Financial planning for dementia
More than 5 million people live with Alzheimer's, and that number, absent a medical breakthrough, could reach 16 million by mid-century.
Given the toll that Alzheimer's disease can have on you and your family's finances, we asked Steve Starnes, a certified financial planner (CFP® ) with Savant Capital Management, about the issue. Starnes recently participated in a one-day symposium organized by the MIT AgeLab and Transamerica that addressed the financial challenges associated with Alzheimer's disease and dementia.
Q. What are some of warning signs that you or a loved one might have dementia and specifically Alzheimer's disease? Is it worth taking tests such as the one created by Ohio State,the SAGE test, to rule in or out dementia?
A: Medical research confirms one of the first things people have trouble with in the very early stages of dementia is managing personal finances. This means people can make very expensive financial mistakes, often before anyone notices there is a problem. I have seen this happen, and it is heartbreaking. One client came to me a few months after taking several hundred thousand dollars out of his IRA. This cost him $100,000 in taxes, and that is an expense most people can't afford.
A few signs financial professionals may notice is a person may have difficulty following through on simple tasks such as signing a form. People may not remember recent conversations, may not be able to communicate the purpose of a withdrawal and may make a request that doesn't fit with that person's values or financial plan, such as a request to invest in something very risky.
At home, family members may notice a person seems more disorganized than usual. Bills may pile up. A person may have difficulty remembering names of people and places and may have trouble finding the right words to communicate his thoughts.
It is important to see a doctor if there are concerns. There is medication that may be able to slow down the progression of the disease. Regarding tests, we need some definitive direction from the medical community. The test from Ohio State looks promising, and people should rely on a doctor to diagnose a problem.
Q. What should those with dementia do with regard to their financial plans, given their stage of the disease?
A: It is worth repeating: Alzheimer's and most forms of dementia are progressive. This means a person who is diagnosed will get worse over a few years. It is really difficult for most families to accept that it will get worse. The medical community has identified seven stages of decline. Practically speaking, I find it's helpful for families and financial professionals to think of the progression as three stages: early, middle and late.
In the early stage of dementia, a person may seem healthy most of the time and be able to communicate normally. Here are three steps to take at this stage:
1) Have a conversation. Even before a diagnosis, it is important for people to have a conversation with their families about how they would like to be helped. Who will be the primary caregiver? Who will help with finances? A person with dementia often feels insecure that he will lose control and everyone else will tell him what to do. The family's role is to help, not to tell. Some conversation can help a person feel more independent and help families avoid misunderstandings. Many people avoid this conversation because it feels awkward. A good book to help as a guide is The Other Talk by Tim Prosch.
2) Update legal plans. Everyone should have a will, power of attorney and medical directive. Some people may find it helpful to have revocable living trust. The early stage of decline may be the last time a person has legal capacity to update these documents. A power of attorney names someone to help with financial affairs. A medical directive names someone to help with medical decisions. Without these documents, a court may need to appoint someone to help, and this can be very costly, frustrating and time-consuming. Make it reasonably easy for someone to help you if you need it.
3) Simplify finances. Over the course of our lives, most of us collect many accounts at several banks and investment and insurance companies. It is difficult for any of us to keep track of all of these and especially difficult for someone with dementia. With the help of a financial adviser, simplify everything. Use one bank and one investment company. This will make it easier for someone to help manage finances.
In the middle stage of decline, a person may need help with one or two acts of daily living and may have significant difficulty communicating. At this stage, someone else should take care of all financial matters. Some professional care, whether in home or day care will be helpful. It may be important to consider assisted living as the next step.
In the late stage of decline, a person will need substantial care and may not be able to communicate at all. Assisted living, full-time, in-home care or nursing home care may be needed.
Q. Not all people with dementia have a financial adviser. Should they, and what should those with dementia and their advocates expect from their financial adviser?
A: The cost of care can be significant. A financial adviser's role is to help clients live well with the resources they have and help them plan for risks such as long-term care. A person with dementia has trouble making good financial decisions, so a financial adviser can help a client avoid expensive mistakes. A caregiver's role is very time-consuming and demanding. A financial adviser can help the caregiver make sure finances are handled well. I often refer to the person helping my client as the client's advocate. The advocate should attend meetings with the financial adviser to help my client listen. Just like going to the doctor, having someone to help listen can be very helpful.
Q. What are the finance-related issues that those with dementia and their advocates must consider? Assets? Income and insurance? Intentions? Banking administration? Care management?
A. The cost of care can be substantial and protecting the financial security of a healthy spouse is important. An elder law attorney may be able to help a family protect some assets and income for the healthy spouse.
A. Regarding insurance, by the time a person is diagnosed it is too late to get long-term care insurance. It is, however, very important that you review the beneficiaries for all life insurance policies and retirement accounts.
A person with dementia will need help taking care of finances. The bank and any investment companies should know who is named as power of attorney so this person can do business with the financial institutions.
Q. What else is there to consider about the financial challenges associated with Alzheimer's disease and dementia?
A.The cost of care can be substantial, and the choices for care can be overwhelming. A professional care manager can be a very helpful resource to help families manage cost and find the right care. To find a professional care manager in your area, visit www.caremanager.org.
Communication with a person who has dementia can be very difficult. A few communication tips can help everyone save time and frustration. The Alzheimer's Association website has a great resource to help with communication: http://www.alz.org/care/dementia-communication-tips.asp
Robert Powell is editor of Retirement Weekly, contributes regularly to USA WEEKEND, USA TODAY, The Wall Street Journal and MarketWatch and teaches at Boston University.