FOUR STEPS TO MINIMIZE THE IMPACT
OF DIMINISHED MENTAL CAPACITY
August 8, 2023
Betty,1 a 78-year-old client of The Mather Group, LLC (TMG), spoke excitedly about a recent meeting with her banker. She proudly described how the banker showed her how to use the bank’s online customer portal, including identifying deposits and withdrawals and paying bills online. While Betty previously had no interest in anything financial, she was now enthusiastically learning to manage her and her husband Frank’s household finances.
Betty’s newfound interest in personal financial management sprang from a conversation she and Frank had with their TMG wealth advisor, who alerted them to the emotional and financial damage that diminished mental capacity can cause as they age. The discussion prompted Betty to get more involved.
Betty’s decision to proactively understand their finances is warranted. About one in nine people aged 65 or older have Alzheimer’s disease.2 Moreover, roughly one-third of people over age 85 have dementia.3 While many illnesses can be physically and financially damaging to families, dementia is particularly destructive because of the duration of the disease and the high need for costly skilled care.
Being prepared for the possibility is the key to successfully navigating diminished mental capacity if it comes to fruition. Once dementia occurs, things move fast, and the complexities increase substantially. Besides cash flow management, what else can you do to minimize the financial and emotional impact diminished mental capacity can cause?
Four Steps to Minimize the Impact of Diminished Mental Capacity
1. Identify Your Trusted Financial Advocate. Choosing a financial advocate is a necessary first step in ensuring your money remains safe and is used how you want it to be. The most essential quality in a financial advocate is trustworthiness. Some additional vital qualities are organizational skills, putting your interests first, understanding your needs and what is important to you, being financially savvy, being a competent decision-maker, and being a good communicator.
You must also understand the tasks your advocate might help with. Here is a short list:
• Manage your day-to-day expenses
• Handle routine money matters
• Monitor your investments and sources of income
• Navigate insurance policies
• Hire and pay service providers
• Work well with advisors (accountant, wealth manager, attorney, insurance agent)
• Apply for benefits
• Manage your property
• File and pay your taxes
• Store your financial records
• Protect you from scams
Identifying the person with the needed qualities and asking them to take on all these tasks may seem too much to ask one person. Some people choose to divide the tasks among several advocates based on the skills and knowledge those people offer. For example, there may be someone who could handle your household needs well (your spouse or child) but another to handle financial matters like investments, taxes, and insurance. However, when it comes to legal designation (more on this in step 3), be aware that not all states allow more than one advocate.
It's common for people who are married or in long-term relationships to choose their spouse or partner as their financial advocate. But remember—there may come a time when your partner is unable to serve this role due to their own health issues or demise. They also may be busy dealing with other matters like being your primary caregiver. Therefore, in addition to a spouse or partner, identify an alternate advocate as a fail-safe for these situations.
In Betty and Frank’s case, they have each chosen the other to be their primary advocate, while their astute daughter and son-in-law are alternate advocates. With a comprehensive understanding of their situation and financial acumen, their TMG wealth advisor can offer guidance and collaborate with other professionals—including an accountant for income tax filings, an attorney for legal expertise, and an insurance agent— when needed. However, he serves as a fiduciary and not as an advocate.
2. Start an Open Conversation with Your Advocate. People often like to have this conversation in stages. Try to cover only a little information in each meeting.
The first conversation is to get confirmation from your advocate that they are willing and able to help when needed by explaining what the job entails. If you have decided to have (and your state allows for) several advocates, define the roles of each advocate and how you anticipate they will work together. Give your advocate a chance to ask questions and contemplate the request. Ensure they are comfortable assuming the responsibility given any other family or work commitments they may have.
As the relationship progresses, share details they will need to fulfill their advocacy role. For example, if they will be helping to manage your day-to-day expenses, you may need to educate them about your accounts, income, expenses, and savings.
If you will have several advocates, bring them together to get acquainted. This will give you an opportunity to confirm each advocate’s role and your expectation for how they will work together, ensuring everyone has the same understanding.
For Betty and Frank, these progressive conversations were natural, as they host their daughter’s family every other Sunday for dinner. Even so, they made a conscious effort to dedicate time to these discussions while the kids watched their favorite show. In a matter of weeks, all four parties involved had clarity about their roles and knew how to access important information and accounts when needed.
3. Create Legal Documents to Name Your Advocate Officially. There are several ways to give your financial advocate the legal right to manage your finances. The most direct and complete method is to create a financial power of attorney (POA).
A POA gives your financial advocate (agent) the legal power to handle the financial activities you list in the POA document. Typically, they can manage your bank and credit accounts, move money between accounts, apply for and manage health care policies, and file tax returns. You can also specify what your agent can and cannot do. For example, if you want to prevent your advocate from being involved with your investments and insurance, your POA document can address that.
An important consideration is determining when the POA should go into effect, which is completely up to you. Your POA can be effective immediately upon signing, or you can choose to make it effective later when you can no longer manage your finances. Even if it goes into effect immediately, your advocate can start managing your money later (step 4 includes considerations about timing). In any case, you’ll want to provide your advocate with a copy of the POA document right away so they can be prepared to act when needed.
You should consult an estate planning attorney or an elder law attorney to establish your POA. In states where more than one advocate is allowed, they can help you establish a special POA to designate the responsibilities among multiple advocates. If this feels like the right approach for you, be sure to discuss with your attorney the administrative complexities and potential risks associated. The attorney can also explain and recommend other estate management and protection documents that may be helpful in your situation. These include a durable power of attorney for health care, advanced health care directives, living wills, and successor trustees for any living trusts you may have.
4. Shift Financial Management to Your Advocate. Determining when your financial advocate should take over is a personal judgment call, but it may not be a decision you should make alone. You and those close to you should watch for specific signs suggesting you need help. If you start forgetting to take medications or pay bills, you get lost when walking or driving to familiar places, or your wealth manager or another advisor expresses concern, these are all tell-tale signs that your advocate needs to step in.
Given the close relationship with their primary and alternate advocates, Frank and Betty chose to make their POAs effective immediately. They each trust that, with the amount of time they spend together, their spouse, daughter, and son-in-law will be able to assess whether their mental faculties notably decline.
Don't Delay, Take Action Now
With more active participation from Betty, a solid plan in place, and legal documents that formalize their agreements, both Frank and Betty have confidence and financial peace of mind that whatever their future holds, each of them will be well cared for.
Their situation is a happy story because they took action before the onset of health problems. If you haven’t prepared, knowing that health problems can strike at any time, you would be wise to create a plan soon. If you wait until you no longer have the mental capacity to designate a financial advocate, it will be up to the state to appoint a guardian on your behalf.
Please contact your TMG wealth advisor if you are interested in discussing this topic further. While they cannot provide legal advice, they can share their experience with these situations and act as a guide for next steps.
1 Names and other details have been changed for privacy reasons.
2 Alzheimer's Association
3 National Institute on Aging
The Mather Group, LLC (TMG) is registered under the Investment Advisers Act of 1940 as a Registered Investment Adviser with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training. For a detailed discussion of TMG and its investment advisory services and fees, see the firm’s Form ADV Part 2A on file with the SEC at www.adviserinfo.sec.gov.
The opinions and advice expressed in this communication are based on TMG’s research and professional experience and are expressed as of the publishing date of this communication. The information and data in this communication does not constitute legal, tax, accounting, investment, or other professional advice. The client case used in this article is not an endorsement or testimonial of services provided by TMG, but only used to illustrate the point of this presentation. Your experience with TMG is based on your specific situation and may be entirely different than the case study used in this presentation. Betty and Frank were not compensated for TMG’s use of their case.
