All you need to know about the financial implications of dementia.
A diagnosis of dementia, in whatever form it might take, is a tough time for any family, one full of uncertainty about the future. However, the financial aspects are one area where you can take back control and reduce stress levels by planning ahead.
A good move, once a diagnosis has been made, is to write an inventory of all your assets and debts, and their account numbers and contact details, so that the family can keep a handle on where the investments are. That way, your hard-earned wealth will not end up among the estimated £850 million currently lying unclaimed in lost bank accounts.
Power of Attorney
You also need to decide who in your family may be able to help you complete routine financial responsibilities such as paying bills, managing bank accounts, claiming benefits, making investment decisions and completing tax returns.
It’s at this time that you might consider giving lasting power of attorney (LPA) to a family member or friend so that they have written, legal authority to represent you in private and business matters at a point in the future when you can no longer make decisions for yourself.
It’s easy to assure that if you are married or in a civil partnership, your spouse would automatically be allowed to deal with your bank accounts and so on, or make decisions about your care, but this is not the case. Without an LPA, your spouse will not be able to act on your behalf.
If there is no LPA in place, a friend or relative will eventually have to apply to the Court of Protection to become a deputy before they can deal with matters on your behalf. This is a long process, and will cost £365 for each application, with an additional cost of £485 if a hearing is required.
There are two types of LPA, one covering property and financial affairs and the other covering health and welfare. You do not have to choose the same people for each one, but both should be established well before they are likely to be needed.
If your dementia symptoms are already quite noticeable, a doctor will be able to give you a test for mental capacity, which will show that you knew what you were doing when you set it all up.
As when selecting an executor to a will, it is unwise to choose a representative who is elderly, as the person’s skills may not be called upon for many years, by which time 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 the power of attorney task to grown-up children, who may be busy juggling their own offspring and jobs. They particularly recommend taking a hard-nosed approach if your children do not manage their own money very well, because there is a possibility of conflict if they get into financial difficulties. You should consider including blanket bans on the selling of specific property, assets or family heirlooms, and whether you want to restrict gifts and loans.
The group chairman, Michael Culver, also warns against structuring the LPA as a “jointly and severally” arrangement, where two attorneys can act independently but must keep each other informed, as this can be a disaster if the attorneys do not get along, or if they disagree on big decisions.
Dementia: some facts
Your chance of developing dementia increases a lot with age. Of people over 65 years of age, one in 14 has dementia, whereas it is one in six people over the age of 80.
There are around 850,000 people in the UK who are living with dementia. By 2021, one million in the UK will have dementia. Two million will have dementia by 2051.
On a global scale, 46.8 million people were living with dementia in 2015. By 2030, this is expected to rise to 74.7 million and 131.5 million by 2050.
There are over 100 forms of dementia. The most well-known form of dementia is Alzheimer’s disease, which accounts for 50% to 60% of all cases.
Sources: The Alzheimer’s Society and Alzheimer’s Disease International
Budgeting for care
The next big exercise is to consider the care costs you may incur 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 of care will be split between the two of them.
However there is likely to come a time when you will need residential care. Care costs vary depending upon where you live, and can set you back more than £1,000 per week in the home counties, for example. People worry they will run out of money, which can happen, as the average time in a care home is two to three years and periods of 10-15 years or longer are increasingly common.
This may mean selling your home to pay for care. It is only at the point that you have run down your assets to £23,250, including the value of your home, that you will be assessed for local authority support. However, if you have a partner still living in your home, it will not be included in the assessment.
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 dependants receive some money back if you die much earlier than expected.
It is particularly efficient to use assets above the inheritance tax limit to buy an immediate needs annuity, because this then takes that amount out of the IHT net. If you are passing your estate on to your children, then 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 homeowners two years ago, which can protect £150,000 (rising to £175,000 per person by 2020/21). Together, these allowances will enable a single person to shield £500,000 from IHT, and double that for a married couple.
In deciding on the care home, you should look at the reports by the Care Quality Commission, which assesses each care home against five criteria – safety, care, effectiveness, how well led it is, and how responsive it is to people’s needs.
