Managing money can be challenging in the best of circumstances. But for someone with a diagnosis of Alzheimer's disease -- a form of dementia that affects thinking, memory and behavior -- money management can be an impossible task.
If a loved one is having trouble remembering to pay the credit card bill or spending money recklessly as a result of the disease, there are steps you can take to protect his or her credit and financial security.
As many as 5.1 million Americans have Alzheimer's disease, according to the Alzheimer's Foundation of America. For many of them, money management problems may be the first sign that their brain functionality is on the decline. Among the red flags: unpaid or unopened bills, more purchases on a credit card than usual and numerous cash withdrawals from the ATM.
"A person with Alzheimer's disease might get into arrears on their debt because they don't remember that they didn't pay it," says Rick Gow, a Falls Church, Va.-based wealth management adviser who specializes in eldercare issues.
A study by the National Endowment for Financial Education (NEFE) found that 12 percent of U.S. adults have experienced a decline in the ability to make financial decisions or have had family members experience a decline. Among them, 41 percent did not pay bills or paid them late, 35 percent made irrational purchases, 21 percent drained their savings accounts and 18 percent incurred major credit problems.
Alzheimer's disease takes a physical and emotional toll on every family it touches. Here's how to lessen the financial side effects.
Create an environment of trust
No matter what type of financial decisions they're making, people living with Alzheimer's disease deserve respect. If it's your parent, "don't walk in there and tell your parent what to do," says Brenda Avadian, who launched CaregiversVoice.com, a website for caregivers of people living with Alzheimer's disease and other illnesses.
Avadian watched her father, who was diagnosed with Alzheimer's disease, go from sending checks to a charitable organization annually to sending them biweekly. Be patient and try to cultivate the trust of the person with the disease, Avadian advises. For example, you might ask, "did you realize you hadn't opened these bills?"
Once a person with Alzheimer's trusts you, they're more likely to let you intervene. "My dad ultimately did trust me because of the patience I took with him, and he said, 'Why don't you just handle all my stuff, because you seem to know more about it than I do,'" Avadian says.
Handle legal matters first
There are legal steps that can help you protect a person with Alzheimer's disease from making devastating financial mistakes. Contact an elder law attorney soon after the Alzheimer's diagnosis, advises Howard S. Krooks, president of the National Academy of Elder Law Attorneys (NAELA).
- Appoint a durable power of attorney for finances. POAs, as they're called, have the authority to make financial decisions on another person's behalf.
- Establish a revocable trust that puts someone else in charge of the assets of the person with Alzheimer's. Since the trustee would manage the money, the person with Alzheimer's disease would need to confer with the trustee before making large expenditures, says Krooks.
- Set up a conservatorship. If the disease has become so advanced that the person is unable to make sound decisions, another legal recourse is to convince a judge that the person is incapacitated, or unable to manage his or her own affairs. If a judge agrees, a guardian or custodian would be appointed as a conservator to make decisions on the person's behalf and take control of the checkbook. A guardian would then have the legal authority to take financial actions, such as canceling the person's credit card account. Because the person with Alzheimer's disease would lose all control over their financial affairs, this option is typically a final resort.
Create a money management plan
Next, you need to deal with the day-to-day money logistics.
Create a bill-payment system. If a person with Alzheimer's disease is responsible for paying the household bills, problems may develop down the road if the bills don't get paid or get paid multiple times, says Ruth Drew, director of family and information services at the Alzheimer's Association, which provides resources for families of people living with the disease. As a safeguard, you might suggest that the two of you pay the bills together, Drew suggests.
Monitor banking activity. See if the person with Alzheimer's disease is comfortable with the idea of letting you periodically look at bank statements to ensure that the disease hasn't diminished his or her financial decision-making skills. If you have a joint account with the person or if you have financial power of attorney, some banks will require two signatures if the person with Alzheimer's disease makes a withdrawal above a certain amount, Drew says.
Set limits on transactions. Suggest that the person with Alzheimer's disease contact their credit card company to lower the credit limit on any credit cards. You might also see if they're comfortable with canceling their credit cards and becoming an authorized user of one of your cards. American Express, for example, lets you add additional card members onto an account and set spending limits for them on some of their charge cards, says spokeswoman Elizabeth Crosta. Debit cards typically have daily cash withdrawal limits, but many banks will let you lower them.
Allow for some cash. As long as a person with Alzheimer's disease is able to get around on his or her own, give them access to a small amount of cash that they can spend any way that they want.
"Nobody wants to trample on somebody else's autonomy," says Drew. "Yet when a person is no longer able to exercise the good judgment that they used to have, you want to preserve their financial stability."