Protecting Your Money, Regardless of Your Health

A diagnosis of dementia for you or a loved one can wreak emotional havoc. It can also be a disaster for your financial portfolio, unless you have a plan.

Dementia, a set of symptoms marked by progressive problems with memory, mood, and judgment, makes it harder to make financial decisions. It can also make you vulnerable to swindlers and scams. Alzheimer’s disease, the most common cause of dementia, is on the rise, because people are living longer.

Ideally, you should have a legal plan in place before a health crisis occurs, but experts agree that doesn't happen often enough. Most people draw up plans when the situation becomes urgent, which is usually the worst time for all parties involved. “This kind of planning is something everybody should be doing,” says Fay Blix, a lawyer who specializes in elder law in Southern California. She’s also a board member of the Alzheimer’s Family Services Center in Huntington Beach, Calif., and she serves on the California Governor’s Alzheimer’s advisory board.

Blix has personal experience -- her mother was diagnosed with Alzheimer’s.

Preparing your portfolio for dementia or any other health crisis boils down to finding someone you trust and assigning that person power of attorney in the event you lose your mental capacity or cannot speak for yourself or make decisions. Power of attorney, which is valid in all 50 states, gives someone the power to act on your behalf. It may be limited to a particular activity (such as selling your home), or it may cover a variety of situations. It can take effect immediately or after a certain event, such as an accident or health condition that leaves you unable to act for yourself.

“If you strip away the legalese, it's about putting in a substitute decision maker,” Blix says. “We talk about it as taking power away, when actually planning is giving the person the power of saying who will be in charge. I see the documents as empowering the person.”

A dementia diagnosis doesn't necessarily mean you've lost the capacity for legal planning. “Dementia hits people in different ways. In many cases, it can be like a loose connection in a light bulb,” where you have lucid moments mixed with foggy moments. If you understand the documents when they are signed, you have the legal capacity to sign them.

Within the power of attorney document, you can also specify the mechanism that determines capacity. In most cases, two physicians would need to declare you incapacitated, but the document can be written so just one doctor can make the decision, Blix says.

Who should handle your finances? Many people name their spouse or one or more children. But it's perfectly appropriate to select someone outside the family who is better suited to handle the responsibilities. In any event, the decision is best made while you’re in good health, because dementia leads to a decline in reasoning. The emotional swell and heartache that can come with a diagnosis can also be a source of conflict and stress within a family. At some point, people with dementia lose the ability to drive a car or to sign for a credit card.

“They’re at a time in their lives where they've experienced a great deal of loss,” Blix says. “It’s not unusual for people to cling to what they have left with a great deal of tenacity.”

Another thing to consider is establishing a living trust, also known as a revocable or inter vivos trust. Mina Sirkin, an elder law estate planning attorney with Sirkin & Sirkin in California, says a trust and a will are secondary to power of attorney. (Ideally, you should have two power of attorney documents: one that assigns someone to control your financial assets and one that assigns someone to make healthcare decisions if you are incapacitated.)

But establishing a trust makes it easier to manage assets, and you can avoid the probate process when assets are titled in the name of a trust, Sirkin says. “That’s the No. 1 reason why people use trusts.” Almost anything can go into a trust, including stocks, bonds, mutual funds, and annuities. Tax-deferred assets, such as IRAs or 401ks, cannot.

If you have aging parents who haven’t established power of attorney or a trust, Sirkin recommends having multiple conversations with them. Ask them questions such as "Who would you want to take care of things if you couldn't?" Then, “let them think on it.”

She recalls having those conversations with her mother. “My mom is very superstitious. She didn’t want to go through the process, because she thought she’d die.” In addition, her mother was very private about her financial matters. “It wasn't easy to get her to be forthcoming.” She finally agreed to proactive planning when her husband became ill.

Whether you are planning for yourself or helping a relative, it's important to know help is available from plenty of sources. If you don’t have relatives or someone else you trust to take over your affairs or the affairs of a loved one, professional financial fiduciaries can represent you. Many states have an association of professional fiduciaries, including California.

Here are some additional resources.

• National Academy of Elder Law Attorneys members assist clients with issues such as public benefits, probate, and estate planning; guardianship/conservatorship; and health and long-term care planning.
• The MetLife Mature Market Institute offers 10 Tips for Talking to Your Aging Parents about their finances and monitoring a parent for signs of dementia or shrinking cognitive skills.
• The North American Securities Administrators Association sponsors an Elder Investment Fraud and Financial Exploitation Prevention Program. It provides resources and continuing education for medical professionals about how to refer at-risk seniors to the appropriate authorities, including how to report investment fraud to securities regulators.
• The nonprofit Investor Protection Trust has released a report on financial abuse of the elderly, “The Crime of the 21st Century.”
• The Family Caregiver Alliance's National Center on Caregiving offers a fact sheet titled “Legal Issues in Planning for Incapacity.”