For live-in care provision, The Good Care Group covers all of England and Scotland, and was rated outstanding in all five categories in March 2019.
Home equity plans
One way to generate cash to pay for live-in care, or residential care if your spouse is still at home, is to take out a lifetime mortgage which 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 normally borrow up to 60% of your property’s value.
A rarer type of home equity plan is a home reversion plan where you sell all or some of your property to a specialist provider, who will typically offer 20% to 60% of the market value for either part or all of the property, depending on your and your partner’s age and health.
The reversion company cannot sell the property until both you and your spouse have died or you decide to move into a care home. The company might have to wait many years before they can sell the property and make a profit, and this will be reflected in the pricing.
You can also choose to add a ‘no negative equity guarantee’ so that you or your estate will not be liable to pay anything additional in the event that the sale of the property does not cover the loan, interest and fees.
These plans may suit someone who is asset-rich and cash-poor, but they are not great deals, although the impaired lifespan that comes with dementia is attractive to providers and will be reflected in the terms.
There is a range of state help available for people with dementia. If you are over the state pension age, you need help looking after yourself, and have had the illness for at least six months, then you will be entitled to Attendance Allowance, which is not means-tested. There are two levels of support: £87.65 and £58.70 per week. Which level you receive depends on whether you need help or supervision though the night as well as the day.
If you are terminally ill, there are simpler rules that make it easier to apply for and get help quickly. You are considered to be terminally ill if you have a likely life expectancy of six months or less. In this case, you do not have to satisfy the six-month qualifying period or complete the part of the claim form that asks about your supervision needs because you will automatically qualify for the higher rate. Your claim should include a DS1500 form, which is available from your GP or consultant.
Care support of £66.15 a week is also available to all carers, whatever their income, if they look after someone for more than 35 hours a week. The person being cared for must meet eligibility criteria, such as being unable to socialise, use public transport, maintain proper nutrition and adequate personal hygiene, and maintain their home.
As a dementia sufferer, you may also be eligible for benefits that provide assistance with prescription costs, transportation and community support services, such as Meals on Wheels (both for you and your carer). Your council tax should also be rebated.
If you need some financial planning, you may want to choose an adviser with accreditation from the Society of Later Life Advisers, who will make extra efforts to explain concepts clearly and understand that it helps to meet in your own home where you will be better able to take on information.
If your estate is large or your family relationships are particularly complex, it may be worth considering a trust that would be run by a number of trustees after your death. They would distribute funds in line with your wishes, but could adapt to any changes in circumstances as they arose.
Placing funds into trust is a taxable event for inheritance tax, and a 20% chargeable lifetime transfer charge is due on funds over the NRB, followed by 10-yearly periodic charges calculated on the assets held. However, those assets then fall outside of your estate for IHT purposes if you live for seven years after establishing the trust.
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 a man 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 lightly set a will aside on the grounds of lack of testamentary capacity, 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 grounds of ‘want of knowledge and approval’. This covers cases where a vulnerable individual 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 played an instrumental role in the making of the will. Again, the courts will look at the details of the individual case, and it will be up to the propounder of the will to allay their suspicions.
It’s worth pointing out that under the Mental Capacity Act, another person can’t decide that 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. However, 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.
• Society of Later Life Advisers: societyoflaterlifeadvisers.co.uk. Tel: 0333 202 0454
• The Office of Public Guardian: gov.uk/power-of-attorney
• Help with understanding the Mental Capacity Act: gov.uk/government/collections/mentalcapacity-act-makingdecisions
• Help with all aspects of dementia: dementiauk.org
• Care home assessment: Care Quality Commission – cqc.org.uk/search/services/care-homes
• Attendance Allowance: gov.uk/attendance-allowance/how-to-claim. Helpline: 0800 731 0122
• General helpful information related to care: carersuk.org
• Carers allowance: gov.uk/carers-allowance/eligibility
• Download a free guide to making or updating your will from Alzheimer’s Research UK: alzheimersresearchuk.org/gifts-in-wills-guide/