I was reading this week’s issue of The Economist, when I came across an article that was not only intriguing, but very relevant to the work I do as a probate and estate planning attorney. The article, “Not Losing It: Cognitive Decline and Banking” revolves around the very pertinent, yet too-rarely discussed question of what to do if you or your loved one becomes unable to make sound financial decisions.
According to The Economist, our financial decision-making abilities tend to reach their greatest height in our mid-50s, after which our overall cognition and judgment starts to marginally decline (of course the degree to which this is noticeable depends on the person). After a certain age, the older we become, the more we lose our ability to not only extrapolate appropriate conclusions from information before us, but also to execute clear-eyed and sober judgment based on those conclusions. Such a loss of analytical skills and judgment can affect our ability to contend with a wide range of issues, not least among them, our finances. Moreover, the older we get, the more susceptible we are to neuro-degenerative diseases like Alzheimer’s or other forms of dementia.
Incidents of financial recklessness, such as shelling out on impulsive purchases of large-ticket items, a significant uptick in gambling, can be part and parcel of a larger health issue. As article notes, the older we get (especially for the widowed and for those with significant cognitive and memory problems), the more likely we are yo make poor financial judgments, and even be swindled into giving away all of our assets to a new “friend,” a family member with nefarious intentions, or even be lured by Ponzi-like investment schemes. Online “fake news” may be a relatively new phenomenon, but internet fraudsters, hackers, and thieves are not. In fact, according to The Economist, senior citizens – who comprise only 13% of America’s population, but over one-third of the country’s wealth – lose upwards of $37 billion annually due to financial exploitation and abuse. This is why sufficient estate planning is so important.
As an estate lawyer, I always ask my clients to consider the possibility that they, their partners, or other family members could one day prove to be incapable of appropriate financial management. As we have noted, such possibilities are far from rare, as cognitive degeneration happens to all of us. It is therefore necessary to utilize the law in order to provide solutions for future financial issues due to what is termed “disability.” When you suspect your loved one (a parent or a spouse) has become incapable to manage their assets, you cannot legally assume control of their bank accounts, credit cards, investments, loans, real estate, and the like – without appropriate documentation. Nor is it legal for any of your loved ones to wrest control of any of your financial assets if they suspect you have become incapable of managing your assets. To bridge the legal gap, I often suggest to my clients the assignment of a Durable Power of Attorney for Disability, also known as a Financial Power of Attorney.
A Financial Power of Attorney is beneficial in any estate plan, as it specifies the conditions under which a named legal representative (often a spouse, child, friend, or other loved one) can act in your place with regard to financial matters under privilege of the law. A key benefit of a Financial Power of Attorney is its elasticity; a POA can be as broad or narrow in scope as your individual needs demand. The enumerated circumstances under which a named representative can invoke the Power of Attorney can be tailored to your wishes, as can the powers of the named representative.
In a day and age where the type of financial assets we possess are so diverse, where technology has revolutionized the way we manage our personal finances, and where we are living longer lives than any previous generation – it is essential that we prepare for aging in a manner, which protects us and our assets. In a word – “wealthcare!”