How financial advisors can serve clients diagnosed with dementia

Financial planning is a game of "what if." We plan for fluctuations in the market, for business buying and selling, for education, for retirement — even for premature death. But one scenario we tend to overlook, maybe because it's so utterly painful to consider, even harder than the idea of death for many, is dementia. And it's an area where financial advisors can have an enormous impact. 

My dad has dementia. So did my grandfather and several friends and loved ones. I've seen how things can go right when it comes to planning and finances (or as right as possible, given the circumstances) and how an already challenging situation can become infinitely more so without the deft, compassionate hand of a financial advisor.

Here is some of what I've learned. 

Start the dialogue early

When a client receives a diagnosis of dementia, the most important single step a financial advisor can take is to talk frankly about it early on and encourage their client to do the same. The same goes for the client's family. 

READ MORE: How my mother's Alzheimer's disease changed my life — and my practice

In order to protect  their loved one with dementia, families often keep mum in the early days. Often, as was the case in my family, they're worried about others treating the person with the diagnosis differently, being more patronizing in conversations, for instance. If he or she is still in the early stages, and is able to "pass" as not having any cognitive challenges in most situations, keeping quiet often feels like the kindest thing to do. But staying selectively silent is by no means the same course of action as pretending it's not happening at all. 

Sometimes, rather than make plans for the future, families become paralyzed. They don't plan. They avoid asking tough questions, hoping answers will come in time — they won't. Things will only get more difficult, both for the person with the diagnosis and for their family. Planning while the family member still has some of their faculties will make things less stressful when things devolve, which they always will with dementia.

Balance kindness with clarity

To help the family prepare financially for what lies ahead, the advisor must look at the situation with empathy but unflinching clarity and keep an open dialogue between the family and financial and legal team. 

In an effort to protect a client with dementia, I've seen an advisor wall off communication with the family — even those family members with durable powers of attorney. The advisor was well meaning. He cared deeply for the client and wanted to be sure he was acting in her best interests, which to him meant one-on-one communication without input from the family. 

In this case, it was due to misunderstanding how serious the client's condition was. Once the advisor understood the gravity of the situation, he pivoted to more frequent and candid communications with the family members who had powers of attorney. But a lot of grief could have been avoided for the family had there been more fluid communication up front between advisor and family. It's vital that advisors protect their clients; sometimes protecting them means bringing other people into the conversation, when legally and ethically permitted.

Act fast

After a diagnosis it's vital to act quickly — ideally while a client with dementia is still in the earliest stages of the dementia-related disease. This way they can inform the choices in their financial and estate plans, and may still be able to make key decisions. 

Once the dementia progresses, a client will no longer have the capacity to act on their own behalf in legal and financial matters. That's why you'll want to set to work immediately to ensure that your client has all of their estate planning documents updated, including a will, trusts, health care directives and power of attorney.

In extreme cases (if they don't have a power of attorney in place), the family may need to apply for conservatorship, which is an arduous process that does not guarantee financial and health care power will be given to the person whom the client might have preferred. 

"You usually only need conservatorships and guardianships if there are no estate planning documents. When I see people go into the court to get these, it's because they don't have the right documents. It can be an invasive process and you generally don't need to do it if you plan ahead," said Dina Nam, attorney and estate planning advisor with AdvicePeriod.

The importance of power of attorney

From an estate planning perspective, someone with a dementia diagnosis needs all of the same core documents as anyone else, but powers of attorney are especially important. 

The nature of dementia means this client will eventually and inevitably be unable to make decisions for themselves. So, having powers of attorneys created for a person or people they trust, one who they know will act according to their wishes, is vital. The laws vary according to state, but the two most common types are springing and durable powers of attorney. 

READ MORE: Powers of attorney: Which type does your client need?

The springing power of attorney goes into effect only after one becomes incapacitated. With someone with dementia, the point of incapacitation can be a gray area. Springing powers of attorney often require the sign-off of a health care provider, sometimes delaying matters. The durable power of attorney goes into effect immediately, so it provides more clarity in this regard.

With this in mind, it might be best to consider a durable power of attorney in the case of a dementia diagnosis. You may want to remind clients that these powers of attorney give enormous power to the agent, so this person needs to be chosen with care.

Dementia and advanced directives

All states allow for advanced directives, but some states now allow advanced directives specifically designed for those with dementia called Alzheimer's Disease Directive and Dementia Mental Health Advance Directive. 

You can see an example of a version for Washington state here. As the End of Life Washington organization states, "Even if this directive is not legal where you live, you can still use it to document your wishes and provide a guide for your family, health care providers, long-term care providers and others." 

These directives are worth looking into. They address some of the specific challenges of dementia (such as sexual consent between partners) in ways a traditional health care directive does not.

Protection against elder abuse

It's a sad fact that there are many ways dementia sufferers can be taken advantage of financially. 

Your estate planning guidance can protect your clients from this type of abuse. In addition to helping clients maintain core estate planning documents and guiding them to pick agents of power of attorney who will protect them, you can also help them build a trusted team of professionals who can hold each other accountable. A client's wealth manager, advisor, attorney and CPA shouldn't work in a vacuum.

READ MORE: The disturbing size of elder financial abuse in America

Support beyond the financial

Watching someone you love slip away bit by bit, trying to hold on to those things that make them who they are, is excruciating for a family. As advisors, we can truly have an outsize impact on clients and family members coping with dementia and the diseases that cause it by providing guidance and reassurance and planning that will position them for whatever the future holds.

If you're interested in additional resources for you or the family, I recommend "Help is here: When someone you love has dementia," written by Dr. Marian O Hodges and attorney Anne Hill. I also got a lot out of "Keep sharp: Build a better brain at any age," by Sanjay Gupta. It helps explain neurodegeneration and dementia from a medical side and helps define the typical progression. It also gives tips on how to stave off dementia for yourself (hints: eat veggies, exercise lots, don't drink too much, do novel things that fire up your brain). 

Both my wife and my mother attend caregiver support groups, which has been enormously helpful to them. I highly recommend your clients seek out a group of people who understand what they are going through and can offer firsthand guidance.

When we talk about the impact financial advisors can have in the world, this is what we are talking about. Not just portfolios. Not just numbers. This. Thank you for all you do for your clients and for their families.