Preparing for Diminished Capacity—Just in Case

It’s been pounded into us that having a successful retirement requires advance planning—financial planning, Social Security planning, retirement income planning, and estate planning. And now, there’s another component to be considered—planning what happens in the event you have a decline in mental capacity.

The Administration for Community Living estimates there are 54.1 million Americans who are 65 years old or older. Of those, 20-25% have mild cognitive impairment (MCI), 10% have dementia, and 10% have Alzheimer’s.

There’s no way to know if you will someday experience diminished cognitive capacity. But if it happens, you need a plan in place that makes sure your physical, medical, and financial life is protected. A good place to start is with legal documents.

 

Powers of Attorney

There are all sorts of POAs, from ones that give sweeping powers for a person to act on your behalf, or limiting the power to a certain area such as financial power of attorney or medical power of attorney. In any POA, you may want to specify what rules you want used to define your incapacity before the POA power kicks in, and who makes that decision—doctor, judge, or someone else.

 

Advance Directives for Healthcare

Advance Directives are simple for an attorney to create. The difficult part is deciding what instructions you want to put in the AD.

  • If there’s no hope you will recover, do you want to be put on life support or do you want no heroics performed?
  • Do you want a Do-Not-Resuscitate (DNR) order on file?
  • Who will you name to make medical decisions for you that you have not listed in the Advance Directive?

 

Trusts

A Trust is often thought of as instructions for passing on your estate after your death. But it can be a tool for your care if you experience diminished capacity. You name yourself as trustee, but you also name a successor trustee who takes over making financial decisions if you can’t. Remember, it has to be someone you have complete confidence in to do what you want, and that may not be a family member.

 

Social Security Representative Payee

The Social Security Administration (SSA) allows you to name a personal representative who will deal with Social Security for you if you become incapacitated. That person’s name is given to SSA when you file for your Social Security benefits.

 

The “Trusted Contact Person” Form

This form is one you give to your brokerage firm or bank. It allows your financial representative to talk with your “Trusted Contact Person” if the representative sees indications of your mental decline or if they believe you are the victim of elder abuse or fraud.

 

Asset Inventory

Creating an asset inventory will simplify the process for your Power of Attorney in the event the POA has to begin working on your behalf. The asset inventory lists all bank, brokerage, and financial records; credit card accounts; mortgages; deeds; loans; life insurance policies; retirement accounts; pension information; healthcare directives and legal documents like Wills, Trusts, and Powers of Attorney; a list of passwords including passwords to social media accounts; funeral arrangements; military records; tax returns.

Provide as much information as possible such as account numbers as well as a contact person and their telephone number and/or email address.

Once you have the asset inventory complete, show your POA or trustee the asset inventory and tell them where each item is located, whether in a file cabinet at home, lockbox, safe, etc.

Make preparations now for your mental decline, even if it never happens. I know from experience with clients that when diminished capacity happens, a person is less receptive to putting safeguards in place. They may get belligerent or paranoid, believing that people are trying to steal all their money or put them in a “home.” If that happens, the court will most likely have to get involved—and nobody wants that.

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