Don’t Let Diminished Financial Capacity Put Your Elderly Loved Ones At Risk—Part 2
Our country is undergoing an unprecedented demographic transformation that’s been dubbed “The Greying of America” due to the increase in the number of Baby Boomers reaching retirement age each year. There’s been lots of talk about whether Baby Boomers will have enough savings for retirement and the strains the generation will put on Social Security and Medicare.
But there’s another issue that’s getting far less attention—the coinciding increase in the prevalence of dementia.
With a larger elderly population, it is also expected for there to be a greater number of Americans suffering from Alzheimer’s and other forms of dementia —cases of Alzheimer’s alone are expected to double by 2050. While the cognitive decline from dementia affects nearly every mental function, many people aren’t aware that one of the first abilities to go is one’s “financial capacity.” Financial capacity refers to the ability to manage money and make wise financial decisions. A decline in financial capacity not only makes seniors more likely to mismanage their money, but it also makes them easy targets for financial exploitation, fraud, and abuse.
Last week, we listed six warning signs of a decline in financial capacity. Here we’ll discuss estate planning strategies that can help protect your elderly loved ones and their assets from the debilitating effects of dementia and other forms of incapacity.
Reducing the risks
Stepping in to help manage an aging parent’s money without threatening their sense of independence and privacy can be a real challenge, but it’s vital to take these steps because even if they’re aware of their own impairment, many are reluctant to ask for help and some may even deny there’s a problem.
Waiting until they start showing signs of dementia will only exacerbate the complications and could even invalidate planning efforts, so ideally you should address the potential for dementia and other forms of incapacity with your senior family members well before any signs of cognitive decline appear. Having a heart-to-heart conversation with your loved ones about the risks involved with incapacity and how estate planning can help protect them is an important first step. Remember to approach the subject with care and compassion and to reassure them that your goal is to make certain they retain as much control over their lives as possible.
To begin with, you should explain to your aging parents that if they become incapacitated without proper planning, you’ll have to go to court and petition to become their legal guardian. While this process is quite costly and emotionally taxing, the worst part is that there’s a possibility that the court could end up appointing a professional guardian rather than a loved one such as yourself.
A court-appointed guardianship would mean that a total stranger would control all of their affairs—financial and otherwise—which is something they probably don’t want. Unfortunately, professional guardianships also open the door for potential exploitation and abuse by unscrupulous guardians, which is something that’s on the rise given the sharp growth of the senior population.
So, unless you have the legal authority to make your parents’ financial decisions, your ability to manage their money will be seriously limited. Sure, you might be able to work together with them for a while without such authority, but at some point their cognitive impairment will likely reach a stage where you’ll need to assume full control—and that’s where estate planning comes in.
Put a plan in place
The best option would be for your aging loved ones to put in place a comprehensive plan for incapacity as soon as possible, where they choose exactly who they want making their financial, medical, and legal decisions for them if and when they’re no longer able to do on their own. There are a number of planning tools that can be used in an incapacity plan, but keep in mind that a will alone is insufficient; a will only goes into effect upon death, so it would do nothing should your elderly parents become incapacitated by dementia.
That’s why your parents should put in place planning tools specially designed for incapacity in addition to a will. One such tool is durable financial power of attorney, which would give you (or another person of their choosing) the immediate authority to make decisions related to the management of their financial and legal affairs in the event of their incapacity. The downside of financial durable power of attorney is that it sometimes is not accepted by banks and other financial institutions and you might still end up needing to go to court to get control of your parents’ affairs.
A revocable living trust is a better estate planning tool to transfer control of your parents’ financial assets to you without court intervention should they become incapacitated. A revocable living trust, created while your parents have capacity, can plan for the transition of their assets to your care and control in a way that feels safe and secure to them. Bring your parents to meet with us for a Family Wealth Planning Session to learn more about how this would work.
Of course, having the legal authority to make your parents’ financial and legal decisions is just part of an overall incapacity plan. They’ll also need to put in place planning strategies designed to address their healthcare decisions and medical treatment like medical power of attorney and a living will. We can help your aging parents and other senior family members develop a comprehensive incapacity plan, customized with the specific planning vehicles to match their unique needs and life situation.
Don’t wait until it’s too late
While incapacity from dementia is most common in the elderly, debilitating injury and illness can strike at any point in life. For this reason, all adults age 18 and older should have an incapacity plan. Moreover, such planning must be addressed well before cognitive decline begins as you must be able to clearly express your wishes and consent for the documents to be valid.
Given this urgency, you should discuss incapacity planning with your aging parents right away and schedule a Family Wealth Planning Session with us to get a plan started. If your senior family members already have an incapacity plan, we can review it to make sure it’s been properly set up, maintained, and updated.
Of course, if you notice any signs of diminished financial capacity or other suspect behaviors, you should immediately contact your Personal Family Lawyer® to address the issue. While there’s no way to prevent age-related dementia and other forms of cognitive decline, make sure your parents and other senior relatives know that they can use estate planning to have control over how their lives and assets will be managed if it does occur.
This article is a service of Levi Alexander, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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