Don’t Let Diminished Financial Capacity Put Your Elderly Loved Ones At Risk—Part 1 

With more and more Baby Boomers reaching retirement age each year, our country is undergoing an unprecedented demographic transformation that’s been dubbed “The Greying of America.” This population shift stands to affect many aspects of life, especially your relationships with aging parents and other senior family members.

By 2060, the number of Americans aged 65 and older is projected to nearly double from 52 million in 2018 to 95 million, which will account for 24% of the total population. And as early as 2030, the number of those 65 and older is expected to surpass the number of children (those under age 18) for the first time in history.

Coinciding with the boom in the elderly population, the number of Americans suffering from Alzheimer’s and other forms of dementia is expected to increase substantially as well. The Centers for Disease Control (CDC) estimates that the number of Americans with Alzheimer’s disease will double by 2060, when it’s expected to reach 14 million—more than 3% of the total population.

Although Alzheimer’s is the most common cause of dementia in older adults, it’s not the only one. In fact, the National Institute on Aging estimates that nearly half of all Americans will develop some form of dementia in their lifetime. And while the cognitive decline brought on by dementia affects a broad array of mental functions, many people aren’t aware that one of the first abilities to go is one’s “financial capacity.”  

Financial capacity refers to the ability to manage money and make wise financial decisions. Yet cognitive decline brought on by dementia often develops slowly over several years, so a diminished financial capacity frequently goes unnoticed—often until it’s too late.

Now that we’re in the peak of the holiday season, you’re likely spending more time with your aging parents and other senior relatives. This provides an ideal opportunity to be on the lookout for signs that your loved ones might be experiencing a decline in their financial capacity. The University of Alabama study “The Warning Signs of Diminished Financial Capacity in Older Adults" identified six red flags to watch for:

1. Memory lapses: Examples include missing appointments, failing to make a payment—or making multiples of the same payment—forgetting to bring documents or where documents are located, repeatedly giving the same orders, repeatedly asking the same questions.

2. Disorganization: Mismanaging financial documents, and losing or misplacing bills, statements, or other records.

3. Declining checkbook management skills: Forgetting to record transactions in the register, incorrectly or incompletely filling out register entries, and incorrectly filling out the payee or amount on a check.

4. Mathematical mistakes: A declining ability to do basic oral or written math computations, such as making change.

5. Confusion: Difficulty understanding basic financial concepts like mortgages, loans, or interest payments, which were previously well-understood.

6. Poor financial judgment: A new-found interest in get-rich-quick schemes or radical changes in investment strategy.

If you notice your parents or other senior family members displaying any of these behaviors, you should take steps to protect them from their own poor judgement. It’s vital to address their cognitive decline as early as possible, not only to prevent financial mismanagement and exploitation, but also to ensure their overall health and safety.

There are several estate planning tools that can be put in place to help your aging parents and other senior family members protect themselves and their assets from the debilitating effects of dementia and other forms of incapacity. In part two of this series, we’ll discuss the specific planning tools available for this purpose, and provide some guidance on how to address this sensitive subject with your elderly loved ones.