Serving the elderly puts in play a host of ethical dilemmas.

Alice Rhodes, a fee-only planner in Lake Forest Park, Wash., posted the following message earlier this year to the discussion forum sponsored by The National Association of Personal Financial Advisors (NAPFA):

"My 73-year-old client's memory has failed her very suddenly over the past six months. We have a draft will in progress that includes a very important change in her estate planning. She keeps telling me she has [reviewed it] and will mail it back, but it never arrives in spite of my repeated requests. Early in our relationship, I asked her if I should contact her son if this situation should arise, and she affirmed that I should. However, I didn't document her instruction. She's becoming a bit hostile toward me because she feels I am criticizing her. I have offered to stop by and pick up the documents, and she asked me not to come. Last fall, I asked her to visit her doctor and have her memory checked. She did, and the doctor told her she was fine, and therefore she thinks I'm being overly critical. It is amazing how quickly these things can spiral out of control. I would appreciate if others could share what they have done in similar situations."

This scenario is becoming increasingly common in our industry. When they began practicing in the 1980s and 1990s, many planners targeted retirement-age clients. Now those clients are dramatically older, many becoming infirm. Serving as their financial advisor as they pass through these life stages poses new and, in many cases, unanticipated demands upon us.

Andy Claybrook of Fee-Only Financial Solutions in Franklin, Tenn., learned the physiological signs of progressive mental incapacity when his father was diagnosed with Alzheimer's. An associated problem, he found, is that family members of the afflicted are often so close to the individual that they fail to see the very gradual changes taking place. "If someone-financial advisor, clergyman, etc.-notices subtle changes in an elderly individual, I think it's appropriate for that person to inform a family member of what he's observing so appropriate medical evaluations can be made. Often, the family is too close to the individual to see the changes initially, and the individual's personal physician even misses the early signs of cognitive impairment in many cases," says Claybrook. It's not unusual for unobservant family members to write off subtle memory and behavioral changes as normal aging, he adds.

In describing a client's downward spiral, Jeff Daniher of Ritter Daniher Financial Advisory in Cincinnati, Ohio, notes there are other changes advisors should look for. "My client was retired and initially needed help managing his money," he says. "What started throwing me off was he was missing meetings, or he'd be early or late. I was really alarmed when he came back the next day after a meeting and didn't remember he'd seen me the day before. Other signs I saw were repetition and redundancy, and lack of interest. When a client who used to take interest in conversations about finances suddenly stops asking questions, [that's a warning sign]."

Loss of mental capacity can be dealt with using estate-planning strategies we all know we should exercise with older clients. However, we don't always give this work the proper priority. Many advisors relegate estate planning to the lower end of their "to-do" list when, particularly with older clients, that area of planning should come first or-at least-be considered simultaneously with the client's other planning.

Aside from a client's advanced age, Bedda Emous of Fiduciary Solutions in Andover, Mass., notes other reasons why estate planning should be tackled early on: "Many clients take their sweet time when executing estate planning decisions. In fact, the older they get, the more recalcitrant they often become, and therein lies the problem. It is crucial for a planner to firmly move elderly clients to get their legal documents in order before an attorney would have to decline the work because the client isn't mentally competent."

In addition to the usual estate documents, Nancy Nelson takes the step of having her clients execute something called an "Anticipating the Potential for Incapacity" form at the beginning of the planning relationship. Nelson, an advisor in Olympia, Wash., says this form clarifies what her role should be if she notices changes in the client's mental capacity that perhaps have gone unnoticed by others. Using the form the client indicates, among other things, who her advisor should contact on her behalf.

Sometimes a client's incapacity is evident at the start of a planning engagement, before there's time to construct documents. Thomas Carroll of The Alpine Financial Group in Cincinnati, Ohio, says, "We refused to work with a 78-year-old divorced women unless she got her family involved [because her condition was getting] progressively worse. We prepared a letter to send to her three children, which we discovered she never mailed. She would not let us talk with them, her lawyer or accountant." With the help of a personal friend of this client, she was coaxed into meeting with her estate attorney, her children and Carroll to have a trust and will drawn up. She also sold her home and moved into assisted living facility.

