicitors for the Elderly, a specialist group of lawyers who support vulnerable clients, say a common mistake is to give power of attorney to children, particularly if they are busy juggling their own offspring and jobs. They particularly recommend taking a hard-nosed approach if your children do not manage their own money well, because there is a possibility of conflict if they get into financial difficulties. You should also consider including blanket bans on the selling of specific property, assets or family heirlooms, and whether you want to restrict gifts and loans.

Michael Culver, chairman of Solicitors for the Elderly, also warns against structuring the LPA as a “jointly and severally” arrangement, where two attorneys can act independently but must keep each other informed. This can be a disaster if the attorneys do not get along, or disagree on big decisions.

Dementia will disputes

Sadly, there have been many cases of families taking to the courts to sort out will disputes, where the deceased has rewritten the will after a dementia diagnosis. For example, in September 2019 a son lost a three-year court battle with his three siblings over his mother’s will after a judge decided that her dementia symptoms had not adversely affected her capacity to set out her final wishes.

In the UK, testamentary capacity (a person’s legal and mental ability to make or alter a will) is not the same as most people’s normal understanding of mental capacity. The courts will consider the specific facts of the case and will not set a will aside on the grounds of lack of testamentary capacity lightly, particularly if it looks reasonable and the obvious beneficiaries are included.

If a will looks suspicious, it will usually be more effective to bring a probate on the ground of ‘want of knowledge and approval’. This covers cases where a vulnerable testator has been duped into making a will that they mistakenly believe gifts their property to their choice of beneficiaries. A typical warning flag, for example, is if a beneficiary had played an instrumental role in the making of the will. Again, the courts will look at the details of the individual case and it is up to the propounder of the will to allay their suspicions.

It is worth pointing out that under the Mental Capacity Act another person cannot decide you lack mental capacity because they think you have made a bad or strange decision. Only a healthcare or other qualified professional can decide if mental capacity is lacking. If you want to change your will but there is a risk that capacity may be an issue, then it is prudent to engage a medical practitioner to verify your capacity at the point of its execution.

Budgeting for care

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The next big exercise is to consider the costs that will be incurred now and in the future. Most people with dementia want to stay in their own home as long as they can, because it is the place they are familiar with. This can be just as expensive as a care home, with the exception that if both partners in a couple are sufferers the cost will be split between them.

However, there is likely to come a time when you will need residential care. Costs vary depending on where you live, and can set you back by more than £1,000 a week in the Home Counties, as an example. People worry they will run out of money, which does happen, as the average time in a care home is two to three years, but periods of 10 to 15 years, and sometimes longer, are increasingly common.

This means many people will have to sell their home to pay for care. It is only at the point you have run your assets down to £23,250, including your home’s value, that you will be assessed by the local authority.

A tax-efficient way of paying care bills is to buy an immediate needs annuity that pays a regular amount direct to your care home to cover your bills, without any income tax deducted. These are individually underwritten – each case is priced on your particular situation and life expectancy. You can also add some capital protection to the policy so that your family receives some money back if you die much earlier than expected.

It is particularly efficient to use assets above the inheritance tax (IHT) limit to buy an immediate needs annuity, because this then takes that money out of the IHT net.

If you are passing your estate on to your children, IHT may be applicable on the amount in excess of the nil-rate band (NRB), currently £325,000. On top of that a resident nil-rate band was introduced for people passing their home on to family in 2017, which from April this year protects £175,000 per person. Together, these allowances enable a single person to shield £500,000 from IHT; married couples can shield £1 million.

When choosing a care home, look at the reports by the Care Quality Commission that assess each facility against five criteria – safety, care, effectiveness, how well led it is and how responsive to people’s needs.

Companies providing care in individuals’ homes should also be able to give you a copy of its latest report.

The signs and symptoms of Alzheimer’s disease

The symptoms of dementia may be mild at outset but will gradually worsen over time. They may include:

• Difficulty remembering recent events despite having a good memory of the past

•  Poor concentration

•  Difficulty recognising people or objects

•  Poor organisational skills

•  Confusion

•  Disorientation

•  Slow, muddled or repetitive speech

•  Withdrawal from family or friends

•  Problems with decision making, problem solving, planning and sequencing tasks

Source: Dementia UK

Equity release

One way to generate cash to pay for live-in care is to take out a lifetime mortgage that unlocks the value of your property and turns it into cash. The mortgage is secured on your home but you retain ownership, and continue to live in the property until you die or move to a care home, when the property is sold to repay the loan plus any interest. You can usually borrow up to 60% of your property’s value.

These plans may suit someone who is asset-rich and cash-poor and is keen to remain in their own home. But they can be expensive, as, with some, interest rolls up over the years – the longer you live, the pricier they become. That said, the impaired lifespan that comes with dementia appeals to providers and will be reflected in the terms.

State help

If you are over the state pension age, you need help looking after yourself and have had the illness for at least six months, you will be entitled to Attendance Allowance which is not means-tested. There are two levels of support available: £89.15 and £59.70 a week. Which one you receive depends on whether you need help or supervision at night as well as the day.

Carer’s allowance of £67.25 a week is also available to all carers, whatever their income, if they care for someone for more than 35 hours a week.

The person being cared for must meet eligibility criteria, which includes being unable to socialise, use public transport, maintain proper nutrition and adequate personal hygiene, and being able to maintain their home.

Dementia sufferers may also be eligible for benefits that provide assistance with prescription costs, and transportation and community support services, and your council tax should be rebated.

If you need help with financial planning, consider choosing an adviser with accreditation from the Society of Later Life Advisers, who will make extra efforts to explain concepts clearly and can meet you in your own home where you will be better able to take in information.  

Source of statistics : Alzheimer’s Society and Alzheimer’s Disease International

How to reduce the risk of dementia

The Alzheimer’s Society says that although age is the biggest risk factor for dementia, there are plenty of steps that you can take to reduce your personal odds.

• Get physical: each week aim for 150 minutes of moderate activity (such as walking, mowing the lawn or cycling), or 75 minutes of vigorous activity (such as jogging or fast swimming). Also work your muscles with gentle exercise, or get gardening.

• Eat sensibly: eat protein such as meat, fish, beans, pulses or eggs, at least twice a week, have at least five portions of fruit and vegetables a day, cut back on fat, and keep well hydrated with six to eight glasses of fluid a day.

• Don’t smoke: it increases the risk of not just dementia but type-2 diabetes, stroke and cancer too.

• Drink less alcohol: don’t drink more than 14 units a week. Regularly drinking more than this increases the risk of alcohol-related brain damage.

• Keep your brain busy: study for

fun or a qualification, do crosswords and other puzzles, play card and board games, read challenging books or write. Volunteering and joining clubs are other ways of staying socially active.

This feature first appeared in our sister publication, Money Observer.

First published on 4 June 2020

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