[PB Notebook] Why a Trust Is Essential in the Era of Dementia Money

Donghyun Kim, Wealth Manager
Kyobo Life Insurance Busan Financial Planning Center

Donghyun Kim, Wealth Manager at Kyobo Life Insurance Busan Financial Planning Center

As the aging society rapidly intensifies, the issue of "Dementia Money" is emerging as a new financial risk in South Korea. "Dementia Money" refers to a situation where assets are effectively frozen because account deposits and withdrawals become impossible or unmanageable due to dementia or cognitive impairment. This means individuals can no longer directly manage their assets, which can lead to poor management of financial assets, fraud, embezzlement, and misappropriation. While this was once considered a problem limited to individuals and their families, it is now being discussed as a structural issue at both the societal and financial system levels.

According to data from the Ministry of Health and Welfare, the number of dementia patients in South Korea exceeded 1.1 million as of last year. This figure is projected to reach 1.5 million by 2030 and 3 million by 2050. The scale of assets left unmanaged due to dementia is also increasing rapidly. The Korea Institute of Finance estimates that approximately 154 trillion won of financial assets held by the elderly are in a vulnerable state due to cognitive decline or dementia. In Japan, this figure has already reached 2,000 trillion won, prompting the establishment of a dedicated national response system, which suggests that South Korea may be heading down a similar path.

The problem is not just about numbers; "Dementia Money" leads directly to financial damage and family conflict. For example, Mr. A (78) was diagnosed with early-stage dementia but lost more than 300 million won in just one month after being repeatedly exposed to investment solicitation calls. He signed documents without understanding the product structure, and by the time the damage was discovered, all contracts had already been terminated. Ms. B (82) was embezzled of 700 million won over five years by an acquaintance who offered to manage her bankbook. Recently, there have also been cases where bank employees have withdrawn deposits from cognitively impaired customers without authorization or misappropriated funds by manipulating documents during in-person consultations. Statistics from financial authorities repeatedly show that fraud, solicitation damage, and insider embezzlement are actually increasing, taking advantage of the weakened decision-making abilities of the elderly.

Family conflict is also a major element of the "Dementia Money" issue. Disputes over who should manage the assets and how, after a parent loses decision-making capacity, are often difficult to resolve from the outset. Mistrust among siblings grows, and legal and ethical disputes over access to parents' accounts can even lead to the dissolution of the family itself.

Thus, the problem of "Dementia Money" goes beyond the simple issue of "financial vulnerability among the elderly" and contains a chain of risks that can lead to "an increase in financial accidents, family conflict, and the collapse of life in old age." The question, then, is how to prevent these risks.

One solution that has recently attracted attention is the trust system. A trust involves transferring one's assets to a financial institution, which then manages and protects those assets according to predetermined guidelines. If established while still healthy, before the onset of dementia, assets can continue to be managed safely within a secure system even if cognitive abilities decline later on.

A trust functions as a "happiness maintenance device" in an aging era. By carefully designing the frequency of living expense payments, criteria for medical expenses, and rules for additional payments in specific situations, asset owners can maintain a minimum quality of life even if they lose the ability to control their assets themselves.

A trust is a sophisticated financial management tool. Unlike direct asset ownership, assets in a trust are managed according to pre-established rules, protecting them from high-risk investment solicitations or fraudulent proposals. Since the financial institution is the managing party, the system structurally prevents the individual from making judgment errors.

A trust also acts as a protective shield against malicious approaches. Assets are safely isolated from scams disguised as acquaintances, insider embezzlement, and family pressure. As the asset owner's cognitive decline becomes more apparent, these risks increase, but a trust structurally defends against such attacks.

A trust also serves as a mediation mechanism to prevent family discord. By clarifying in advance who has the decision-making authority over a parent's assets and how they can be used, misunderstandings and competition among siblings can be blocked from the start. A trust contract that clearly specifies the beneficiaries, managers, and usage conditions is one of the most powerful tools for preventing inheritance disputes.

A trust is a preventive system that operates "before" damage occurs, not after. Most "Dementia Money" losses are discovered only when it is already too late to recover. However, a trust transfers control to the system at an earlier stage, thereby reducing the incidence of financial accidents themselves.

Ultimately, the "Dementia Money" issue is not about whether dementia will occur, but about what system has been prepared before it does. Considering the aging population, the increase in single-person households, and the prolonged period of old age, a trust is evaluated as the most feasible management tool.

What is needed now is not simply choosing another financial product, but establishing a system to safeguard retirement assets. A trust can be that solution. In the era of "Dementia Money," a trust is becoming not just an option, but an essential response strategy.

Donghyun Kim, Wealth Manager at Kyobo Life Insurance Busan Financial Planning Center