A sound financial plan is designed to cope with uncertainty. We prepare for market volatility, inflation, longevity, and income disruption because experience tells us life rarely unfolds as expected. Yet one of the most impactful financial risks is often overlooked until it is too late: the loss of mental capacity.
As South Africans live longer, conditions such as dementia and other cognitive disorders are becoming more common. While no planning can remove the emotional impact of such a diagnosis, early and thoughtful structuring can dramatically reduce the financial, legal, and administrative strain that families so often face when decision‑making ability begins to decline.
The importance of planning for this risk lies in a simple reality: cognitive decline does not only affect memory. It can undermine judgement, financial discernment, and the ability to manage even routine tasks. In early stages, this may show up as vulnerability to scams or erratic financial decisions. In more advanced stages, an individual may no longer understand contracts, manage bank accounts, or participate meaningfully in medical decisions.
South African law presumes adults have full contractual capacity unless proven otherwise. This means disputes about whether someone had capacity at a particular point in time can become legally complex, emotionally draining, and expensive. Planning while capacity is beyond question is therefore not just prudent, it is a critical form of protection for both your future self and your family.
Building Cognitive Risk Into Financial Planning
If dementia planning is to be effective, it cannot sit at the fringes of your estate plan. It needs to be integrated into your core financial assumptions.
Cognitive decline is often prolonged and costly. Care may escalate gradually, from in‑home assistance and day‑care services to full‑time frail or memory care, with costs rising faster than general inflation. Even comprehensive medical aid typically covers only a portion of these expenses.
From a planning perspective, this means stress‑testing retirement projections to ensure they can absorb a prolonged care scenario without forcing the sale of long‑term assets at unfavourable times. It may require maintaining higher levels of liquidity, setting aside a dedicated “care buffer,” reassessing housing strategies, or reviewing whether discretionary investments are positioned to provide flexibility later in life.
The critical question becomes: not only can your financial plan sustain your retirement lifestyle, but can it do so if cognitive health declines materially?
Why a Power of Attorney Is Not Enough
One of the most dangerous misconceptions in dementia planning is the belief that a general power of attorney provides protection. In South Africa, it does not.
A power of attorney is only valid while the person granting it has mental capacity. Once capacity is lost, the mandate automatically falls away. South Africa does not currently recognise an enduring power of attorney that survives incapacity. Families who discover this too late are often forced into costly and time‑consuming court processes precisely when they are least equipped to manage them.
Understanding this limitation early is essential to avoiding reactive and intrusive legal interventions.
Trust Structures and Continuity
In appropriate circumstances, an inter vivos trust can serve as a powerful continuity mechanism. The strategic value of a trust in dementia planning lies in separating asset control from personal capacity. Once assets are properly transferred into the trust, trustees can continue to manage them for the benefit of the individual even if mental capacity deteriorates, provided the trust deed is well drafted and trustees are suitably chosen.
In certain circumstances, where a trust is established exclusively 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, subject to SARS approval. These trusts are taxed on a sliding scale similar to natural persons, rather than at the flat rate applicable to ordinary trusts.
That said, trusts are not a universal solution. They introduce costs, compliance obligations, and governance complexity, and their suitability depends on the size of the estate, family dynamics, and the availability of competent trustees. When used appropriately, however, they can substantially reduce reliance on court‑appointed curators later in life.
Timing Matters: Reviewing Your Will
Dementia risk places particular emphasis on the timing of estate planning. The validity of a will depends on the individual having testamentary capacity at the time of signing. Cognitive decline is often gradual and uneven, and delays in updating a will can open the door to disputes and challenges after death.
Regular review, especially after major life changes, ensures that your wishes are documented clearly while your decision‑making ability is beyond reproach.
Medical Decisions and Personal Dignity
Planning for dementia is not only about money; it is also about dignity and autonomy. As capacity diminishes, individuals may no longer be able to consent to or refuse medical treatment.
Advance health directives (often called living wills) and the appointment of a medical proxy can help guide healthcare professionals and family members when difficult decisions arise. While living wills are not explicitly enforceable in South African law, they carry significant ethical weight and are commonly used as evidence of a patient’s wishes.
Pairing an advance directive with a clearly appointed proxy provides practical clarity and emotional relief for family members who might otherwise be left to make decisions under extreme stress and uncertainty.
When Planning Is Left Too Late
Where capacity has already been lost and no proactive structures are in place, families may need to pursue formal protective mechanisms. This can include applying for the appointment of a curator bonis through the High Court, a process that is necessary in complex situations but often slow and costly.
In some cases, the Mental Health Care Act allows for the appointment of an administrator by the Master of the High Court, which can be more accessible. These mechanisms are vital safeguards, but by their nature they are reactive, not preventative.
A Coordinated, Early Approach
Effective dementia planning is not about a single document or decision. It requires a coordinated approach: building care costs into retirement projections, maintaining appropriate liquidity, keeping wills and beneficiary nominations current, considering whether trust structures are suitable, documenting medical wishes, and ensuring families understand the limitations of powers of attorney.
Addressing this risk early does more than protect your balance sheet. It preserves your autonomy, reduces the burden on your loved ones, and ensures that your financial plan continues to function even at a time when you may no longer be able to manage it yourself.
Source acknowledgment:
This article is adapted from “Guarding your future self: Estate planning for the risk of dementia” by Eric Jordaan (Crue Invest (Pty) Ltd), published 4 March 2026, originally appearing in Moneyweb.