How good were Carroll's instincts? Very good. "She was diagnosed with Alzheimer's six months later and died in nine months," he says. "All of her assets had been put into the new trust, so probate was minimal. Her family was very appreciative of what I'd done."

Ethical questions come into play when necessary precautions aren't taken in dealing with older clients. Advisors can find themselves carrying out instructions that come from their clients but are not in their clients' best interests. Or, they may feel it best to involve family members whom, in earlier days, the client instructed them to avoid. Sidestepping these dilemmas is a matter of getting the client's written instructions before these occasions arise.

But ethical quandaries present themselves in other forms as well, even after wishes are well documented. Debbie Frazier, an advisor in Chapel Hill, N.C., relates the story of a client who gave a power of attorney to her daughter because she was the geographically closer of her two children. "My client was having memory problems. She'd given power of attorney to her daughter, also living in North Carolina, with whom she'd once had a good relationship. That was no longer the case. The daughter was using an advisor who'd lost $1.6 million of her mother's money. My client now wanted to sue the advisor and needed her daughter's help." Frazier feared that, should the mother become totally incapacitated, the daughter would put the kibosh on her mother's complaint against the advisor.

She recommended that her client give the power of attorney to her son instead of her daughter, so the lawsuit could go forward. Frazier's recommendation was not only ethical, but also appropriate. The daughter had a conflict of interest that easily could have forced unethical behavior on her part, as well as a breach of her fiduciary duty to her mother.

An even more frequent conflict occurs in the area of gifting. Linda Leitz of Pinnacle Financial Concepts in Colorado Springs, Colo., says, "I've seen situations where the adult child wants to continue the maximum annual gifting program his elderly parent put in place prior to incapacity, even as the parent is headed for a nursing home and the ability to pay nursing costs is becoming questionable. In such situations, I've put my disagreement with adult children in writing." Leitz adds, "I've never had to, but if a situation like that was [irreconcilable], I'd withdraw as the planner."

Says Emous, "In one case I had, my client left everything in trust for a current income benefit to her husband with a remainder interest to the husband's granddaughter, a minor. My client, with no children of her own, very specifically excluded the husband's daughter. My client died. From then on, the husband's daughter tied up the estate in court attempting to break the will. She was able to convince the court to give her and her daughter a current income benefit."

Subsequently, the daughter became her father's guardian and had him put into a nursing home so that she could live in the house his wife had left outright to him. Before he was conserved, she had her father sign over to her a quitclaim to the house. Says Emous, "She also convinced her daughter there was no money available to send her to school. The husband finally died, the trust distributed to the granddaughter and-the last I heard-the granddaughter put all of the assets in her mother's name ... the woman my client wanted to disinherit. Now I advise my clients to name an independent bank trustee when I know the client will be vulnerable to a self-serving relative."

While we can't guard against all the ethical infractions of which a client's heirs are capable, we can be ethical in our own approach to elder planning. Bert Whitehead, founder of Cambridge Advisors LLC, a fee-only advisor network, is an experienced advisor and an attorney. It's no surprise, then, that his seven-step method of dealing with ethical dilemmas of this type is legalistic in its approach (see sidebar). Says Whitehead, "I believe these steps are not only legally permissible, but may be a legal obligation to our clients if we are true fiduciaries. It is surely the ethical and professional approach [to the problem]."

As you can see, the predicaments of older clients and their solutions are infinite in variety. Be aware of what can happen and the precautions you should be taking. That spry 60-year-old, your low-maintenance client who's enjoying retirement without a financial care (thanks to you), may be your greatest challenge 20 years from now.

David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is editor of the Virtual Office News monthly newsletter, and co-author of the book Virtual Office Tools for a High-Margin Practice (Bloomberg Press, 2002), both available at www.virtualofficetools.net.