Families, Finances And Dementia

By Jane Bryant Quinn
Sunday, May 24, 2009

It's a nightmare for families and their financial advisers: a parent or client with Alzheimer's and significant money to manage.

For gossip, New Yorkers are feasting on the trial of Anthony Marshall, the only child of philanthropist Brooke Astor. She died, demented, at 105. Marshall has pleaded not guilty to charges of manipulating his aged mother into changing her will so he'd get millions of dollars more.

No broker or financial planner has been caught up in the Astor struggle, but those with elderly clients know the potential for trouble. Should they execute an unusual order to sell or buy from a client who seems confused? What if an adult child, who holds the client's power of attorney tells the broker to shred momma's long-term investment plan, sell her securities and ship the money to her bank account?

In general, financial advisers have to follow orders from clients or their legitimate agents, said Linda Whitton, a law professor at Valparaiso University in Indiana. They're not responsible for a client's bad decisions or for any losses if an agent drains the account. They're protected even if their client's power of attorney turns out to be a forgery, as long as they had no reason to suspect it.

That's a wake-up call for family members who know that a parent is failing but haven't thought about what might be happening with the brokerage account.

Financial advisers might be liable, though, if they offer poor investments (such as high-cost annuities) to clients known to have declining mental powers or if they accept orders from an agent they think might be exploiting the client.

Last year, the regulators for the securities industry -- the North American Securities Administrators Association, the Financial Industry Regulatory Authority and the staff of the Securities and Exchange Commission -- published a best practices report on dealing with older clients who may be at risk.

The report urges firms to teach brokers how to recognize clients in declining health and to set up internal systems for responsibly managing their accounts.

It also identifies the red flags of financial abuse. For example, theft might be afoot if a caretaker blocks phone calls to the client; the client hesitates to speak in front of the caretaker; there are sudden changes in transaction patterns or large, unexplained withdrawals; an unexplained change of address; or a power or attorney popping up in the hands of an inappropriate person.

The Financial Planning Association in Denver is on the case, too. A session at its annual convention this year is titled, "You Think Your Client Has Dementia: Now What."

If your parent or client seems to be going downhill or gets a diagnosis of Alzheimer's, you should act quickly. Incapacity can come on surprisingly fast.

Scott Ford, president of Cornerstone Wealth Management Group in Hagerstown, Md., said he gets the family involved immediately to speed up planning. Often, the will needs updating. The parent needs to decide who should hold the health-care proxy and power of attorney and what should be in the living will. Or he might want a living trust, which means deciding who the trustees should be. Documents should be signed while the parent's mind is still clear to avoid legal challenges later.

You'll also want to consolidate the assets, said Carolyn McClanahan at Life Planning Partners in Jacksonville, Fla. As time passes, people with Alzheimer's become more suspicious and more unwilling to divulge what they have.

McClanahan, the firm's founder, starts planning for dementia risk with clients as young as 50. She takes out a sheet that says, "If I'm worried about mental capacity and think something may be wrong, who am I allowed to discuss this with?"

Putting assets into a living trust makes it easier for clients to cede control gradually, choosing what authority to retain and what to give up. Trusts also give an adviser some leeway if the family's trustee starts making bad or self- interested decisions. "I'd bring it to the attention of the successor beneficiaries," McClanahan said. That's where the fiduciary duty lies.

It's not as easy to deflect financial abuse by someone who holds power of attorney. That's a powerful document. It doesn't provide the protections for beneficiaries that you get from a living trust.

Advisers' hands will be strengthened if their state passes the model Uniform Power of Attorney Act, developed in 2006 by the Uniform Law Commission. It allows institutions to refuse orders from an agent if there's a good reason to suspect that something's wrong. The problem gets reported to the state agency that provides protective services to the elderly, which should prevent further abuse.

So far, the act has been adopted by only three states -- Colorado, Idaho and New Mexico -- with the governor of Nevada expected to sign it soon, said Whitton, who drafted the act for the commission. Maine, Ohio and Wisconsin are working on it.

In a functional family, everyone cooperates to keep a parent with Alzheimer's physically and financially safe. In a dysfunctional family, all bets are off. It's sad but true: Adult children and other relatives are those most likely to rip off a disabled parent.

Jane Bryant Quinn, author of "Smart and Simple Financial Strategies for Busy People," is a Bloomberg News columnist. Alexis Leondis contributed to this column.

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