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Your 7-step guide to working with the cognitively impaired

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If you have clients in their 80s, then you’re undoubtedly familiar with end-of-life financial planning issues. To name a few: the client’s continuing needs for retirement income; transferring wealth to heirs in a tax-efficient manner; and accounting for the impact of health care spending on the client’s assets.

Add to this list one variable that could overshadow all others and, if not handled correctly, upend a plan and even threaten your practice: a decline in the client’s cognitive abilities.

At the 2015 annual meeting of the Financial Planning Association on Sunday, September 27, the topic received a full airing before a full-capacity crowd. Speaker Robert Mauterstock, a certified financial planner and principal of Gift of Communication, outlined during the one-hour workshop seven steps for protecting yourself, your practice and clients who have diminished mental capacity.

Mauterstock described the fast-growing population of seniors over age 85 as a budding crises because so many of them will suffer debilitating cognitive issues that the nation — and many advisors — are ill prepared to deal with.

“If you have children or grandchildren under the age of 5, it’s very likely that more than half of them will live beyond age 100,” said Mauterstock. “The nation’s fastest growing demographic group comprises the very old, or those over age 85.

“But there’s a catch,” he added. “The Alzheimer’s Association predicts that 46 percent of people who live over age 85, will have some form of dementia. We’re facing a perfect storm.”

Mauterstock cited a Fidelity Investments study showing that more than 8 in 10 advisors (84 percent) want help addressing the impact of Alzheimer’s disease on their practices. High on the list of concerns: the prospect of a lawsuit, as happened in 2012, when an agent for Allianz Life, Glenn Neasham, was charged with financial elder abuse after selling an annuity to a senior who, a court later determined, was suffering from dementia. 

The seven steps

To help you avoid a similar fate, and do well by your older clients, Mauterstock advised that you do the following:

Step 1: Recognize behavioral changes

Key indicators of the onset of dementia, said Mauterstock, are personality changes. Example: A normally cheerful client who becomes irritable, depressed or anxious. He or she may also have trouble following instructions, recognizing members of your staff or remembering discussion points from a previous conversation.

Step 2: Develop a diminished capacity checklist

If you’re uncertain as to a client’s mental health and competency to make financial decisions, the prudent thing to do is to draw up a checklist of observed behaviors and compare with symptoms associated with cognitive decline. Common signs of ALZ that stand out in a financial planning engagement, for example, include a diminished ability to follow a recommended plan, work with numbers or adhere to a budget.

The individual may also have difficulty following a conversation or, over the course of one, stop in mid-sentence, or reprise a point as if for the first time. Alternatively, said Mauterstock, the client may show evidence of poor or declining judgment.

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Step 3: Learn how to protect your client’s assets

A key asset preservation vehicle to broach with clients preparing for retirement is long-term care insurance. In addition to stand-alone LTCI policies (a more expensive option), LTC coverage can also be secured as a part of a hybrid or linked-benefit life/LTCI or annuity/LTCI product.

If the client isn’t interested in buying a policy then, said Mauterstock, it’s crucial that the advisor secure a signature declining coverage. That will help guard against subsequent charges (by, say, a family member) that, as a result of substandard advice, the client depleted retirement savings or assets intended for heirs by paying hefty fees for long-term care services.

Step 4: Build a network of professionals

When working with older seniors, said Mauterstock, you need to be able to consult with a team of advisors well versed in non-financial aspects of elder care. Among them: an elder care law attorney who can assist in identifying appropriate long-term care services and address estate planning issues; an insurance agent knowledgeable of LTCI options; and a geriatric care manager — a social worker, psychologist, nurse, gerontologist, or other professional with training and experience in elder care.

Step 5: Build a relationship with the family

Often overlooked in planning is the need to talk with family members (the spouse, children and grandchildren) who may be impacted by the client’s financial decisions. These conversations, said Mauterstock, are especially important when addressing questions about long-term care.

Who, for example, will watch over mom or dad when long-term care services are needed? Would the client be more comfortable living at home or better off in the company of other seniors and care professionals in an assisted living facility?

How will the long-term care be funded? And if family members will be directly involved in care, how might the added burden impact them financially, emotionally or time-wise?

Step 6: Use a single-source record-keeping document 

Dubbed by Mauterstock “the LifeFolio,” this document will contain important financial information about the client. It’s especially critical to have in situations where the client is experiencing a rapid or sudden deterioration in cognitive abilities (as, for example, following a stroke).

The LifeFolio should include:

  • Key contact information (e.g., family members and other advisors)

  • Information about general items (such as separation and divorce papers)

  • Emergency papers (e.g., living will, health care proxy, and durable power of attorney)

  • Life insurance, annuities and other insurance policies

  • Financial, bank and credit documents

  • Investment documents (including beneficiary forms for IRAs and 401(k)s)

“I suggest saving the LifeFolio as a PDF document, then transferring it to a flash drive for safekeeping,” said Mauterstock. “Another option is saving all of the documents to a secure, electronic vault in the cloud.”

Step 7: Create an investment policy statement

This document, said Mauterstock, should detail the client’s investment goals, as well as strategies the advisor should follow in pursuit of financial objectives. The IPS might also include info about the client’s asset allocation, risk tolerance, and liquidity requirements, plus instructions for managing or distributing financial assets in the event client should become mentally incapacitated.

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