Published October 10, 2012
WASHINGTON – It's a sad, sticky and increasingly common situation: An elderly relative insists on managing his money, but you suspect he's losing his ability to handle that.
The older people get, the more likely they are to suffer cognitive decline. Roughly 14% of people over 71 have some level of dementia, according to the National Institutes of Health. For those in their 90s, the rate rises to 37.4%.
Many older folks have spent a lifetime managing their finances and take pride in it. They may hold onto their checkbooks and brokerage statements more tightly than they do their car keys. Take the parents of John M. Smartt Jr., a Knoxville, Tennessee certified public accountant and investment adviser, who have been married for almost 70 years. Just last week they finally agreed to merge their separate checking accounts and allow Smartt to write checks for them.
Furthermore, unless aging relatives have thought ahead and done the paperwork -- joint bank accounts, powers of attorney and the like -- their family members may not have access or any legal right to discuss those finances.
At least it's a situation that many others, including professionals such as Smartt, have faced. Here are tips from those who have been there on how to handle aging relatives and their finances.
-- Be alert. The early signs of dementia are not easy to discern. Your relative may sound like he's on top of his game but could still be slipping. Look for overflowing paperwork on their table or desk, says Linda Hill, a gerontology social worker with Aging Network Services in Bethesda, Maryland. Be concerned if a relative starts donating to charities that are not in the usual repertoire or starts buying items from television ads. Forgetting names is not a particularly strong sign of dementia (thank goodness!), but forgetting proper nouns such as "couch" or "telephone" may be.
-- Ask before it's necessary. Lauren Lindsay, a Covington, Louisiana financial adviser, has her clients fill out an "incapacitation letter" that answers the question, "If we have concerns that you are not acting like your 'normal' self, who do we contact?" You can flip that around and get a letter sent to your relative's adviser with language such as, "You're fine now, but could you notify your adviser that it's OK to talk to me if you should have troubles down the road?" Use the same approach to get a power of attorney letter.
-- Be diplomatic. Suggest to your parents that it would be a good idea to have your name on their checking account in case they are ill and need someone to write checks for them. Or offer to pay the bills to save them work, then let them sign the checks.
-- Use even more finesse with investment accounts; the stakes are higher. Don't tell an uncle or aunt that you think they aren't capable of making buy and sell decisions. Tell them you admire their long history of smart investing and would like to learn from them. Ask whether you can sit in on meetings with their adviser.
-- Put the adviser on notice. If your relative is working with a broker or adviser who is actively managing the account, let that person know you have concerns about your relative's ability to approve trades. That professional may not be permitted to talk to you, but she can listen. Trading on behalf of a demented client can increase an adviser's legal liability, writes Steven Starnes, a McLean, Virginia financial planner in a recent article in the Journal of Financial Planning titled "Is Your Firm Prepared for Alzheimer's?"
Of course, more elderly people are ripped off by their relatives than they are by their financial advisers, so the adviser might be as suspicious of you as you are of him. Working together, though, you may be able to calm activity in the account.
-- Use subterfuge. When a relative becomes more demented and resistant, Hill recommends stronger measures. She has advised clients to file change-of-address cards with the Postal Service so aging relatives don't get all the mail they otherwise would, though strictly speaking that is something they should have a legal power of attorney to do. Important bills -- or pesky solicitations -- can thus be steered to your home and away from Grandma's. She has also told people to hide credit cards or cancel accounts.
-- Bring in professionals. You can hire a bookkeeper to help your dad pay bills. You can invite your mom along when you meet with your financial adviser, or recommend a trusted third party. Some parents may find assistance from that impartial third party easier to accept than help from within the family.
-- Get drastic. Sometimes, none of the easy solutions will work, says Hill. In that case -- and if the relative is losing significant amounts of money because of mismanagement or trusting the wrong person -- you may have to go to court and file for a conservatorship so you can take over their finances. That's painful, but it can provide the protection a severely demented relative may need.