Difficult decisions: managing your money in the face of dementia
Think ahead, because the time may come when you can't manage your own affairs
Chances are that if you're at all concerned about your finances, you've given some thought to how that will be managed by your loved ones when you die. But as the population ages, there's another question we need to be asking: what will happen if we're still living but mentally unable to make decisions?
Dementia is now the leading cause of death in Australia, with an estimated 250 people joining the list of those affected every day. One in 10 people over 65 has dementia, and the number affected is predicted to grow from around 425,000 this year to 536,000 by 2025.
While it is largely something that affects the elderly, more than 26,000 people have younger onset dementia and it is the single greatest cause of disability for those aged 65 or more.
Unless there is a medical breakthrough, the possibility of being mentally unable to make decisions about your care and your finances is something we all need to consider.
But it is not only dementia that can wreak havoc with your ability to make decisions. At any given time we could be hit by that proverbial bus and find ourselves incapacitated for a period.
"Unfortunately, being unable to manage your own affairs can happen at any time," says Anna Hacker, the national manager for estate planning at Australian Unity Trustees Legal Services. "So it's not just older people who need to think about it."
The most helpful thing you can do to avoid chaos if something goes wrong is to simplify your finances as much as you can, says Laura Menschik, a certified financial planner with WLM Financial Services.
"Most people will have a number of bank accounts, PINs, passwords and so on," she says.
"But if you can have them all with one bank that you prefer, someone else can log on with one password and find everything in one place. Most people have several credit cards, but you can usually reduce that to one or two.
"If you get hit by a bus, just finding out what you have can be hard for someone else, especially as things don't tend to come by mail any more. If you're getting older, it's also a good way to reduce anxiety and stress in your own life."
Similarly, says Menschik, if you have investments it may be worth using a platform to consolidate them all in one place. An added benefit, she says, is that the platform produces a tax report each year so you don't have to find lots of separate pieces of information to take to the accountant.
Passwords are a problem. We all have too many to remember. Menschik suggests trying to get by with just a handful based on phrases it is easy to remember (such as "Ileftschoolin2002") or facts that no one else could know.
For example, Menschik says you might want to use the names of your first cat or dog. But instead of writing down the names, just keep an aide de memoire that says cat or dog. Keep passwords for finances different to those for non-important things such as websites.
Then there are the legal issues. Hacker says having an enduring power of attorney is just as important as having a valid will. A power of attorney gives someone else the right to manage your affairs on your behalf.
An enduring power of attorney differs from a general power of attorney in that it is ongoing, rather than in place for a specific period or purpose such as settling a financial transaction while you are out of the country.
Someone you can trust
Theoretically, says Menschik, an enduring power of attorney means the person you appoint could mortgage your house and skip off to Europe, so they need to be chosen carefully.
Hacker says the laws differ from state to state but all have documents available to cover lifestyle, medical, and financial matters. These can range from managing your finances to handling your aged care needs and the medical treatment you receive if you are unable to make decisions yourself.
When it comes to your finances, this is generally covered by the enduring power of attorney. Hacker says it is possible for your family to apply to have an administrator appointed if you're unable to manage your affairs but an enduring power of attorney is simpler, and ensures you don't fall through the cracks.
"You see circumstances where no one knows who should be in charge," she says.
Hacker says the person you appoint should not only be someone you trust but someone who is willing and able to take control if needed.
She has seen cases where the documents have been in place but the nominated person hasn't wanted to take on the job or has been unable to do so, often because they are of a similar age and having enough trouble looking after their own needs.
A trustee company or public trustee can be appointed if you can't find someone and they can often deal more impartially with problems that sometimes arise - such as if an ageing person can't take care of themselves but is reluctant to move into aged care.
Beware conflicts of interest
Hacker says an enduring power of attorney generally doesn't have to mean an immediate loss of control. It can stipulate when it will come into effect - either at a later date or for a specific event, such as having two medical practitioners deem that you have lost capacity.
She says the document may also stipulate conditions as to what can and cannot be done. For example, she says it is now common to stipulate that your house cannot be sold or mortgaged (after a flurry of cases in the 1980s).
It is worth getting professional advice, she says, especially if there is potential for the nominated person to have a conflict of interest. You might, for example, want to nominate your son. But if he is also the main beneficiary of your will, he has a conflict in that money spent on your care will reduce his inheritance. "People don't understand the power they are giving, and there is always complexity," says Hacker.
There is also a growing trend to allow people to decide in advance what medical treatment they want if they lose capacity.
"Victoria recently introduced an advanced health directive which allows you to set out the medical treatment you want," says Hacker. "That means if a doctor doesn't follow your wishes, they can be penalised.
"In most states we're now seeing legislation that tries to give more power to the person, rather than having someone else make those decisions on their behalf."
Not all states have these directives (also known as anticipatory directions). In NSW, for example, you will need to appoint someone to make medical and lifestyle decisions on your behalf - usually referred to as an enduring guardian.
Menschik says the appointment (which also can come into operation when you lose capacity) can include directives on what you want, in a similar vein to the advanced health directive. But it is slightly different in that they have the responsibility for following your wishes when the time comes.
"These can be difficult decisions," she says. "But if they know what you want, it makes things easier."