EDITOR'S NOTE: This article was originally published in the September 2010 issue of Kiplinger's Retirement Report. To subscribe, click here.
Dad always balanced his checkbook to the penny, and he took few chances with his nest egg. Now he's forgetting to pay bills, and he's lost thousands of dollars to fraudsters who've called with get-rich-quick schemes.
If that sounds like your parent or spouse, don't ignore it. A decline in the ability to handle financial matters is one of the early signs of Alzheimer's disease. Even if your loved one is showing only mild symptoms, seek a diagnosis.
If your worries are confirmed, your family member should move quickly to get his or her finances and estate plans in order. "By the time you receive a diagnosis, almost all financial skills have been impaired," says Daniel Marson, a professor of neurology at the University of Alabama at Birmingham, who has conducted extensive research on the relationship between dementia and the decline in financial capabilities.
In one federally funded study, Marson compared 23 healthy seniors to 30 people who had early-stage Alzheimer's. He found that the patients with mild symptoms scored significantly below the healthy seniors on such tasks as understanding a bank statement and verifying the correct change in a one-item purchase.
Patients with mild symptoms were also unable to explain the risks of mail and telephone solicitations. Even seniors in the early stages are prey for financial predators, says Marson, director of the university's Alzheimer's Disease Research Center. "There's an epidemic of financial exploitation aimed at people with mild cognitive impairment," Marson says.
Once there's a diagnosis, a family should consider assembling a team of experts. A financial adviser who specializes in planning for incapacity can devise a long-term strategy to pay the costs for care. An elder-law attorney can set up trusts to protect a family's assets if the disabled relative seeks government benefits. Meanwhile, a geriatric-care manager will help with day-to-day tasks, such as hiring home-care aides and finding an adult daycare center.
Ideally, seniors should put some plans in place while they're still healthy. Someone with early-stage Alzheimer's can sign documents and make decisions. "The best way to ensure that things will be done the way you want is to talk with family members or a close friend while you're in control," says Steven Starnes, a certified financial planner with the Monitor Group in McLean, Va.
An adviser can help draw up a financial power of attorney and a health-care directive. Together these documents will allow a spouse, adult child or close friend to make decisions about finances and medical care if a loved one is unable to make his or her wishes known. If directives and other legal papers are not in place before the disease progresses, a court will need to appoint a guardian or a conservator.
The person with Alzheimer's should be involved in planning until he or she is incapacitated, experts say. "For a long time, they have lucid moments and can function," says Laura Addington, a certified financial planner in Winnsboro, Tex. "They don't want to be treated like a child."
A family member or the designated financial agent should start keeping tabs on the household finances. This can be a delicate task if the senior has been in charge of the money. "Some people hang on really tight because they are frightened and need to be in control of something," says Helen Cohn Needham, an elder-law attorney in Falls Church, Va.
For example, if your husband has been diagnosed with dementia, you could limit his check writing by moving much of the money to another account. Leave enough so that he can write checks to pay small bills.
If a loved one can't be persuaded to stop draining assets on risky schemes, Addington says you may have to ask a judge to initiate the power of attorney. "I have had widowed spouses who are being pressured by 'helpful' relatives for investments or outright gifts, and there is little you can do to stop things short of going to court," she says.
Besides addressing the immediate financial issues, James Sullivan, a certified public accountant for Core Capital Solutions in Naperville, Ill., assists families in understanding the long-term costs involved with the "progression of care." This includes the initial care at home, adult daycare and eventual nursing-home services. "You don't want to get into the eighth year and realize you're out of money," he says. He helps families devise a care budget that could last for years.
Sullivan reviews cash-raising options such as moving to a smaller house or taking out a reverse mortgage. He will also assess the available sources of caregiving: "Are there adult kids who can help? Is the spouse even in a position to provide care -- can she pick you up?"
A Change In Plans
When Howard Whitaker's wife, Vivian, was diagnosed with Alzheimer's in 2004, he had to reassess his retirement plans. Their daughter agreed to move in and help with the caregiving. Howard, 69, a music professor at Wheaton College, in Wheaton, Ill., decided to tear down his house and build a bigger one that would accommodate his daughter's family.
However, Vivian, 65, moved into a nursing home before the house was completed. The house is costly, and so were the medical bills that he thought his health insurer would pay. "I am working at least one or two more years longer than I had originally estimated I would be working," says Whitaker, whose wife died in September.
As part of a review, you'll need to look over all insurance policies, including medical coverage. If a family member has a long-term-care insurance policy, find out when benefits begin and how much care is covered. A workplace disability insurance policy could help. A person with Alzheimer's who is not yet 65 may be eligible for Social Security disability income.
Eugene and Carol Fields revised their wills, and he changed the agent on his power of attorney soon after Carol was diagnosed in 2006. Eugene, 69, took his wife's name off the banking accounts. He sold his beloved Cadillac STS to raise cash.
Eugene also reviewed their insurance policies. They had been counting on retiree health benefits from her job at General Motors, but the company canceled coverage in 2009.
Eugene has been caring for Carol, 72, at home but is searching for an assisted-living facility. "When I look at the costs, it's beyond belief," he says. Some relatives have offered to help pay. But, he says, "How long can I depend on that? I'm a proud person."
Planning must also take into account the financial needs of the healthy spouse. Addington helps couples decide whether, say, a husband with Alzheimer's should take Social Security benefits early to raise cash, or delay claiming in order to ensure a bigger survivor benefit.
It doesn't take long for a stay in a nursing home to drain the savings of a couple, even if they have substantial means. Once that happens, a person with Alzheimer's will likely qualify for care paid by Medicaid, a government program for the poor. Rules vary by state, but generally the healthy spouse can continue to live at home and is allowed to keep some assets that are not counted in determining Medicaid eligibility.
Congress has made it more difficult to shelter property that could go to pay long-term-care bills. But there are still certain types of trusts and strategies that could protect assets for the healthy spouse and heirs while preserving Medicaid eligibility. With the help of an elder-law attorney, the nursing-home care that Howard Whitaker's wife received was covered by Medicaid. To reduce his assets so that his wife would qualify, the lawyer suggested that he place a larger down payment on the house he built.
Needham also helps couples set up special-needs trusts, which will provide for an incapacitated spouse if the well spouse dies first. Assets in this kind of trust are not considered to belong to the disabled spouse in determining eligibility for government benefits. The trust funds could pay for a wheelchair, extra therapies and a private nursing-home room. "The trust is a pot of money that can be used for things that the government won't pay for," she says. For more information, check the Web site of the Alzheimer's Association.