South Korea is aging rapidly, with an estimated 21.6% of the population projected to be 65 or older by the end of this year. This means that one in five people will be classified as elderly. While many dream of a comfortable and healthy retirement, the reality can be quite different, especially when faced with health issues.
Dementia, often referred to as a 'family disease,' poses significant challenges not only for those diagnosed but also for their families. When dementia strikes, individuals may find that their lifetime savings and homes become 'frozen assets' that they cannot access when needed. Losing the ability to make financial decisions complicates matters, as family members cannot freely withdraw funds or sell property without proper arrangements. This highlights the importance of planning ahead for how to manage finances in the event of dementia, a concept referred to as 'dementia money management.'
Various financial products related to dementia are available in South Korea. One prominent option is the 'dementia trust.' Traditionally aimed at high-net-worth individuals, banks and insurance companies are now offering products accessible to the general elderly population.
A dementia trust allows clients to deposit their assets with a financial institution before receiving a dementia diagnosis, specifying how and when funds will be distributed in the future. For instance, KB Kookmin Bank's 'KB Golden Life Dementia Assurance Trust' enables clients to designate a representative to manage their assets while they are still healthy. This ensures that funds can be accessed and managed appropriately if a severe dementia diagnosis occurs.
Some products allow for flexible fund usage while healthy, transitioning to a predetermined management method only after dementia is diagnosed. Hanwha Life's 'Dementia Assurance MMT' exemplifies this approach, allowing clients to make withdrawals until a cognitive impairment is confirmed. After that, a trust manager can claim funds for care expenses on behalf of the client.
This method offers better control over fund usage compared to entrusting all assets to a single family member, reducing the risk of excessive withdrawals for living or care expenses and providing a clear record of transactions through the financial institution.
If you have trustworthy family members, you might consider using the 'voluntary guardianship' system instead of financial products. This system allows individuals to designate a trusted family member or friend as a guardian while they are still capable of making decisions, preparing for potential future cognitive decline.
In addition to managing assets, guardians can also oversee healthcare decisions, such as hospital admissions or nursing home placements. Unlike court-appointed guardianship, which requires a legal process after dementia is diagnosed, voluntary guardianship allows individuals to choose their guardians in advance.
If you are concerned about giving complete asset management authority to family members, combining voluntary guardianship with a trust can be a viable option. For example, you could designate your eldest child as a guardian while placing 500 million won in financial assets in a trust. In the event of dementia, the child would handle healthcare decisions, while the financial institution would manage living and care expenses according to the contract, minimizing the risk of asset misuse by family members.