I mentioned in my blog HERE that the Mental Capacity Act that took effect 1 March 2010 is an extremely exciting news for professional financial planners. For the first time, a major problem which financial planners cannot solve is how to hedge against the risk of mental incapacity. When a person is mentally incapacitated, he or she is as good as a half dead person. He cannot enter into contracts, operate bank accounts, decide what to eat or drink, may harm himself and others and sadly subjected to much misunderstanding and abuse. Abuse can be in the form of physical and financial abuse. With the new Mental Incapacity Act, it is now possible to plug this hole in order to hedge against such risk. Like many other kind of financial planning, the idea is NOT about how to avoid mental incapacity (this field of avoidance should be left to the medical and scientific community to deal with) but rather on how to reduce the financial devastation and financial lost as a result of mental incapacity.

I was quite happy that the Sunday Times got a page on this topic today. I also have been making preparation on how to use such a new tool for my clients and how to integrate into a financial plan. Because it is so new, there is no reference or text book on how to do mental incapacity hedging in a comprehensive financial planning. Also there is a need to coordinate with a number of professionals namely the lawyers, trust companies and perhaps even the insurance companies. I am glad to announce that starting from June 2010, the provision to make plans to hedge against mental incapacity will be part of Estate Planning under the broad topic Comprehensive Financial Planning. All clients who engage my service in June onwards will automatically will have mental incapacity hedging as part of the plan.

As for the cost of implementing the hedging tools against mental incapacity, I must admit that it will not be very cheap. Mainly this is due to the numerous professional parties involved. Still, it will still be extremely cheap compared to those rubbish insurance people buy. I calculated that many people are overpaying their rubbish insurance by $10,000 every year for 30 years anyway. Eliminating such rubbish insurance policies would save $300,000 and that itself can probably be used to do up a full-blow financial planning a zillion times…

By the way, the page here has recently been update: Advanced Estate Planning