How do you manage the money of people who cannot manage it themselves
As we are living longer so it is natural that there will be an increasing likelihood that members of our family will develop issues with their mental capacity.
I had a situation where a retired family member of one of my clients went on a spending spree and used up a significant portion of his savings. He was later diagnosed with dementia, but the damage had been done, and they suffered financially.
This is a difficult and sensitive issue. No one wants someone looking over their shoulder and judging their actions. But on the other hand, you have a finite amount of money when you retire, and an irresponsible spending spree or risky investment can have long-lasting consequences.
It is important that you put structures in place to protect your finances should you or a family member be in a situation where you are no longer mentally strong as you once were. One of the best ways is to get your financial affairs in order while you can. You must then have your plans documented
3 Steps to protect your financial future
1. Draw up a detailed financial plan
I would like to draw up a full financial plan for my clients which details all their investments and what they would be used for. It is important that both you and your spouse understand what is going on with your finances.
2. Call a family meeting
If you’re comfortable, call a family meeting with your children and have your financial planner present. This will help ensure that everyone is on the same page. At the family meeting you can discuss your financial plan as well as your life file which documents where everything is. You can also discuss the rules of engagement that would apply should you or your spouse develop a falloff in mental capacity.
3. Get the right legal structures in place
Many believe that they should get a Power of Attorney drawn up to manage the assets of a mentally incapacitated family member. This will not work as the power of attorney will fall away as soon as the person is declared to be mentally incapacitated. You would need to consider one of the following options:
· Appoint an administrator
You can apply to the master’s office to have an administrator appointed to manage your family member’s affairs. The master would typically look for a recent report from a psychologist as well as a GP who would both need to confirm that he or she is no longer capable of managing his or her own affairs. The master would also appoint an investigator to look into the situation.
If all goes well, the appointment should happen within six months. The administrator would need the master’s approval to sell any immovable property or shares.
· Appoint a curator bonis
Here the High Court would appoint a curator to manage your family member’s affairs. As this would require a High Court order, it would be more expensive than the first option. It
usually takes about a month to get the court order and up to six more to get the curatorship granted by the master.
· Set up a trust
A trust can be set up to manage the family member’s affairs. I would recommend setting up a special trust rather than a normal trust as the special trust will be taxed at your family member’s personal rate rather than the much higher rate of tax that is levied on normal trusts. However, the special trust must only benefit your family members so you cannot add other beneficiaries to the trust.
If you decide to go this route, you will need some specialists help in getting the money into the trust to ensure that it is done tax efficiently.
Dementia is, sadly, a reality that most of us will face in our families. It is important that we take active steps to put the right structures in place to ensure the future financial wellbeing of ourselves and our loved ones.
Speak to a Financial Planning professional. To find a professional go to: https://fpimymoney123.co.za/find-a-financial-planner/
Created by: Kenny Meiring, CFP ®