Safeguarding a dear one experiencing cognitive decline from potential financial harm: a guide.
Learning to manage a loved one's finances as their cognitive abilities decline can be a challenging task. Studies have shown that people with dementia often show signs of financial instability years before a diagnosis. This can lead to problems such as unpaid bills, excessive spending, or giving away money indiscriminately, which can quickly deplete their savings and plunge them into debt.
For example, CNN Investigates reported that elderly individuals with dementia have unwittingly donated millions of dollars to political candidates over the past five years, in response to constant, emotionally charged fundraising solicitations.
To prevent or detect such situations that could potentially devastate a person's financial wellbeing, it's essential to remain vigilant and proactive about setting up financial safeguards to limit their temptation to overspend.
A common misconception is that once a dementia diagnosis is given, the affected individual is unable to manage their financial affairs or is ready to cede control to others. Judith Flynn, a certified elder law attorney at Falco & Associates and the president of the National Association of Elder Law Attorneys, emphasized that the diagnosis itself does not imply that the person is incapable of managing their finances or willing to hand over control to somebody else.
“The diagnosis itself does not necessarily mean the person lacks capacity,” Flynn said. “It’s important that the caregiver doesn’t just step in and attempt to take over.”
In fact, according to neuropsychologist Dr. Jonathan Canick, a diagnosis does not provide much insight into a person's cognitive abilities or the scope of their capacity. You need an assessment of cognitive functioning for that, which is what neuropsychology offers.
Canick pointed out that he has diagnosed patients with early-stage Alzheimer's who still have full cognitive capacity, while others who are diagnosis-free exhibit cognitive impairments.
His recommendation is to focus on an individual's functional ability instead of their age or diagnosis.
If you notice warning signs of financial instability, such as piles of unpaid bills and past-due notices on the desk of an elderly relative, or bank and credit card statements revealing unusual patterns of withdrawals or spending, it's crucial to discuss these concerns with them. Avoid making the conversation confrontational.
“The conversation should not be accusatory. [For example,] 'You’re not paying your bills!’” said Steven Rubin, a certified elder law attorney and partner at Drazen Rubin.
Instead, Rubin suggested using a more cooperative approach, such as, “Hey, I see a lot going on here, and I know you have a lot on your plate. How can I help you out?” If you start an argument, your loved one may retreat rather than engage.
The time to make a plan for financial caregiving is immediately following a dementia diagnosis. Besides mapping out how their medical and physical needs will be attended to, it's crucial to create a plan for their financial wellbeing before things deteriorate further.
Both Flynn and Rubin emphasized the importance of assigning power of attorney to a trusted individual to manage their financial and contractual affairs if they become unable to do so. This can be a contentious issue, as individuals wrongly assume that assigning a power of attorney entails surrendering control over their financial decisions entirely.
Rubin, however, argued that by setting up a plan, your loved one is maintaining control over their finances. He also noted that if a plan is not in place, a court could appoint someone they disagree with to manage their affairs during a crisis.
Benefits of a customized power of attorney
While downloading a standard power of attorney form from the internet may seem convenient, both Flynn and Rubin recommended consulting an experienced attorney to draw up the document.
First, the power of attorney document should be tailored to your family member's specific situation and preferences. For instance, an attorney can help ensure that not only will the designated power of attorney be empowered to pay bills for veterinary care for the lawyer's pets if they become unable to manage their affairs, but also make decisions about their medical care.
Second, rules and requirements for establishing powers of attorney vary from state to state. For example, some states allow for a "springing" or "contingent" power of attorney that would only take effect when certain predefined circumstances are met. Others may provide for a durable power of attorney that would apply immediately, but leave room for the affected individual to maintain some financial control if they are still mentally capable.
(This guide from the Consumer Financial Protection Bureau offers further insight into the responsibilities of a person granted powers of attorney. )
The third reason to consult an experienced attorney is that they can offer counseling and guidance in selecting the person your loved one trusts most to act as their fiduciary. For instance, an attorney can help you consider potential red flags, such as a history of problematic debt or gambling, or a spouse’s involvement that may influence their decisions.
Periodic discussions with a client are essential after a plan is established, as circumstances can change. A client has the right to withdraw the power of attorney if they believe the appointed person isn't acting in their best interest, as Flynn mentioned.
It's crucial for lawyers to honestly inform clients that while powers of attorney are meant to manage their finances during incapacity, they can be misused if handed over to the wrong person.
To aid a loved one in avoiding financial hazards, the following strategies can be implemented, whether or not powers of attorney exist:
Be designated as a "trusted contact": Explore the option of being recognized as a "trusted contact" on a senior's bank and brokerage accounts, according to Rubin. In such cases, you could be notified if the financial institution detects anything suspicious or unusual within the account. However, without powers of attorney, you won't be authorized to take any actions based on the information obtained.
Be appointed as a co-trustee: If a person establishes a revocable trust for their assets and designates an adult child as co-trustee, the co-trustee could oversee financial matters as the older person's cognitive abilities start to decline, as suggested by Flynn.
Practice prudent phone, email, and social media habits: Encourage the senior to utilize caller ID and refrain from answering calls from unfamiliar numbers. If fraudsters have been frequently contacting the senior, it might be beneficial to change their phone number, if you can with powers of attorney, Rubin suggested.
Enroll their phone number in the National Do Not Call Registry: Registration in this registry can help deter telemarketers.
Monitor their email and social media accounts: Keep a close eye on any spam or solicitations intended to extract donations or "save" by accumulating more expenses.
"Our durable power of attorney includes the authority to handle digital assets and accounts such as email, Facebook, Instagram, etc. In such scenarios, the attorney-in-fact would be authorized to take actions to monitor and mitigate any risks," Flynn explained.
Block unwanted senders and callers: Blocking individuals or entities requesting funds is one way to minimize risk.
Set a lower credit card limit: If a senior has fallen victim to scams or has started to overspend on unnecessary items, it may be advisable to set a lower limit on their credit card, allowing just enough to cover essential expenses like groceries.
The National Institute on Aging recommends canceling unused credit and debit cards.
Automate bill payments: Automated bill payments ensure on-time payments; however, it would be beneficial to review their bills with the senior periodically to maintain their involvement in the process.
Order your loved one's credit report regularly: Regular credit report checks can reveal any unusual accounts or property purchases under the senior's name.
Implement alerts on their financial accounts: Financial institutions may offer various types of alerts; however, it is essential to inquire about the alerts available for your client's accounts. For instance, a client authorized my firm to receive an email whenever their credit card charges exceed $200.
While no single measure can ensure a senior won't unintentionally make poor financial decisions or fall prey to scams, the implementation of several strategies might help minimize these risks.
In light of potential financial instability in individuals with dementia, establishing financial safeguards is crucial. Setting up a customized power of attorney with the assistance of an experienced attorney can help prevent overspending and manage financial affairs effectively. This document, tailored to the individual's specific situation, empowers the designated person to make decisions about medical care and pay bills, among other responsibilities.
