When attorneys use the term “diminished capacity,” it is generally about the elderly signing documents they may not understand. In fact, legal professionals are meant to protect seniors from that very situation. When financial advisors use the term, it is typically more general, inferring that some elderly individuals may need assistance in economic decision-making. Regardless of who is using the term, loved ones must recognize that at some point, decision-making may be out of the realm of possibility for their elderly loved one.
Determining diminished capacity isn’t as easy as one may think. While you might assume that someone diagnosed with dementia or Alzheimer’s has automatically lost their decision-making ability, there are many nuances to their mental condition. There can be a period in the beginning when the symptoms are limited to short-term memory loss. In this period, they may be completely capable of making decisions for themselves. However, financial decisions may be in a class of their own.
More on Diminished Capacity
When determining mental capacity for financial decisions, it must be noted that financial capability may begin to diminish even in the earliest stages of Alzheimer’s disease. What seems like mild impairment in some areas of daily life may translate to significant impairment regarding making safe money decisions. Regardless of how intelligent or money-wise a person was earlier in life, sound money decisions are often the first to be impacted when the cognitive decline begins.
If your elderly parent maintains the family trust, significant investments, or real estate, you should pay attention and involve yourselves in decision-making as early as possible. But how do you do that without offending your Mom or Dad?
It is essential to have a family meeting to discuss the reality of the situation, as well as possible problems and scenarios down the road. You’ll want to discuss who would take over if a heart attack or stroke suddenly impairs your parent. While the topic seems morbid, it is easier to approach than talking about your loved one progressing into dementia. No one wants to face that eventuality.
During the meeting,
- Obtain permission for a willing and responsible adult child to reach out to your parent’s financial advisor and estate planning attorney. Financial institutions and attorneys have strict privacy rules, so Mom or Dad must agree to the consultation.
- Don’t stall too long, or your loved one may refuse what would otherwise be reasonable for them. Dementia can cause irrational decisions or make the patient disagree with any plans, which may make them feel that they are losing control.
- Ask your parent to review their estate planning documents with you, again not referencing encroaching dementia – simply position it as a precautionary measure.
- Consider the common dilemma when one parent is appointed to act on the other’s behalf in case of diminished capacity. The more they age, the more the possibility that they may both be losing their capacity simultaneously. Too often, nothing has been put in place to address the situation should this occur.
It is important to understand that even mild memory loss, often referred to as “mild cognitive impairment” (MCI), is typically not mild at all. It is a significant red flag that financial decision-making ability may already be impaired. This diminished capacity can make seniors vulnerable to financial abuse, or they could make bad financial decisions that could drain their resources quickly. Taking some preventive and proactive measures at the first signs of decline is prudent and can save both adult children and their parents from problems down the road.
A Banyan Residence is an assisted living and memory care facility in Venice, Florida.