Vusumuzi DubeHaving spent decades building up your wealth ecosystem so that it can sustain you in your old age – whether that’s through traditional investments, a property portfolio or building a company so that it has valuable shares that can derive a sustainable dividend from – there may come a time when you just do not have the will or wherewithal to look after that nest egg.
Medicine and human endeavours have resulted in a substantial increase in everyone’s longevity – from a lower infant death rate to a higher natural “old age”. Consider the following data from the United Nations:
In 1970, the average life expectancy worldwide was below 60, whereas today, it is 70. Even though there are encouraging medical breakthroughs to deal with diseases most common in old age, both dementia and Alzheimer’s require special attention as they can have a profound impact on wealth.
Dementia and Alzheimer’s often take years to manifest and can become a serious problem for the other spouse/partner (who may not be much younger) and, by default, for the children or grandchildren as well.
Fortunately, both conditions are slow to manifest, giving you plenty of time to mitigate the long-term problem.
These are the steps I recommend investors take when navigating this problem (remember this is not financial advice as everyone’s individual and family situations vary greatly, requiring adaptations):
1. Get your affairs in order
Collect all the documentation that an executor would require to wind up the estate. (I use my RedFile Organisational system, which is free to anyone on request).
Draw up an income statement (i.e., budget), balance sheet (assets and liabilities), and latest tax returns and make sure a copy of the will is on file. The income statement should have a second column detailing the income on incapacity (in this instance). This will probably require more income than at present to pay for caregivers, institutions and medication. Use the present value — you (or your planner) can do the math projections taking inflation and growth into account later.
2.Analyse all the inputs and compile a financial, retirement, tax, and estate plan that talk to each other
It’s not an easy task, and remember you’re doing it for someone who is going to rely on those calculations to ensure that they are financially secure for perhaps decades into the future — perhaps even when you’re not around.
One of the key features of this is to ensure that the investments are aligned to an objective to ensure that the person involved has a steady and sustainable income that grows with inflation without any capital depletion over their lifetime.
The choice of an asset manager who is aware of the situation at hand is equally important, as this allows for an added layer of governance beyond the plans that have been set out.
I am fully aware that this process may require you to seek advice. Look specifically for an advisor who has a skill set wide enough to encompass all the areas that need to be covered (financial, retirement, tax, and estate). Ask a simple question: “Have you dealt with cases involving dementia and Alzheimer’s?”
You want someone who has implemented solutions successfully in the past and, most importantly, is walking a path with affected clients.
If the correct solution is implemented, you may very well find the estate saving money long-term. It’s the re-doing of solutions, improper paperwork and the likes that cost money. This is why good advice saves money long term, something I have prime examples of and I am happy to share should you want to engage.
Power of attorney
There is a mistaken belief out there that the problems of dementia and Alzheimer’s can be mitigated with a power of attorney or durable power of attorney. The durable power of attorney does not exist in South Africa (please check if you’re interested in other countries), and the power of attorney requires that the person giving the power is mentally competent to do so and is revoked once they are not.
The only other recourse is for the family or caregivers to seek a “curator bonis” through the high court.
A good alternative — a trust
A good advisor will be able to talk you through some other alternatives to this. A trust is often a good recommendation. This could be an inter vivos trust (while the affected individual is alive) or testamentary trust, which is triggered by a will.
This discussion needs to be had with a professional at the earliest opportunity, the longer you leave it, the less likely that it will be effective.
Also consider that you cannot just “give/donate” assets to a trust — either they have to go into a loan account, or you pay donations tax (20percent —however, you can leave assets to a trust where the estate will have paid estate duty so donations tax is not applicable.
Again, as is always the case, there are nuances that need to be considered, which will make your own situation so much different to others and hence the application of a trust solution needs to be discussed with a professional.
In summary then, you have time to make sure that the financial transition for a person with dementia or Alzheimer’s is as smooth and stress-free as possible, but please get professional help — you aren’t going to have the time or wriggle room to make up for well-meaning mistakes.
There needs to be a clear, written plan laying out the steps that anyone can follow, and the will be amended to reflect the recommendations in the plan. The will needs to be put in place while the person is still mentally competent. —Moneyweb
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