Receiving a dementia diagnosis can be devastating, whether it’s happening to you, a parent or a loved one.
While no-one wants to dwell on what might lie ahead, it’s important not to leave it too long before discussing the impact of this, including the financial implications.
According to figures from the Alzheimer’s Society, one in six people over the age of 80 currently has dementia. There are more than 850,000 people living with a dementia diagnosis in the UK, and this figure is predicted to rise by more than two million by 2050. Living with dementia can be extremely difficult for both the person affected, and their family and friends, and there are wide-ranging ramifications, so it’s important to take prudent steps to prepare for the future.
Here, we explain some of the main financial considerations to think about if you’re affected by dementia, from ensuring there’s a Lasting Power of Attorney in place, to thinking about how to fund the cost of care.
Do you need a Lasting Power of Attorney (LPA) if you or a loved one has dementia?
It may be tempting to put off thinking about what would happen if you were no longer able to manage your finances, or making decisions regarding your health, but a dementia diagnosis should sadly prompt you to prepare for this occurring at some stage.
If you haven’t already done so, it’s really important to set up a Lasting Power of Attorney (LPA), which is a legal document that enables you to appoint someone you trust as your attorney to act on your behalf and make decisions if you’re unable to do so. It’s vital that your LPA is registered with the Office of the Public Guardian prior to losing mental capacity. You can appoint one person such as your partner or spouse as your primary attorney, for example, and several others as replacement attorneys if they do not have the capacity to handle affairs, such as children or other relatives.
If you fail to put LPA in place, things can get tricky for those closest to you at what’s already likely to be a difficult time. They will need to apply to the Court of Protection for someone to be made your ‘Deputy’ so that they are legally allowed to manage your affairs. However, this can be a stressful process and take many months to complete, and you ultimately won’t be able to choose who is put in charge of your affairs.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “When a loved one is suffering from Alzheimer’s, this is likely at some stage to make it incredibly difficult for them to keep on top of their finances, and terribly easy for them to make mistakes. It means that, for example, debt becomes a real threat for sufferers. However, there are ways you can help protect them, so the disease doesn’t destroy their financial resilience.
“Ideally, you step in before issues arise. A Lasting Power of Attorney makes an enormous difference, because it allows you to contact companies and make decisions on their behalf, so you protect them before any problems arise.”
There are two different types of LPA: The Property & Financial Affairs LPA, which allows someone to manage your financial affairs on your behalf, from your bank accounts, investments and taxes, to paying your bills and even selling your home, and the Health and Welfare LPA. This lets your attorney take control of decisions regarding your health, so they might decide when you need to move into care, or what medical treatments you receive. This may include decisions about end-of-life care or whether or not to resuscitate.
Find out more about the process and how to apply for an LPA in our article How to set up a Lasting Power of Attorney.
How can you protect a dementia sufferer from struggling financially?
If someone you love or look after has been diagnosed with dementia, there are several steps you can take to make it easier for them to manage their affairs as the illness progresses:
- Set up direct debits for bills, so they don’t have to remember to pay them.
- Ask them to set up a third-party mandate on accounts, so you can monitor their bank account for overspending and speak to companies on their behalf if you need to.
- Help them get their paperwork together, so they have a list of their debts and accounts. This makes it easier for them to check, and also for you to help.
- Learn how to spot the signs they’re in financial trouble. It’s not always easy to tell if someone’s run into financial difficulties, but they may not be opening bills or statements, get defensive around the topic, or not have the money they usually have to pay bills.
- Things will be far easier if they have set up an LPA before a dementia diagnosis to give responsibility for dealing with their finances to someone they trust in the event they lose the capacity to make their own decisions.
- With an LPA you can manage their money for them, and give them an allowance or a card linked to an account with a fixed amount in it.
- If they’re still running into problems after all your help, and there’s no LPA, you may need to go through the process of being appointed their deputy, so you can make decisions for them.
How can you prepare for care costs?
It’s likely that some level of care will be needed for a dementia sufferer as the disease progresses. Initially, care may consist of simply a few hours several times a week to help with everyday tasks in their home, with needs increasing over time. Eventually, live-in care or full-time residential care in a home may be required. However, it’s important to do your research into what’s available, and there are plenty of options out there. Read more in our article 7 common types of care explained.
Whatever type of care is required, it can be expensive, particularly if you or your loved one needs round-the-clock care. At some stage it’s possible that help with everything from washing, eating, and basic day-to-day life will be needed. Louise Higham, financial planning director at wealth manager Evelyn Partners, said: “This is classed as social care, rather than care provided by the NHS, and is sometimes referred to as a ‘dementia tax’. A person with dementia will typically pay an average of £100,000 over their lifetime for social care, and more if in a residential care setting.”
Fees for long-term residential care can be eye-watering. On average, the cost of residential care in England was £730 a week in 2021-22, with the average cost of nursing care coming in at a massive £1,038 a week, according to research by LaingBuisson.
In Northern Ireland, residential care costs averaged £551 a week, and nursing care £735 a week, whilst in Scotland the average costs for residential and nursing care were £858 and £881 per week respectively. In Wales, average weekly residential care costs last year were £716, rising to £998 a week for nursing care.
Amanda Redman, founder of Amanda Redman Financial Planning, said: “If someone has dementia and needs residential care, they are likely on average to be in care for around seven years (if they are physically healthy for their age) rather than the usual two to three years if they were to go into care for physical health reasons alone. Dementia care often requires a secure environment within a residential home so the cost of care is usually higher.”
How much will dementia care cost and how can you afford it?
Currently, in England and Northern Ireland, unless you have less than £23,250 in assets, you would generally be expected to cover the cost of your own care. In Scotland, the threshold is £29,750, and in Wales it’s £24,000 if you receive care in your own home or £50,000 if you receive care in a care home.
This includes the value of your property, savings, investments and pension income. Higham said: “If you leave money in your pension pot, your local council will not count this when they work out how much you can afford to pay for care. However, once you have reached your State Pension age, your local council will assume you are receiving an income from your pension. If you do not take an income they will assess how much you would get if you bought an annuity (a guaranteed income). They will then use this amount when they work out your income.”
“If you are accessing your personal pension benefits flexibly then your local council would look at how much you would get if you purchased an annuity. Depending on how much you withdraw from the pot determines whether this is classed and capital or income for assessment purposes.”
The government plans to introduce a cap on the cost of care of £86,000 from October 2025, but bear in mind that only the costs for your personal care needs will be met by the cap. “Personal care” basically means any care delivered to a person that supports them with daily living – help getting out of bed, eating, dressing, showering, toileting. That applies regardless of where that takes place, so residential or in someone’s own personal home. Other care-related costs such as accommodation, food, and utility bills do not count towards this cap, which means care home residents or their families will still have to meet these.
Higham said: “High costs and the need to carefully manage money can leave those with dementia vulnerable and create significant challenges for people close to them. It is much easier to deal with these hurdles if you already have a plan in place. That’s why we always encourage people to think about and plan for the future, however hard it is to visualise difficult times.”
Fortunately, there are plenty of ways that long-term care can be paid for, some of which you might not be aware of, or have yet considered.
Selling your home
A common way to fund long-term care is to think about selling your home. However, properties can take some time to sell, so this may not be the best solution if care costs need to be met urgently. Also, your home may still be occupied by your partner, spouse or civil partner when you need to go into care.
You might have thought of gifting the property to children or selling it in an attempt to prevent it being included in the means test that decides whether you should be liable for care costs. However, it’s not that simple. “This can be considered as deliberate deprivation of assets and you would have to still pay the same level of care fees as if you still owned the property,” says Higham. Read more in our article Will I have to sell my home to pay for care fees?
Equity release
Another option for homeowners is to unlock some of the wealth in their property using equity release, which doesn’t involve having to sell their home. They may be able to release either a single lump sum or smaller amounts over time using equity release drawdown to fund the cost of care. There are no monthly repayments, as the interest rolls up over the years and the amount owed is repaid on sale of the property. However, equity release won’t be right for everyone, and it’s important to bear in mind that it can affect entitlement to means-tested benefits as well as reducing the value of any inheritance they might have planned to leave. It’s therefore vital to seek professional advice if considering taking this route. Read more in our guides Equity release: what is it and how does it work?.
If you’re looking for somewhere to start, you can get expert advice from an independent equity release specialist with Unbiased. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.
Deferred payment arrangement (DPA)
When it comes to funding long-term care, it may be possible to take out a deferred loan from the local authority, which may be cheaper than equity release. This option aims to ensure that you’re not forced to sell your home during your lifetime, with the cost met after the person’s death once the property is sold. However, you cannot apply for one of these loans if you have more than £23,250 in assets outside of your property. Find out more about how DPA loans work in our article How to pay for long-term care.
Pension income
Income from pensions is another possible source of funding for long term care costs. However, given the cost of residential care, this may not be enough to cover the costs, and other sources of funding may be required.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
Immediate needs annuity
Another option is to buy an immediate needs annuity to provide funds for care for as long as needed, either at home or in a care home. Like other types of annuities, this is bought at retirement to provide an income for life, which could be used to cover the cost of care home fees, or employing a carer at home. Read more in our article What is an immediate needs annuity?
Why should you make writing a will a priority?
A dementia diagnosis doesn’t mean that someone can’t make a will to ensure their wishes are met on death when it comes to who inherits their money and possessions. However, doing so depends on whether they still have the capacity to understand and make clear decisions on this.
The person making the will must have so-called ‘testamentary capacity’, which is the legal term for understanding what making a will means, what you own, who might expect to be named in the will, and why you’re leaving assets to them. Essentially, their dementia must not impact on their ability to make decisions.
Therefore, it’s really important that there is a will in place while there’s still the mental capacity to write one. Without a will, there are strict rules on how money and property will be distributed when you die, which can mean that those who you would want to benefit, won’t. Read more about the process of making a will and updating one in our article How to write a will.
Higham says: “It is possible to make changes to your Will after a dementia diagnosis. However, you’ll need to prove you fully understand any changes you’re requesting and that you’re not being forced into a particular decision. Any changes you make will also need to be signed and witnessed.”
Give yourself peace of mind that you’ll have control over what happens to your money and property when you die. A legally-binding will can ensure your wishes are followed and avoid complications for your loved ones at a very difficult time. If you’re looking for somewhere to start, we have partnered with Farewill. They have an excellent rating on Trustpilot and are offering Rest Less members a 20% discount off the cost of writing their will.
Further help
Working out how to deal with the financial implications of dementia can be complicated, so it’s worth seeking professional financial advice if you or a loved one isn’t sure how to proceed.
You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
It may also be worth contacting the Society of Later Life Advisers, a not for profit organisation dedicated to improving accessibility to regulated financial advice for older people and their families. You can also find a lot of useful information for living with dementia at the Alzheimer’s Society website and in our article 6 common challenges when caring for someone with dementia and how to handle them.
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