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The Elephant in the Family Room: Diminished Financial Capacity

The Elephant in the Family Room: Diminished Financial Capacity

When we think about a loss of independence, being unable to drive or live on our own often comes to mind. We may not even realize our ability to manage finances could be at risk someday. But failing to prepare for diminished financial capacity can leave us vulnerable to exploitation and abuse.

Sometimes when people are in the early stages of cognitive decline, no one realizes the impact it’s having —except scammers. Seniors who are already confused about financial matters are prime targets for fraudulent investment schemes. By the time they or their family realize what is happening, it’s often too late. People can lose most of their retirement funds and their financial security can be destroyed – along with their dreams of using their savings to make life easier for their children and grandchildren.

Financial exploitation often also occurs when a senior owns a two or three family house, lives in one apartment, and rents out the other(s). Tenants sometimes take advantage of a landlord’s dementia or hospital admission to stop paying rent. The landlord may not realize it, or even if s/he does, hiring a lawyer to bring an eviction proceeding may be overwhelming. On the other hand, people with dementia may not be able to fulfill their duties as landlords either. They’re likely to have trouble keeping up with the necessary home repairs, and paying the utilities and property taxes.

This illustrates another common problem: asset management. A multi-family home in New York is often a senior’s most valuable asset, but it requires maintenance. It should also be a major source of income. Certainly, if tenants stop paying rent, the home is no longer a source of income. But even if the tenants are paying, the rent may be stuck at the going rate a decade ago. A landlord with diminished financial capacity may not remember to renew the lease or raise the rent.

The other side of this coin is debt. Bills often pile up, followed by collection notices. Even if people have the assets and income to pay their bills, it doesn’t help if they no longer have the capacity to reliably do so and no one else is authorized to pay them instead.

The legal system may intervene through the appointment of a “guardian of the property” when people lose financial capacity and haven’t prepared adequately. A guardian of the property assumes the responsibility of managing the incapacitated person’s financial and legal affairs, making these decisions on their behalf. But guardianship proceedings are usually time-consuming and costly, and the person appointed may not align with the individual’s preferences.

Fortunately, we can maintain more control over our financial destinies even during times of diminished capacity through advance planning. Consider which of these proactive steps are right for you:

  1. Add a Trusted Contact Person to Brokerage Accounts: If your broker suspects you’re being scammed or can’t reach you, they can contact this person.
  2. Organize & Store Financial Documents Securely & Accessibly: Inform trusted loved ones of the location and/or provide them with copies.
  3. Share Your Financial & Legal Professionals’ Contact Information: Include your financial adviser, estate planning attorney, and accountant.
  4. Update Financial Account Information Regularly: Include new accounts and changes in trusted contacts.
  5. Ask your Lawyer about a Durable Power of Attorney: Enable someone you trust to make financial and legal decisions if you cannot.
  6. Utilize the Social Security Advance Designation: Name someone you trust to manage your benefits if you become unable to do so.
  7. Review your Investment Portfolio: Ensure the risk level and allocations align with your age, financial and medical status, and potential increases in healthcare costs.

Keep in mind two caveats:

  • You must have the necessary mental capacity for these steps.
  • You should not be unduly influenced to take any of these steps. For example, sometimes unscrupulous people pressure relatives to sign powers of attorney.

For these reasons, if you reach out to a responsible estate planning lawyer on behalf of a family member, we’ll will want to speak with your relative alone. We do that to protect the privileged nature of attorney-client communications, but also to ensure the person really wants to do the planning. Similarly, even if your family has already discussed who should be the agent under power of attorney together, we will discuss this again confidentially with your relative.

To sum up, you owe it to yourself and your loved ones to face the elephant in the family room. Prepare for diminished financial capacity now – and protect yourself later.

The steps to plan for diminished financial capacity are based on recommendations from Planning for diminished capacity and illness | Consumer Financial Protection Bureau ( For information on types of scams and elder abuse, see Smart seniors | New York State Attorney General (

To report suspected scams and elder abuse in New York to the State Attorney General, call 1-800-771-7755 or file a report at File a complaint | New York State Attorney General ( In emergencies, always call 911.

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