With nearly 6 million Americans suffering from some form of dementia, advisors are taking notice. Alzheimer's disease can sabotage the best-laid plans of aging clients.
Many people prefer to live in denial. Rather than take a proactive approach, it's easier to wave off the threat of dementia — and reject an advisor's pleas to plan for the worst and hope for the best.
Advisors can serve a valuable role in facilitating vital conversations between clients and their family. They can spur clients to specify how they'd like others to navigate their finances and health care if they're incapacitated.
"Advisors need to have their antennae up," said Morgan Hill, chief executive of Hill & Hill Financial in Woodstock, Ga. He finds that clients might come to him to discuss their fears of cognitive decline. Or a spouse or adult child raises concerns.
In some cases, he detects red flags and shares his observations. Then he confirms that all the proper documents are in place, including the name of a trusted contact in case of emergency, power of attorney for finances and medical care and other letters of instruction to financial firms and other parties.
"We have health and cognitive issues as an agenda item in our client review meetings, so we have a forum that allows for that conversation," Hill said. "We try to destigmatize it."
Empower Aging Clients To Control Their Finances
As part of their effort to help aging clients preserve their wealth, advisors will discuss how dementia can impact their financial plan. They identify adverse scenarios, such as exploitation by unscrupulous individuals, and offer strategies to avoid them.
Naomi Karp, a Washington, D.C.-based elder law attorney, helped develop the Thinking Ahead Roadmap, a free tool that advisors and their clients can use to protect assets if dementia sets in. The online guide walks users through six steps that involve choosing a financial advocate in advance and laying the groundwork for shifting money management to that trusted advocate if necessary.
"Advisors should stress the importance of advance planning with clients," Karp said. "This gives the client more control over what happens if they later develop dementia, such as who will step in to handle finances, how they make the transition and how the money should be managed," to honor the client's wishes.
Karp's tool does not replace a power of attorney, which is a legal document. In fact, it urges users to name the financial advocate as their agent under a power of attorney. The tool also enables them to go into more depth in organizing their finances and stipulating how they want their advocate to handle their money.
"The power of attorney for finances gives the person (you assign) the legal authority to do things like make account withdrawals, apply for benefits, handle your pension or manage your rental property," Karp said. "Having the conversation with your financial advocate is more detailed. It lets you share what's really important to you, like whether you'd like extra money to be given to a relative who might need it now — or save that money for your heirs (to inherit)."
Think Twice Before Suggesting Joint Accounts Amid Dementia
The onset of dementia often occurs gradually. From the time advisors start to see signs of a client's early cognitive impairment to the stage when the individual loses the capacity to manage financial matters can take years.
As long as the disease progresses slowly, attentive advisors can get a head-start in guiding clients to prepare. During that time, they can forge stronger bonds with the client's family and estate planning attorney. "Advisors can be helpful to (the client's) lawyers, and lawyers can be helpful to the advisor," Karp said. "That communication can be very productive."
Advisors sometimes weigh whether it makes sense for the client to open a joint account with their adult child. While that can simplify paying bills and other financial transactions, it carries risk.
In a typical joint account, the adult child can withdraw funds from the bank and use the money for their own benefit. If they have personal debts, a creditor can gain access to that account. Even if a client's adult child is financially responsible, other problems can arise.
"It can upset your estate plan," Karp warned. "After you die, that account will go entirely to that kid," and that can stoke friction with other heirs."
In some states, banks offer so-called convenience accounts that let the owner designate another person to access the money. But when the account owner dies, the funds go to the estate — not the other person named on the account.
