Recognizing and addressing financial incapacity
If we live long enough we’ll all be there. That, at times terrifying and uncertain, stage of life where things simply aren’t as clear as they once were. Memory is spotty and the ability to keep track of important things becomes increasingly elusive. Judgement may become impaired and we may be more prone to falling for scams or the counsel of people who don’t have our best interests in mind.
According to the National Council on Aging, one in ten Americans aged 60 and over experience some form of elder abuse with the two main factors contributing to it being social isolation and some form of dementia. Among the numerous forms of elder abuse is financial exploitation often the result of diminished financial capacity.
Warning signs of reduced capacity in financial decision making
Recognizing and addressing financial incapacity can be tricky and is often fraught with difficult conversations and emotions. Here are just a few things to watch for in the elders you love or care for that may be warning signs of reduced ability to cope with the complexities of their personal finances.
For example, making financial decisions inconsistent with established patterns of behavior can be telling. If you start to see new behaviors around spending, gifting, hoarding or other actions, you might want to pay close attention to other potential warning signs like them refusing to follow recommended financial advice from trusted professionals with whom they have long-established relationships. Appearing confused or unsure of their financial situation even after seeking explanation could be an indication of lack of capacity to comprehend or understand. Naturally there are many other signs that are indicative of diminished or limited capacity. Changes in everyday activities like recognizing coins, checkbook management, remembering to pay bills, or keeping track of cash should be triggers of alarm.
The issue of financial incapacity is sensitive and addressing it with a loved one can prompt all sorts of denial, excuses, and even angry responses. That’s why it’s important to discuss the “what if I become incapacitated” question with your financial advisor well in advance of the onset of any indicators. Questions like how will I know if I’m no longer capable of making financial decisions or how can I protect my assets if I become unable to handle my financial well-being can be (and should be) addressed.
Consider an incapacity agreement with your financial advisor
So prevalent is the issue, many fiduciary financial planners are implementing some form of incapacity agreement with clients. This agreement, which is signed by the client, gives authority to the financial advisor to take specific steps in the event of financial incapacity or when the advisor witnesses or learns of behaviors that may indicate diminished capacity. Those steps are mutually agreed upon and might include things like notifying a named individual and involving them in all future finance-related discussions.
Anticipating the potential for financial incapacity is one way to help contribute to an elder’s peace of mind and reducing the potential for financial exploitation by others.