What to Do When Your Loved One Has Diminished Capacity

“Diminished financial capacity” is a term that refers to a person’s decline in the ability to manage money and financial assets. It also includes an inability to understand the consequences from investment decisions. 

While the inability of someone to manage their money is certainly an issue in and of itself, they may also become more vulnerable to investment fraud or other forms of financial abuse, if they lose the ability to adequately manage their finances.

Even if it’s not an issue that you’d normally think about right now, it couldn’t hurt to take precautionary steps to help keep you in control if diminished capacity ever becomes a serious issue. Let’s look at some steps below that can help minimize the issues for you and your loved ones.

  • Organize Important Documents

Organize and store these in a safe and easily accessible location. This way, they’ll be ready for you in case of an emergency. Make copies and give them to trusted loved ones or let them know where to find them. The following documents will likely be the most pertinent to your finances:

  • Bank and brokerage statements and account information. Keep a list of all your accounts with their account numbers. Make a separate list of online accounts and passwords, as well as PINs and keep them in a safe place. Also, make a list of the locations of any safe-deposit boxes (as well as where the keys are). Keep recent bank and brokerage statements handy and any information on how to get those statements online if necessary.
  • Mortgage and credit card information. Keep a list of debts and regular payments, with account numbers and names of financial institutions that issued loans or credit cards.
  • Insurance Policies
  • Pension or other retirement benefit summaries
  • Social Security payment information
  • Contact info for financial and medical professionals, like doctors, lawyers, accountants and securities professionals.

Also, think about creating a durable power of attorney. This gives a person the legal authority to make decisions on your behalf, if necessary. That person is called your agent. The document is “durable” because it remains effective even if you are incapacitated, and you retain the ability to change it as long as you can make decisions. After signing the durable POA, you can also still manage money and property as long as you can make decisions, and it’s important to remember that you can change who you want to act as your representative and the individuals you give access to your financial information.

You may also wish to involve a trusted relative, friend, or professional, besides just listing them as emergency contacts. Perhaps you might ask your broker or bank to send duplicate statements to your children or an accountant. You may also want to invite a trusted friend or relative to visit your financial professional in order to give them some sense of your financial situation and who you’ve done business with.

Be sure to always keep things up to date as well. If something changes, such as you opening a new account, keep that information as current as you can. Your contact may also change over time, so keep your financial professionals in the loop. Remember to keep them informed as to who has the authority to review your account or whom they should contact in case of an emergency.

Finally, be sure and speak up if something is strange or out of the ordinary. If you think someone is taking advantage of you, or that you’ve been victimized by fraud, tell someone. Sometimes even the people that are supposed to help us (like financial professionals) can commit financial crimes. It’s not shameful to be a victim, and the sooner you let someone know what happened, the sooner law enforcement can put a stop to it.