Financial Planning for Dementia

None of us wants to think about the possibility of losing our ability to make sound financial decisions, but many of us eventually will, owing to an accident or illness, especially some form of dementia. What would happen, for example, if in a period of impaired judgment you started taking large amounts of money from your accounts or were enticed to fund a get-rich-quick scheme? Is there anything that can be done to help protect you and your assets?

An easy first-line defense is the NI Sharing of Information Consent Form, which you can file with your advisor. The form gives your advisor and Natural Investments permission to contact designated people if your advisor perceives that a request or behavior is uncharacteristic of you and your goals. An unusual request does not necessarily signal a loss of capacity to make decisions, and in all likelihood the form would never be needed. But should the situation occur, a quick double-check by your adviser with someone whom you trust could prevent a potentially significant mistake. Your advisor can help you choose the best person for this role.

Another step, if appropriate, would be to establish information-only sharing permissions with selected financial service providers, from credit cards or bank accounts to workplace retirement plans. With such permission in place, your designated person could call the service provider for information about your accounts as back-up for you if you became impaired. Obviously, this step raises privacy issues; your designated person must be someone you trust to not access information on your accounts unless required for your best interests.

If you want someone to be able to act in your place—to buy, sell, or withdraw assets, or to change money managers or distribution instructions in your account—you would need to authorize a trusted person as your durable power of attorney. Custodians such as Charles Schwab & Co. have power of attorney forms assigning various levels and duration of powers, but they are quite broad. For example, the Schwab durable power of attorney form authorizes the designated person to act immediately rather than only when the account holder is not competent to make their own decisions. That requires a serious level of trust and should not be taken lightly.

Schwab also has a general power of attorney status that ends when the account holder becomes incapacitated, which may serve some purposes but won’t help us should we be unable to make our own decisions.

Schwab does not have a “springing” or contingent power of attorney that could be invoked only when the account holder becomes incapacitated, but a lawyer specializing in elder law can write a power of attorney document that covers the specific authority and timing you prefer. Because laws are state-specific, consult a lawyer in your own state of residence. A good elder law attorney will be expert in power of attorney issues, as well as Medicaid, Medicare, long-term care, multiple-residence issues, and other issues around aging and potential loss of capacity. Your financial advisor may know good elder law attorneys in your area, and the website for National Academy of Elder Law Attorneys,, has an attorney locator to help start your vetting process.

To be clear: These documents and processes can help prevent errors of judgment if one’s mental capacities decline, but they cannot ensure protection. Ultimately, your assets are yours, and even questionable instructions may have to be implemented by your advisor and an account custodian at your insistence, unless you have been declared legally incapacitated to give those instructions.

Sooner is better than later to start some protection. None of us can schedule or anticipate when we no longer have the capacity to understand legal documents and financial instructions. In my own family, my father covered the financial decisions for the first decade of my mother’s long slide into dementia. What we didn’t see coming was bleeding in his brain that shifted him literally overnight from competent to completely incompetent to manage their finances. He was a serious planner, though (my job training started early), and had a properly executed power of attorney that allowed my brother and me to move forward in our parents’ best interests.

There is much more to be said on the difficult topics of aging and capacity loss. AARP and the Alzheimer’s Association provide a number of resources about the many aspects of losing mental capacity. But it is never too early to put some of the financial basics into place, starting with the NI information-sharing consent form and, if appropriate, a sound power of attorney.

This article first appeared in the Summer 2017 issue of Natural Investment News.


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Susan Taylor

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