Roughly 80% of people suffering from dementia are incapable of managing their money, according to a 2017 study by the Center for Retirement Research at Boston College. Finance-related issues are often one of the first signs of a loved one’s affliction: letting bills pile up unpaid, looking flummoxed by a bank statement, freezing in front of an ATM, unable to recall their PIN. If dementia is confirmed, you need to get in financial control, and — since conditions are not going to improve — sooner rather than later, says Neil H. Reig, an estate planning and elder law attorney based in Westchester County, New York. “In fact, it’s never too soon,” Reig says.
What you need to do to become a financial caregiver
The first crucial step is to draw up a Power of Attorney, which authorizes you to act on the impaired person’s behalf. The POA should be durable (meaning it takes effect immediately and indefinitely) and general (as opposed to limited), allowing you control over a broad range of legal, financial, business and medical matters. (That said, you can — and probably should — also create a living will, health care surrogate/proxy or other sort of advance directive that specifically pertains to health decisions.)
Once it’s signed by all parties and notarized, scan it or make copies — lots of copies. You will likely have to send it to banks, insurance companies, brokerages, financial planners and anyone else you’ll be representing your person for. Sometimes financial institutions require that you fill out their POA forms, as well.
You might find it easier to deal with the money folks if, in addition to the POA, you establish a living trust, Reig says. The idea is, you create a trust to hold the person’s assets (house, stocks, savings, insurance policies) inside it and set up a trustee to administer it; this trustee has the power to manage the money, making investment, spending and other financial decisions. The trust is revocable or amendable at any time. Formal trustee status carries more credibility with banks and brokerages than just being POA-authorized. As a bonus, assets owned by the trust are out of a person’s estate, and avoid going through the lengthy probate process after death.
How to get the paperwork in place
But if someone is already mentally impaired, can he or she legally sign a POA or a trust agreement? Fortunately, yes. In these sort of situations, a reduced level of cognition, officially known as testamentary capacity, applies — and it’s “a very low threshold,” says Carolyn Rosenblatt, a San Rafael, California-based registered nurse, elder law attorney and author of “The Family Guide to Aging Parents.” “You don’t have to know your bank balance, be able to balance your checkbook or know what day it is. It just requires you know in a general sense what you have, and understand what you’re signing away.”
While you don’t need a fully functioning principal for these documents, you should have a professional attorney draft them — or at least look them over. The language needs to be very precise and carefully worded to cover all contingencies. The standard-template POAs and trust agreements downloaded from websites might be too general or not valid in certain states, whereas a customized document can get extremely specific — down to whether you have the authority to use the person’s log-in for the Social Security website.
If you do set up a trust, make sure it is named as owner and beneficiary on financial accounts and insurance policies. Even if you don’t, it’s a good idea to make sure the beneficiary forms are correct and up-to-date.
With authorizations in place, here are some other actions to take:
- Go paperless with bills and statements (or have hard copies come to you).
- Set up auto-pay for as many accounts as possible. Many banks now offer auto check-writing as well — that is, they’ll cut a check on a recurring schedule to an individual (useful for caregivers, household employees, etc.).
- Establish a joint checking account with the afflicted person — or have your name added to a current one. That’ll make any manual bill-paying much simpler.
- Get yourself designated an “authorized representative” on utilities, phone, cable and credit card accounts; it can often be done over the phone with just verbal permission from the original account-holder. If you have a complaint or question or need to change terms, it makes dealing with these companies a lot quicker and easier. You might also have yourself made an authorized user on one of the credit cards, if you plan to do a lot of shopping for the afflicted person.
- Pare down and simplify credit cards, recommends Dr. Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. Quietly put away most of them (but don’t close the accounts; that can hurt a person’s credit history). If you’d like the person to still feel empowered, let them have one — with a very limited credit line. There are now cards targeted for seniors that not only let you set a maximum balance, but also designate where the card can be used, or not used (blocking phone purchases to avoid scams, for example). Then, put security freezes on credit reports from the three major credit bureaus, to stop him or her — or someone else — from opening new accounts.
- You can’t stop someone from withdrawing funds from their own bank account. But you can try to make an informal arrangement at the person’s local branch to call you to authorize a withdrawal attempt above a certain amount. At the very least, you can establish notifications of such withdrawals; many banks will do so via text or email.
Do you create separate accounts in your name?
Is it enough to have access to the afflicted person’s accounts, or should you re-direct finances — that is, have any incoming funds start going directly to you? It depends on their degree of dementia, and their situation. In the early days, it’s often sufficient (and certainly easier) to leave everything in their name. But if they are vulnerable to manipulation from unscrupulous outsiders or even family members, “I’m a strong believer in getting the money out of their hands,” says Rosenblatt. In that case, she suggests moving funds to a separate account in your name as trustee or power of attorney or “for the benefit of…” to indicate its special purpose — and to give an accounting of it to relatives and other potential heirs.
Which leads to another logistical question: Is it better for one person to be in charge of all the finances? Generally, yes, in the interest of expediency. But if some people have expertise in some areas, a team approach can be useful. McClanahan feels divvying up duties can work quite well — one sibling pays bills, another handles tax returns, etc. — as long as everyone can electronically monitor accounts, so there’s transparency and you clarify with the entire family who’s to do what. She even recommends drawing up a contract to that effect.
Approaching all this with the impaired person can be delicate: You want to take action in the condition’s early stages — but, sadly, people in the early stages might be resistant to changes. Emphasize that you’re not trying to take over or to disenfranchise them; you just want to be informed and able to help if something happens to them. Prepare to have more than one conversation, and include a third-party professional. The presence of a lawyer or a financial planner can reassure the person that, as Reig says, these tools are important not just to express wishes, but to put into effect a plan for the future — avoiding chaos down the road.
