Increasingly, families have to figure out how to best handle dementia and other memory-related impairments that naturally happen as people age. This is especially true when navigating the complex and often times confusing area of personal finances.
It is important to understand that dementia is not a specific disease. It’s a term that describes a wide range of symptoms associated with a decline in memory or other skills that reduce a person’s ability to perform everyday activities. Dementia affects everyone a little differently, so managing the day to day issues created by memory loss can vary widely.
Even the most organized and knowledgeable people can experience difficulty managing financial matters when experiencing even mild cognitive impairment.
So, what can you do to prepare yourself should you, or a member of your immediate family develop dementia? Here are a few ideas that you may find helpful:
Streamline, Consolidate and Delegate
Any type of cognitive impairment can make even the most simple tasks seem overwhelming and cumbersome. Therefore, keeping things simple and reducing the number of financial “to dos” can be very helpful.
For example, combining 401k plans, IRAs and other qualified plans into one account can simplify things. Combining accounts helps manage the investment allocation, as well as the annual required minimum distributions (RMD), which begin at age 70 1/2, more effectively. Likewise, combining (taxable) brokerage and mutual fund accounts, can make tax planning and preparation easier to handle.
Many also find it helpful to delegate the ongoing responsibility of certain financial tasks. Certain items like paying bills, tax preparation and managing an investment portfolio can all be “outsourced” to a family member or a trusted professional advisor. Doing so, can reduce the probability of a mistake or other costly error.
Hope for the best, but prepare for the worst
While no one wants to admit that their decision-making ability is being compromised by memory issues, studies indicate that a pretty high percentage of those above the age of 65 will experience some form of cognitive impairment in their lifetime. With that being said, it is very important to prepare for the possibility that it may happen to you.
Reviewing your estate plan and updating key estate documents is a good place to start. Wills, Trusts, Durable Powers of Attorney, Health Care Powers of Attorney, and Advanced Health Care Directives (or Living Wills) should be scrutinized and updated if necessary. These important documents provide instruction and guidance to those whom you have entrusted to make decisions on your behalf. It is essential that they accurately convey your intention and wishes.
Be open and honest
More than anything, we would encourage you to establish an open dialogue with your family about your health and your finances. Ideally, this type of discussion should take place prior to a change in your health status. But for those who are formally diagnosed with some form of cognitive impairment, it is important to have a realistic view of your prognosis and discuss with your family what the future may hold.
This discussion could help pave the pathway for solutions that could have a meaningful impact on you both from a financial and health standpoint.
The Importance of “Client History”
Having worked with clients in a financial planning capacity for nearly 20 years, we have come to realize the importance of “client history.” For us, client history involves knowing and understanding personality traits, family dynamics, personal values and how to effectively communicate with a specific person.
Living with dementia is one of those times where having an established relationship with a financial advisor is extremely beneficial. Having this history allows us, as the advisor, to help clients and their families make important financial decisions during times of stress and periods of transition.
If you would like to start the conversation on these types of issues and need some guidance, we would be happy to offer our help.