Cognitive Decline … time to “Think” about it.
“Longevity Risk” is a great problem to have. That means we are living longer and in fact we are living longer, healthier in most cases. However, there are many challenges that come with clients’ increased life expectancy. One is the possibility of diminished intellectual capability. While this is not a high probability, clients need to be prepared. You can’t ignore the unpleasant possibility of age-related cognitive decline.
Be Prepared
The solutions are not always financial. We can get ahead of potential problems with careful planning.
While our firm has procedures in place to discuss declines in health and/or cognitive capacity with every client that comes in. We continue to discuss it throughout the relationship because part of retirement planning is planning for the ‘what if’ scenarios.
It’s an idea echoed by others.
“Diminished capacity should not be addressed on an ad hoc basis,” said Steve Parrish, a St. Augustine, Fla.-based attorney, and co-director of the American College of Financial Services’ Center for Retirement Income, where he is also an adjunct professor of advanced planning. “There are a number of tools available that can be executed in advance, while the client still has capacity. If that client experiences diminished capacity later, these tools can help manage the situation.”
The best time to have conversations with clients about possible cognitive decline is long before it’s a concern. The worst situation is having no plan at all, and studies have shown that an overwhelming number of retirees do not.
Powers Of Attorney
One vital part of such plans is documenting powers of attorney. There are distinct types.
A medical power of attorney enables a trusted individual to make health-related decisions when the client is unable to. The financial power of attorney, which can name the same or a different person, works in similar ways but typically goes into greater detail about exactly which types of financial decisions can and cannot be made by the designated person. The power to pay bills, for instance, is standard. The power to donate to a charity might not be. The rules vary by state. The powers can be “durable,” meaning they can go into effect immediately and in perpetuity, or “springing,” in which case they only become effective after a specific event happens, such as incapacity.
Trusted Contacts
In addition, clients should name a trusted contact, who might or might not be the person with powers of attorney. This gives your advisor someone who they can reach out to if a concern arises.
Estate Planning
For some, these preparations are simply part of estate planning. This includes wills, trusts, advance medical directives, beneficiary designations, powers of attorney, and even predesignating a preferred legal guardian. This proactive approach safeguards against potential challenges in the future and puts the estate plan in “protection mode” by having the proper documents in place.
For business owners, this can be more complex and can include additional risk mitigation strategies like creating LLC’s, protecting the operating agreement in the event of lawsuits, and creating a transition plan for the company if the owner were to pass away. It is not enough to “know” what you want to happen; you must put it in writing to truly protect your vision.
An Uncomfortable Topic
Talking about cognitive decline or a potential long-term stay in a nursing home is not the kind of discussion you have at family Thanksgiving. But the conversations still need to take place. It is important for the family to understand the risks, but it’s also important for everyone to be on the same page.
Parents can be extremely sensitive to comments from their children about their possible cognitive decline. Denial and avoidance are common. But that’s precisely where an advisor can help. Advisors can act as a neutral nonfamily member that can serve as the intermediary. My experience is that this be very disarming when done properly.
Family members often miss the early symptoms — or are unwilling to see them. Especially if the family members are out of town and not in regular contact. I have found that often, the parent will put on an act and go out of their way to hide the cognitive impairment. There are many reasons why this happens, embarrassment, denial, etc. When broached, the discussion should be calm and compassionate. You’re offering to help. Usually, clients will be happy to have the support, but also be prepared for a less than positive response or denial. Empathy goes a long way in this situation.
Don’t Play Psychologist
Be cautious about making a diagnosis without medical credentials. In and of itself, old age, eccentricity, or physical disability are insufficient for a finding of incapacity. Typical symptoms of cognitive decline can include forgetfulness, repeating oneself, getting lost in familiar places, and difficulty comprehending things that the client never struggled with in the past.
Of course, the warning signs might be more serious, such as frequent driving accidents, medication errors, and impulsive behavior. These types of changes can translate into erratic and reckless financial decisions.
Protecting Older Clients from Scams
Because financial exploitation is a huge concern for aging clients, regular review of financial accounts. Having processes in place with advisors, family, and other trusted parties can help prevent problems, but they are still not full proof. Sometimes we recommend a credit monitoring service or freezing the client’s credit. You can also make sure the credit card you use covers fraudulent type activities, because not all do.
The best tools are your eyes and ears. If you notice a normally efficient, organized client suddenly has a messy home and unopened bank statements on the table, or change in pattern of how they spend money, those may be signals that things are changing.
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