There is potential danger lurking within all of us that could destroy everything we own. It could decimate our savings and deprive our heirs of their inheritance.
According to the Alzheimer's Association, 5.4 million Americans are living with Alzheimer's disease. It affects one in eight older Americans. While those afflicted with Alzheimer's cannot manage their finances, even milder cognitive impairments can cause major problems.
An article in Financial Advisor recounted heartbreaking stories of impaired elders being ripped off by unscrupulous scam artists, securities salesmen and even relatives.
The problem is circular and vexing. You want to stay in control of your finances while you are able to do so. Yet, you won't know when you are impaired and need to relinquish control. This is an uncomfortable subject that is often avoided in the estate planning process. Technically, it really isn't "estate planning," since this issue arises while we are still living.
An article in the Journal of the American Medical Association cautions that early signs of inability to manage finances are an inability to count money, trouble paying bills, concerns about stolen or missing money, calls from financial institutions about problems with accounts and financial abuse.
Advance planning is critical to avoid the dire consequences of cognitive impairment. Since every situation is different, you need to discuss this issue with your attorney. A common recommendation is a durable power of attorney that names a designated agent who is authorized to take over your finances if you become incapacitated. If the power of attorney is not "durable," it will automatically terminate once you become impaired, which defeats its purpose.
Another option is a "springing" power of attorney, which becomes effective only once a determination of impairment has been made. Usually the diagnosis has to be from one or two qualified physicians. The problems with these requirements are that the diagnosis can be difficult and doctors are often reluctant to make it. For these reasons, many attorneys prefer a durable power of attorney that does not require the satisfaction of these conditions.
If you have significant assets, you should consider appointing a trust company to manage your assets in the event of impairment. Your attorney should consult with the legal department of the trust company to be sure the power of attorney you execute is in a form acceptable to them.
You worked your entire life to save for retirement and to leave a legacy to your loved ones. With a little advance planning, you can protect your assets from the hidden danger of cognitive impairment.
7 Steps to Save Your Financial Life Now is available on Amazon, B&N, and iTunes. Dan Solin is the director of investor advocacy for The BAM ALLIANCE and a wealth advisor with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information, and content on this blog is for information purposes only and should not be construed as an offer of advisory services.