Talking about money is taboo in many families, and conversations about financial matters in the context of declining health and end of life can be especially painful. But ignoring the reality that you or a loved one might develop Alzheimer's or other dementia can stress even well-crafted retirement plans and strain relationships.
Michael Crook, Head Ultra High Net Worth and Institutional Strategies, UBS, recalls the tensions in a family with a significant real estate holding. The matriarch didn't put a plan in place indicating how the property should be handled after her passing, and she didn't communicate her wishes to her children. Once cognitive issues presented themselves, she was no longer capable of making decisions around the asset. With one child wanting to keep the real estate in the family and the other anxious to sell, Crook saw drama brewing among siblings even before the mother's passing.
"You should delegate financial decision-making responsibility before there are signs of dementia or Alzheimer's disease," Crook says. “And be sure that all the important people are brought into financial planning conversations."
As people live longer, they're more likely to develop Alzheimer's disease and dementia. According to the Alzheimer's Association, an estimated 5.7 million Americans are currently living with Alzheimer's. The population is projected to grow to 7.1 million in seven years and then double again to 13.8 million by 2050.1
Family, social and even professional connections can watch for signs of mental impairment in an elderly person. Accountants, financial advisors and estate planners may be especially attuned to changes in their clients. Difficulty performing relatively simple math, following discussions about financial matters, paying bills or managing investments could indicate the onset of the disease.
"Our clients tell us health is more important than their wealth," Crook says. "A bear market can disrupt retirement plans, but a large and unexpected healthcare expense can have a substantially greater impact. Failing to put a plan in place that takes cognitive decline into account can wreak havoc on retirement savings."
The lifetime cost of caring for someone with Alzheimer's was more than $340,000 in 2017, and families bore the brunt of the cost through out-of-pocket funding and unpaid care, according to the Alzheimer's Association. 1 A well-crafted retirement plan should anticipate the financial impact of a long-term illness. If self-funding is not a viable option, risk-mitigating solutions like life and long-term care insurance can be incorporated into a financial retirement plan. These products should be purchased while the insured is still healthy enough to qualify for coverage.
There are other ways you and those who surround a loved one can buffer the risks of cognitive aging:
- Exercise vigilance. Mental agility does slow us down as we age, and an official diagnosis of Alzheimer's can be made only by a physician. But testing for biological markers and encouraging a thorough annual checkup can help identify early onset. Diagnosis in the beginning stages of the disease can help the patient and family members better prepare for lifestyle changes.
- Automate check deposits and bill paying. Start shifting the burden of recurring financial transactions to automated solutions.
- Clarify transitions in financial responsibility. Suggest that a loved one execute legal documents to formalize his or her wishes. A durable power of attorney transfers decision-making to another party on behalf of the grantor. A living trust can accomplish similar objectives but with additional purposes, such as the transfer of assets.
- Have open conversations. There's just so much that can go into an estate plan. Facilitate ongoing communication about the loved one's intentions with family members to help ensure that financial plans line up with objectives.
- Encourage periodic business appraisals. Research by UBS shows that at least half of the next generation is not interested in going into the family business. But the majority of business owners do not have a current appraisal of their business. Remind your loved one to stay on top of valuations and make plans for successor leadership to ensure the survival of the business should they become incapacitated.
"It's better to face these issues while you and your loved ones are in good health," Crook advises. “As people age, they think about their legacy and how they want to be remembered. Taking steps to navigate financial uncertainties while they are capable of making their own decisions allows them to write that chapter of their life."