A well-constructed financial plan is, at its core, a framework for navigating uncertainty. We model market volatility, longevity risk, inflation, and changes in income because we know that the future rarely unfolds neatly. Yet one of the most disruptive risks to long-term financial wellbeing is often planned for last, if at all: the possibility of losing mental capacity.

Dementia and other neurocognitive disorders are becoming more prevalent as life expectancy improves, and while no plan can remove the emotional toll of such a diagnosis, thoughtful structuring can significantly reduce the financial and administrative fallout that families so often face when capacity begins to erode.

The reason this risk deserves a deliberate place in your plan is simple. Dementia doesn’t only threaten memory; it can compromise judgement, decision-making, and the ability to execute even routine financial tasks. In practice, this can range from subtle early-stage vulnerabilities such as susceptibility to scams or impulsive spending, to more advanced incapacity where an individual can no longer understand the nature of a contract, manage a bank account, or participate meaningfully in medical decisions.

South African law presumes full contractual capacity in adults unless the contrary is proven, which means that disputes about a person’s capacity and the validity of their decisions can become legally complex, emotionally bruising, and expensive. Planning early, while capacity is beyond question, is therefore not an administrative nicety; it is a form of protection for both your future self and your family.

Integrating dementia risk into your financial assumptions

If dementia planning is to be more than a legal add-on, it should be woven into your core financial modelling. This starts with acknowledging that the cost of care can be prolonged and escalating. A diagnosis may trigger years of incremental support: home-based assistance, day-care services, medical interventions, occupational therapy, and eventually specialised frail care or memory-care facilities.

Even for families with robust medical aid, out-of-pocket expenses can be substantial, particularly where care is custodial rather than clinical. Building a dementia contingency into your retirement plan may therefore require a dedicated ‘care buffer’ that is ring-fenced in your cash-flow projections, stress tested under higher inflation assumptions, and supported by appropriate liquidity.

Practically, this means ensuring that your portfolio is not only designed to fund lifestyle goals but also to absorb a potential late-life care shock without forcing distressed asset sales. It may also mean reassessing the role of discretionary investments earmarked for flexibility, reviewing risk cover that could supplement care funding, and considering whether your housing strategy supports ageing in place or anticipates a later move into assisted living.
The financial planning question is not merely, “Can we afford retirement?” but rather, “Can we afford retirement if cognitive health deteriorates materially?”

The limits of a power of attorney

A common misconception is that a general power of attorney solves the dementia problem. It does not. In South Africa, a power of attorney is only valid while the principal has mental capacity; once capacity is lost, the mandate falls away, meaning the agent’s authority effectively ends.

South African law does not currently recognise an enduring power of attorney that survives mental incapacity. This is an important reality to confront early because families who assume that a signed power of attorney will be sufficient may find themselves scrambling for court-based solutions when a diagnosis progresses.

Trust structures as a continuity tool

For individuals with sufficient asset bases and appropriate circumstances, an inter vivos trust can be an effective continuity mechanism, with the strategic value of such a trust in dementia planning lying in the separation of asset control from personal capacity. Once the trust is properly established and assets are transferred, the trustees can continue to administer those assets for your benefit even if your cognitive health declines, provided the trust deed is clear and the trustees are competent and trustworthy.

Note that where a trust is created solely for the benefit of a person with a qualifying mental or physical disability, it may qualify as a Special Trust Type A for tax purposes. This classification requires the South African Revenue Service’s approval and is designed for beneficiaries whose disability impairs their ability to earn sufficient income for their maintenance or to manage their own financial affairs.

The tax treatment can be more favourable than that of an ordinary trust, with special trusts taxed on a sliding scale similar to natural persons rather than the flat rate applicable to standard trusts. This does not mean that a trust is automatically the right answer; the costs of establishment, governance, and ongoing compliance must be weighed carefully against the size and complexity of the estate and the quality of trustees available. But for the right family, a well-drafted trust can reduce the need for intrusive court processes later and create a durable administrative structure for long-term care and financial decision-making.

Your will and timing discipline

While your will remains an essential part of your estate plan, dementia risk places a premium on timing and regular review. The legal validity of a will depends on testamentary capacity at the time of signing, and as cognitive decline can be gradual and fluctuating, a delayed update may invite unnecessary contestation.

A disciplined approach – reviewing your will routinely and especially after major life changes – helps ensure that your intentions are documented while your capacity is unquestionable and your decision-making is coherent.

Medical decision-making and advance directives

Dementia planning is not only about assets; it is also about dignity. As the disease progresses, an individual may no longer be able to consent to, refuse, or weigh up medical interventions. For this reason, an advance health directive (commonly referred to as a living will) and the appointment of a medical proxy can be invaluable in guiding family members and clinicians when difficult decisions arise.

However, it is important to understand the current legal landscape. Living wills are not explicitly recognised as legally enforceable instructions in South African law, although they are widely viewed as ethically meaningful and helpful evidence of a patient’s wishes.

In this context, a more robust approach is to ensure that your directive is paired with a clear proxy mandate so that there is an identified person authorised to speak on your behalf when you cannot. The practical benefit of this combination is not only legal clarity but emotional relief for family members who might otherwise be left to interpret your intentions under pressure.

When planning is left too late

Where proactive structures are not in place and capacity has already been lost, families may need to pursue formal protective mechanisms. The appointment of a curator bonis requires a high court application supported by medical evidence, and while it is an important safeguard for complex estates, it can be slow and costly.

The Mental Health Care Act also provides for the appointment of an administrator by the Master of the High Court in appropriate circumstances, a process that is generally more accessible and less burdensome than full curatorship. While these mechanisms are protective – they are, by their nature, reactive. They are what you rely on when pre-emptive planning was not done, or where family circumstances require independent oversight.

As is evident from the above, the most effective dementia planning is not a single document or product, but a coordinated set of decisions made while you are still unequivocally competent. It involves ensuring that your retirement projections can absorb prolonged care costs; that your liquidity strategy is deliberate; that your will and beneficiary nominations are current; that you have considered whether a trust structure is appropriate for continuity; that your medical wishes are documented; and that your family understands both the limits of a power of attorney and the formal processes that may be required if capacity is lost.

By confronting this risk early and structuring your affairs with clarity, you are not only safeguarding your balance sheet – you are preserving autonomy, reducing the burden on your loved ones, and giving your future self the dignity of a plan that still works when you may no longer be able to manage it unaided.

This article has been written by Moneyweb - www.moneyweb.co.za