In my last video, we took on a tough topic: How do you prepare financially for the death of your spouse? Today, I’m going to bring up another thorny subject: What if your spouse, parent, or another close family member starts having trouble with their memory or their ability to make rational decisions? In other words, what if they become incapacitated?

Planning ahead for capacity issues shares some similarities with planning for the passing of a spouse. For both, preparing ahead can go a long way toward making it a little easier to manage the considerable financial fallout that can occur. But capacity issues also come with their own, unique set of challenges. Believe me, I know. I’ve had some agonizing personal experiences with it myself.

Let’s dive right in and talk about what you can do to maintain your financial and emotional footing when a loved one is – to use the technical term – losing it.

 

The Capacity To Break Your Heart

There’s no other way to say it: When someone you love transitions from being the thoughtful, witty, energetic individual you’ve always known – into being a confused, frightened, angry, or unhappy shell of themselves, it will break your heart in two.

I know this, because I’ve personally experienced what capacity issues can do to a family during my father’s decade-long struggle with Parkinson’s disease, which robbed him of his capacity early in his retirement.

My dad passed away in 2018. During the decade prior, we ended up having to take some legal actions I never imagined would be necessary. But they were necessary, to protect my parents’ financial security.

 

The Greatest Shared Secret of All

Obviously, this is a difficult, delicate subject that few families talk widely about. And yet, it will probably impact nearly every household at some point, especially as the Baby Boomers’ parents are aging, Boomers themselves enter their senior years, and longevity continues to rise.

So, first off, if you’re grappling with the challenge yourself, know that you are not alone!

Let’s look at some hands-on ideas about what to expect if you find yourself managing capacity issues as part of your own or a family member’s financial well-being.

 

Communication and Preparation

Again, talking about it is so important. If at all possible, hold capacity-related conversations when everyone is still of sound mind.

Start by deciding together what impact you want your wealth to have, during your lifetime and beyond. That way, you’ll have established goals to steer toward, even if the ravages of diminished capacity tries to take over the wheel.

Next, address issues related to joint ownership for your personal wealth, property, business interests, and so on. Even if one owner is of sound mind, there’s not much they can do to stop an incapacitated partner from irrationally pillaging a jointly held asset – at least not without extra preventions in place.

Typically, those “extra preventions” involve identifying and establishing appropriate financial and healthcare powers of attorney – or POAs. They also include estate planning documents such as wills and, where appropriate, trusts. These and other legal protections can give dependable family members the authority to intervene as needed to represent an incapacitated individual’s best interests. Depending on the kind of POA you establish, you can set it to kick in immediately, or not until a professional capacity assessor legally rules that a person is incapacitated.

Do NOT simply assume institutions such as banks, brokers, and healthcare facilities will be able to rescue you and your family if a loved one with capacity issues makes a disastrous financial move. Without proper POAs in place and enforceable, their hands may be tied. For example, they may be legally unable to stop your loved one from emptying out a joint savings account and heading to Bora Bora. Even if an institution has its doubts, they may find it difficult to talk to you about what’s happening if you’ve not got the proper paperwork in place.

 

Watching for Early Warning Signs

Since capacity issues can sneak up gradually or overnight, these are conversations every family should consider having. But they’re especially urgent if a loved one is already exhibiting cognitive decline. Early on, small warning signs may go unnoticed until they’ve become big problems. What may start out as forgetting to pay a bill now and then, can turn into plundering investment holdings essential for retirement.

Even once obvious problems arise, cognitive impairment can come and go. This can make capacity assessment difficult. Or if a family member feels you are “taking away their money,” they may take it upon themselves to engage advisors who are unaware of the circumstances. They may go to a new bank and open an account without telling anyone else. Or they might get married … which, by the way, instantly invalidates their existing will.

Sometimes, cognitive impairment can simply cause a person to fade away, like a ghost. Other times, they may become aggressive and unpleasant to live with. The more ill your loved one becomes, the more likely they’ll be unable or unwilling to participate in essential financial and estate planning processes. They may become suspicious of your actions and furtive about their own.

 

Plan for the Worst, Hope for the Best

Bottom line, capacity issues can be awful, and awfully hard to address once worse comes to worst. This is why it’s so very important to plan ahead. Establish as many appropriate legal protections as you can while everyone is of sound – or at least sounder – mind. Even if those protections may seem excessive at the time, you’ll be very glad they’re in place should you need them to prevent an incapacitated individual from hurting themselves or others.

Okay, I think I’ve made my point, and then some. First, go hug your family, and tell them how much you love them. Then, start talking with each other about capacity issues. I hope you’ll also stay tuned to my blog for continued conversations about all sorts of important financial matters.