Broker Check
Cognitive Decline and Money Management

Cognitive Decline and Money Management

August 14, 2017

Safeguards can protect aging parents (or an aging you!) from financial abuse and money mistakes

As financial advisors, we have a unique insight into people’s lives. If something is amiss in a client’s life, we will usually be one of the first to know.  “I need some money to remodel my kitchen”, “I am planning to sell my house”, or “I want to invest in (real estate, bit coin, a startup company being founded by a Nigerian prince) – may be part of routine conversations with our clients.

I have recently sat through seminars on elder abuse in which we are reminded that the special role we play in people’s lives also puts us on the front lines in the fight against elder abuse.  As people age, it is not uncommon for decision making to become impaired.  No matter how astute a businessman, or how high ones financial acumen during ones younger years, decision making is subject to impairment as one ages.  For this reason, the elderly are often a target of fraudsters. 

I have a client who contacted us recently in a panic.  Her father had been feeling the effects of aging on mind and body and was under 24 hour at home nursing care.  Over the weekend, dad had announced that he is deeply in love with his caregiver, and is contemplating transferring assets and home to the caregiver, and may want to modify his will.  Whoa!  Either dad was confused, or the caregiver was up to no good.  In either case, it was clear dad could not be trusted with control over substantial sums of money.  I suggested this was a situation requiring immediate legal advice.  The client had recently completed an estate and Medicaid plan, so they reached out for advice from the attorney that had completed their plan. 

The attorney recommended creating an irrevocable trust for dad’s benefit, with my client as trustee, and client and her brother beneficiaries.  All the assets, as well as the home, ultimately would be transferred to the trust.  Once in the trust, the assets were outside of the will, and outside of dad's control.  Only problem is – dad would need to agree to it.  Fortunately, my client was able to speak with her father in a more lucid moment, and he agreed that the plan was in his best interest. 

In this case, my client was close to her father geographically, in regular contact, and was already involved in handling most of his financial affairs.  But suppose the father was in Florida, and struggling to handle things on his own.  Suppose the caregiver was intent on having him sign over assets.  No one would have been the wiser – except maybe the financial advisor managing the assets – who might notice the strange goings on. 

But even in this case, the advisor is powerless.  If dad wants to transfer the money, the advisor is obligated to follow the account owners directions.   Likewise, if dad wanted to wire money to a Nigerian prince who claimed to be his first cousin, or invest all the money in bit coin futures – the advisor would have limited authority to do anything to stop it. 

Consider then, the value of giving your advisor an “emergency contact” with whom the advisor is authorized to speak in the event of unusual activity.  In this case, if I had been the dads advisor and saw a big transfer being requested to a third party without apparent sound reason, I would have liked to have authority to call the daughter and give her a heads up.  At least it is a chance for intervention!

If you have elder parents, encourage them to provide such authorization to their key advisors.  If you are pushing up in years – have the discussion with your own advisor.  I strongly recommend all senior clients approve a trusted “emergency contact” as a strong defense against elder financial abuse.