The Best Time to Give Away Your Money?
You want to be the pebble in the pond that creates the ripple for change.
— Tim Cook
For the vast majority of us, planning for what happens to our hard-earned assets that we had so diligently accumulated over the years, when we are no longer around is morbid and something to be kicked down the road. Most plans made are basic, and would likely involve a one-time bulk transfer to a spouse, child/ren or loved one upon our demise.
However, many of us do not factor in the possibility of cognitive decline as we get on in years and the effect it can have on our money when we can no longer think straight. After all, there is no shortage of cases where seniors had been allegedly cheated out of their money or investments. The more famous ones include:
Bank officer admiting to taking more than $200k from elderly customers' accounts
Ex-remisier being jailed 15 months & 4 weeks for cheating elderly woman out of over $128k.
New research and data from investment giant Vanguard show that deciding when to turn over financial control is crucial in planning for cognitive decline and can have significant implications for investors. The paper also defined cognitive decline as a continuum from mild impairment to a diagnosis of dementia. Unsurprisingly, Vanguard found that investors in the study, particularly women, underestimated the risk of cognitive decline. After all, who would want to admit that their mental capacity was slowly deteriorating? However, this development was significant because financial repercussions can hit before symptoms become evident. The study also showed that the vast majority (96% of investors) transferred their assets only when there was an onset of cognitive decline.
You could argue that there may not be much of an impact given that you can still think clearly and straight in most instances. Interestingly, the study indicated that a delayed transfer of assets could have a huge negative impact on your finances with an impact of up to 18% of your net worth - far larger than transferring earlier than ideal. The tables below showed that the average impact to the wealth of a delayed or improper timing of transfer upon cognitive decline ranged from -$339,000 to -$432,000.
From the results, it is evident that there are several considerations that investors should take note of:
The risk is broader than you might think and that planning for cognitive decline, including periods of mild impairment, is very important.
Symptoms may not be noticeable but financial repercussions are real. If you are sitting on the fence or just starting to think about it, you should consider ceding control of your finances earlier than later.
It’s important for you to identify who will serve as the trusted individual and take over your personal and financial affairs in the event of mental incapacity.
You should think of your trusted individual as someone who could be multigenerational. A sizable number of people, particularly those without children, name someone from their own generation as their trusted person. However, taking this approach increases the chances of selecting someone with a similar risk of experiencing cognitive decline.
We invite you to start a conversation with us on various options you should consider in preparing for cognitive decline.
We can help you talk through the various possibilities to find one that best meets your needs in order to create a plan that incorporates eventual cognitive decline. Our role stretches beyond the plan and we will also work with other specialists together with whomever you wish to be part of this discussion eg. trusted friends, family members, or others.
If this is something you are keen to find out more about, feel free to reach out to us and we will be happy to discuss further with you.
