This devastating neurological condition no doubt creates a struggle within the families and relationships of those affected, especially when ordinary daily activities and decisions become a challenge. Moreover, those suffering from cognitive decline are particularly susceptible when it comes to managing their finances. Fortunately, as we learn more about cognitive decline, there are proactive steps that advisors can take to prevent the financial hardship that may accompany it.
Have Difficult Conversations Before Cognitive Decline Sets In
As wealth advisors become more aware of and educated about the early signs and risk factors associated with dementia, they should seek to develop and implement consistent policies for addressing this issue with all clients. By having an established process for discussion, the advisor will be able to address the issue more easily, without a client sensing that the advisor is singling them out specifically or making a judgment about their capacity. Though no one expects to lose control over their mental faculties later in life, your goal is to help your clients develop and maintain appropriate strategies in the event of impairment.
For new clients, the advisor may be able to proactively discuss plans for potential cognitive decline at the inception of the engagement. The advisor, for example, can ask the client if he or she would be permitted to talk with a spouse, an adult family member or another of the client’s advisors, if there is ever any question about capacity. You can talk about the meaning of capacity, sharing your and the client’s own experiences to help you define the parameters of your authority. You can also encourage the client to provide you with copies of legal documents, such as a durable power of attorney, that provide legal authorization for you to speak to another individual.
For more long-standing relationships, it is important to find an appropriate time to discuss these issues, even if you have never raised the topic before. You can advise those clients that you are implementing new best practices with all clients to discuss these issues in advance of any decline.
Family members also should encourage aging loved ones to have these conversations with their advisors before cognitive decline becomes an issue. In some cases, it may make sense for family members to attend meetings to ensure everyone’s best interests are considered. However, advisors need to be vigilant, as not all family members may have the client’s best interests at heart.
Plan Early For The Worst-Case Scenario
Since the symptoms and effects of cognitive decline vary person to person, planning for the worst-case scenario can help ensure adequate preparation, no matter the circumstances.
With adequate time to plan, advisors can work with a healthy client to assess his or her financial and family situation. A review would optimally include gathering information about the client’s assets, understanding the intended beneficiaries and who has the authority to manage each asset during the client’s lifetime, when the client is incapacitated and at death. The advisor can use this as a baseline to discuss the client’s planning goals and determine if the plan supports that vision or if changes are necessary. Also, this process often enables the advisor to meet and develop relationships with the client’s other advisors. Enhanced communication among all the professionals should enable earlier detection of any cognitive decline and help avert unwanted changes to an existing estate plan or other financial abuses.
Advisors should spend significant time discussing fiduciary roles, as this conversation is often rushed in a planning meeting. No matter what a document says, the people named to implement the provisions have the primary authority to act. Careful consideration should be made as to who is named to manage a client’s assets not just after death, but during any incapacity, and to what type of care the client desires at different stages of incapacity. A powerholder could be an attorney-in-fact named under a durable power of attorney, or a trustee of a revocable or irrevocable trust. When are these individuals authorized to act and how is incapacity determined? Must they obtain the consent of beneficiaries, or one or more qualified medical professionals? When and how can these individuals be removed and replaced? Should there be any checks and balances, such as having a professional co-trustee, a trust protector or a family appointment committee, to avoid any potential abuse of power? Advisors should encourage clients to introduce them to any family members or friends who are named so that communication will be easier should the time come to do so.