As our loved ones age, many may experience cognitive decline, making them more vulnerable to financial exploitation or making poor decisions that can jeopardize their financial well-being. Whether the cognitive decline is the result of Alzheimer's, dementia, or other age-related conditions, the risks are significant. Scammers, unethical financial advisors, or even well-meaning family members may take advantage, making it critical to put protections in place. Here are key steps to safeguard your loved one from financial harm.
1. Open Communication Early On
If you suspect that a loved one is experiencing cognitive decline, start discussing their financial situation and future plans as early as possible. It can be uncomfortable to broach the subject, but the earlier you begin, the easier it will be to help when the need arises. Key topics include:
- Their current financial accounts, investments, and insurance policies.
- Their financial goals and priorities.
- Their preferences for how decisions should be made if they’re no longer capable of
managing finances themselves.
2. Establish a Durable Power of Attorney
One of the most effective legal tools to protect a loved one is establishing a durable power of attorney (POA). This document allows a trusted individual (the agent) to make financial decisions on behalf of your loved one (the principal) if they become unable to do so. Note: A POA is a legal document — consult a qualified attorney for advice specific to your situation before establishing one.
- Make sure the POA is durable, meaning it remains in effect if the principal becomes
incapacitated.
- Choose an agent who is responsible, trustworthy, and has a clear understanding of the
principal’s wishes.
- Review the POA periodically to ensure it reflects any changes in circumstances or
preferences.
3. Set Up Joint Accounts or Co-Signatory Rights
While this option requires trust, establishing a joint account or co-signatory rights can give you oversight of your loved one’s finances without completely taking control. By being a co-signatory, you can monitor transactions, pay bills, and prevent any suspicious withdrawals or spending.
- Keep in mind that joint accounts mean both parties have equal rights to the funds, so it
should only be used if there’s complete trust between the individuals.
- Be aware of tax implications, as joint accounts can affect estate and inheritance planning.
Consult a qualified attorney or tax professional regarding these implications.
4. Limit Access to Large Sums of Money
Consider adjusting access to funds to prevent impulsive or harmful decisions. This could involve:
- Setting withdrawal limits on accounts.
- Using a prepaid debit card with a fixed balance for everyday spending.
- Opening a separate savings account with restricted access, ensuring that larger sums of
money are not easily accessible for discretionary spending. These actions help to protect assets while still allowing some autonomy.
5. Monitor Bank Accounts and Credit Activity
Regularly monitoring your loved one’s financial accounts for unusual activity is essential. Sign up for automatic alerts from banks and credit card companies, which notify you of:
- Large transactions or withdrawals.
- New credit applications or loans.
- Unrecognized purchases.
Additionally, regularly check your loved one’s credit reports for signs of identity theft or fraudulent activity. You are entitled to a free annual credit report from each of the three major bureaus (Equifax, TransUnion, Experian) through AnnualCreditReport.com — the only federally authorized source for free reports. Consider a credit freeze if fraud is suspected.
6. Implement Automatic Payments and Direct Deposits
Setting up automatic bill payments can help reduce the stress and complexity of managing monthly expenses like utilities, rent, or insurance premiums. Direct deposit can ensure that income (such as pensions or Social Security) goes directly into a secure account, minimizing the risk of lost or stolen checks.
7. Be Aware of Financial Scams
Older adults are often targeted by scammers who use various tactics like telemarketing fraud, phishing emails, or false charity solicitations. To protect your loved one:
- Educate them on common scams (such as lottery or IRS scams) and how to spot red flags.
- Consider installing call-blocking technology on phones to limit robocalls and telemarketing
schemes.
- Monitor mail and emails for suspicious communications that request personal or financial
information.
8. Involve a Trusted Financial Advisor
A reputable, fiduciary financial advisor can help ensure that your loved one’s money is managed wisely — and can serve as an objective third party if family members disagree. Choose a licensed and experienced professional who understands the needs of elderly clients. Make sure:
- The advisor follows a fiduciary duty, meaning they must act in the client’s best interest at all
times.
- You or another trusted family member have regular meetings with the advisor to review
account activity and plans.
- All fees and services are clearly explained and agreed upon in writing.
Hafnia Financial, Inc. is a fee-based registered investment adviser operating under a fiduciary standard. If you would like to discuss how we can help protect and manage a loved one’s financial affairs, please contact us.
9. Consider a Trust
For larger estates or more complex financial situations, establishing a revocable living trust can be an effective way to protect assets. A trust allows you to specify how your loved one’s assets will be managed and distributed, and it can also provide guidance if they become incapacitated. With a trustee in place, a trusted individual can manage the funds according to the stipulations laid out in the trust document. Because trusts are legal instruments, consult a qualified estate planning attorney for guidance specific to your family’s situation.
10. Maintain Social Support
Isolation can increase vulnerability to financial abuse. Staying socially engaged helps loved ones maintain a support network and provides an added layer of protection. Family, friends, and community members can help watch for signs of cognitive decline or exploitation.
11. Watch for Red Flags of Financial Exploitation
Be alert for warning signs that your loved one may already be the victim of financial harm. These include:
- Sudden changes in spending habits or withdrawals.
- Bills going unpaid despite adequate funds.
- Unfamiliar names added to financial accounts or beneficiaries.
- Unexplained purchases or new credit lines.
If you suspect exploitation, contact law enforcement or your local Adult Protective Services (APS) agency for assistance. In California, APS is administered through county Departments of Social Services. Visit the California Department of Social Services website at cdss.ca.gov or call 1-833- 401-0832 to locate your county’s APS program.
Conclusion
Protecting a loved one in cognitive decline from financial harm requires both proactive planning and vigilant monitoring. By putting legal, financial, and social safeguards in place, you can help ensure their financial security while respecting their dignity and autonomy. The key is to act early and stay involved, so you can adapt protections as their needs evolve.
Important Disclosures
Hafnia Financial, Inc. is a registered investment adviser (CRD #315096) registered with the California Department of Financial Protection and Innovation (DFPI). Registration does not imply a certain level of skill or training. Information presented in this article is for educational purposes only and is not intended to constitute personalized investment, financial, tax, or legal advice, nor does it make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Topics related to legal documents such as powers of attorney or trusts are discussed for general educational purposes only. Consult a qualified attorney for legal advice specific to your situation. Consult a qualified tax professional regarding tax implications of any financial decisions. Investments involve risk and are not guaranteed. Past performance is not indicative of future performance. Insurance products and services are offered and sold through Jan Gleisner, an individually licensed and appointed insurance agent. CA Ins. Lic. #0D77385. Jan Gleisner is also licensed in AL, AZ, CO, GA, MI, MO, NC, NV, OR, SC, TN, and VA. A copy of Hafnia Financial’s Form ADV Part 2A is available upon request or through the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov.