| THE PODCAST RELATED TO THIS BLOG IS AVAILABLE HERE Having spent decades building up your wealth ecosystem so that it can sustain you in your old age – whether that’s by the way of 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 endeavors 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 across the world was below the age of 60 whereas today it is 70 years of age. 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 your 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).:  The first thing to do is get the 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 (aka budget), Balance sheet (assets and liabilities) 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 care-givers, institutions, medication etc. Use the present value – you (or your Planner) can do the math projections taking inflation and growth into account later.  Analyze all the inputs and compile a financial, retirement, tax and estate plan that talk to each other. 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…..there is no room for amateur-hour here. 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 asset manager that 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 that has a skill set wide enough to encapsulate all the areas that need to be covered (financial, retirement, tax and estate). Ask a simple question: “Have you dealt with cases which involve 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.  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 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 – 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 (20%) – 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 which 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 amended to reflect the recommendations in the plan. The Will needs to be put in place while the person is still mentally competent. Articles and Blogs: Weathering the storm NEW Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |