From wills and funding care, to pensions and property: The financial implications of living with dementia

Race Against Dementia is a global charity, founded by British Formula One racing great Sir Jackie Stewart, to fund pioneering research into the prevention and cure of dementia. And Saturday 21 January is Race Against Dementia Day, dedicated to raising funds to help beat dementia..

In the UK today, one in six people over the age of 80 has dementia. Overall, there are 850,000 people with a formal dementia diagnosis and this figure is predicted to rise to more than two million by 2050*. Living with dementia can have huge financial implications, potentially affecting the wider family’s financial security and well-being, not just that of the sufferer. A dementia diagnosis can throw up questions around funding specialist care, the safeguarding of assets, and the day-to-day handling of money.

Whether you’re contemplating life with dementia, caring for someone else, or simply putting contingency plans into place, it’s important to understand all of your options, explained  here by Louise Higham, Financial Planning Director at wealth manager Evelyn Partners.

The costs associated with dementia 

Someone with dementia may require support with any or all aspects of life, such as washing or eating, either at home or in a care home. This is classed as social care, rather than care provided free 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*.

Under the current system 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.

It is proposed, from October 2025, there will be a cap on care costs of £86,000. It is important to bear in mind that only the costs of your personal care needs will be covered by this cap. You will remain responsible for meeting your daily living costs, including rent, food and utility bill, even when you reach the cap.

Financial planning 

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.

A cashflow analysis is a great tool, which financial planners use, to help you visualise how your existing income and capital can be best used to support the additional costs associated with care. It helps to position your finances and helps to determine what return is needed from capital/investments to support your needs.

Immediate Needs Annuities can be used to provide you with a guaranteed secured income to help pay for care fees. If the income is paid to a registered care provider directly then these are usually paid tax free. A capital sum is used to buy an annuity and an agreed level of income is paid by the provider. The amount of capital needed will depend on how much income you need, your age, annuity rates etc.

Annuity rates and income levels vary between providers, and a financial adviser or planner will be able to ensure you receive the best rate for your needs.

Will I have to sell my home?  

If you enter a care home permanently, your home may or may not be taken into account. The main reason for your home being disregarded in the financial assessment is due to your home is still being occupied by your spouse, partner, former partner or civil partner.

Where your property is not disregarded then you can, in some circumstances, enter a deferred payment agreement (DPA) with the local authority. This aims to ensure that you are not forced to sell your home in your lifetime. If you have more than £23,250 in capital outside of your home hen you would not be eligible to enter a DPA. It is important to recognise that the payment is deferred and not ‘written off’ and a DPA is used to defer costs until after the person’s death or as a ‘bridging loan’ until the property can be sold. It is advisable to seek financial advice before entering a DPA to ensure this is the best option for you.

Can I gift my home to my children to keep it safe? 

Some people do consider gifting their home to children, so it will not be counted in the means test. 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.

Are private pensions included in the means test? 

If you are paying for care home fees yourself, you will continue to receive an income from your private pension, however, this will be included during a financial assessment by the local authority. If your spouse/partner is still living in your property, then you can give your spouse half of your private pension income, and this will not be included in the financial assessment.

If you leave the 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 both 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.

Lasting power of attorney 

A power of attorney is an important legal document giving someone permission to manage your affairs if you are not in a position to do so yourself. If you have an accident or develop an illness – such as dementia – and don’t have one, it could be difficult for those around you to deal with your finances. The importance of a power of attorney is something to think about during the early stages of dementia. Since mental capacity is required to set up a power of attorney, leaving it too late could cause problems in the future.

Making a will 

People with dementia are still able to sign legal documents relating to their financial affairs providing that certain criteria are met. It is possible to make a Will when you have dementia, so long as you’re capable of making your own decisions and fully understand the implications of them.

In order to be legally valid, a Will must be made voluntarily, in writing, and with a sound mind. Having a Will is also vital to effective estate and inheritance tax planning.

Changing a will 

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.

*Source: Alzheimer’s Society, 2020