Financial capacity – the ability to manage your
finances in your own best interest – involves
everything from paying bills to reading a brokerage
statement and weighing an investment's potential risks
and rewards. And preparing for the potential decline of
that capacity is as important as planning for long-term-care
expenses or keeping your estate plan up to date.
Declining financial abilities may not only result in a few
unpaid bills but also leave you vulnerable to financial
abuse and exploitation, drain your nest egg, and place
heavy burdens on your loved ones.
Nobody likes to think about financial decision-making
ability declining with age. Yet "it's extremely common.
In fact, I might say it's inevitable," says Daniel Marson,
a neurology professor at the University of Alabama at
Birmingham. While many people assume they'll only
need help managing their finances if they develop
dementia, the normal aging process can adversely
affect faculties such as short-term memory and "fluid"
intelligence, or the ability to process new information,
Marson says. "Just the fact that you're 70 or 80 years
old may be impacting your financial skills," he says,
"quite apart from the fact of whether you have
Alzheimer's or any cognitive disorder of aging."
To be sure, many people remain perfectly capable of
managing their own money as they age. Indeed,
among people ages 18 to 86, credit scores increase by
an average of 13 points for each decade lived,
according to a recent study by researchers at
University of California Riverside and Columbia
Yet all older adults should consider organizing and
simplifying their finances to make their money easier to
manage at an advanced age and prepare for the
possibility that someone else may need to step in to
As the population ages, regulators, lawyers, doctors
and financial advisers are becoming more vigilant in
watching for signs of diminished financial capacity.
More financial advisers are getting advance written
permission from older clients to speak with a trusted
family member or friend if concerns arise about the
client's financial decision-making. The North American
Securities Administrators Association approved a
model rule that requires financial advisers to report
suspected financial exploitation of seniors to the state
securities regulator and adult protective services. And
the Investor Protection Trust, a nonprofit investor
education organization, is training doctors and lawyers
to recognize when older people may be vulnerable to
But seniors themselves, along with family members
and close friends, may be best positioned to recognize
signs of diminishing capacity. And simply watching for
red flags isn't enough. It's best to start planning for
possible problems before warning signs appear.
Keep it simple
Your first step: Organize and simplify your finances.
Complex investments and scattered bank, brokerage
and retirement accounts raise the odds that you, or
someone acting on your behalf, will make costly financial mistakes. Spreading your assets across many
different accounts also makes it tougher for financial
institutions to detect fraud in your accounts.
Take a hard look at each of your accounts and
challenge yourself to describe its purpose in one
sentence. Is the account meant to generate income to
help cover daily living expenses? Is it an emergency
fund? Or is it a legacy you plan to leave to your child?
Consider writing that sentence at the top of each of
your most recent account statements. That can help
you – and anyone who might later help manage your
money – think about how to allocate and rebalance
To further simplify your financial life, automate bill
payments, and arrange for direct deposit of regular
income sources, such as Social Security. To minimize
solicitations and reduce the risk of fraud, put your
telephone number on the National Do Not Call Registry
by going to www.donotcall.gov or calling 888-382-1222.
Once you've simplified your finances, make a list of all
your assets along with key contacts such as financial
advisers, accountants, insurance agents and lawyers.
Such a list can be "a lifesaver" after someone has lost
capacity and you have no idea how many accounts
they have, who their attorney is or where their tax
A helping hand
Next, consider whom you might trust with all the
information you've just organized. Which family
members, friends or professionals might help you
manage your money as you age?
One place to start: If your spouse generally steers
clear of all things financial, get him or her involved
now. Financial novices who are suddenly forced to
take over household money management – perhaps
because a spouse has become incapacitated – are
particularly vulnerable to making costly mistakes,
according to a recent study by the Center for
Retirement Research at Boston College. Make sure
your spouse knows how to handle things in case
something happens to you.
Next, consider getting another trusted family member
or friend involved in your finances. This doesn't mean
turning over the keys to your financial life. Instead,
you're helping that person learn how you manage your
money – in case she needs to take some control later
on – and getting another set of eyes to help you watch
for unpaid bills or suspicious activity.
If you need additional help, and no close friends or
relatives are up to the task, consider hiring a daily
money manager to help pay the bills, deal with
creditors and organize tax documents, among other
services. Expect to pay anywhere from $50 to $150
per hour or more, depending on where you live and the
level of service provided.
The profession is essentially unregulated, so it's critical
to vet a daily money manager carefully. Ask how long
they have been working as a daily money manager,
whether they carry errors and omissions insurance,
and whether they have any professional certification.
The American Association of Daily Money Managers
offers a "professional daily money manager"
certification, which requires a criminal background
check and passing a written exam, among other
requirements. You can search for managers who have
earned that designation at www.aadmm.com. The
money manager should also be able to provide
references and send regular reports to the client and
trusted family members detailing all financial activity.
As family members begin to help out informally, it may
be tempting to add a relative's name to your bank
account so that person can help pay the bills. That
may work fine as a short-term solution, but it shouldn't
be your primary long-term plan for dealing with a
potential loss of financial capacity. Joint accounts can
easily lead to disputes over misuse of funds,
inheritance and other issues. If you add your
daughter's name to your bank account, for example,
that account will go to her when you die, even if you
intended to split your money evenly among your
Instead of relying on such ad hoc arrangements, all
seniors should have a durable power of attorney for
finances. With this document, you designate someone
you trust, known as your "agent," to manage your
finances. The "durable" part is key – that means the
power of attorney remains in effect even if you become
incapacitated. While you have capacity, you can
always change your agent or revoke the document
Placed in the wrong hands, a poorly crafted power of
attorney leaves the door wide open for financial abuse
and exploitation. So, it's critical to not only choose an
agent--and backup agents – whom you trust
completely, but also to work with a lawyer well-versed
in elder law when preparing the document. Find elderlaw
attorneys in your area at the National Academy of
Elder Law Attorneys website.
To minimize the risk of abuse, the power of attorney
can limit the agent's ability to make gifts or transfer
assets to a certain dollar amount and restrict changes
in life-insurance and retirement-plan beneficiaries.
The more you trust your agent, however, the more
flexibility you'll have to customize the power of attorney
to meet your needs. Seniors concerned about planning
for long-term-care costs, for example, might grant the
agent extraordinary powers such as the ability to
transfer assets to a trust. If you're facing nursing-home
costs of $100,000 a year and hoping to rely on
Medicaid while preserving some assets for your
spouse's living expenses, a power of attorney that
grants such broader authority may be critical.
Having power of attorney does not give your agent the
authority to handle your Social Security benefits. If the
Social Security Administration is alerted to the fact that
you may need help managing your money, it will
investigate; a family member or friend can request
such an investigation. Then, if necessary, the agency
will select a "representative payee" to manage your
benefits. Payees are generally family members or
close friends, and the administration says it will
consider the wishes of beneficiaries when making the
selection. But in practice, many people never need a
representative payee because their benefits are
directly deposited into a bank account that's accessible
to their agent under a financial power of attorney.
The time to take all these planning steps, of course, is
well before you have problems managing your money.
But no matter where they are in the planning process,
seniors and their loved ones should keep watch for
signs that financial capacity is slipping. That may be a
signal to accelerate your planning or reach out to
trusted family members for help.
There are at least six key warning signs to watch for. Is
it taking Mom much longer than it did previously to pay
the bills or perform other financial tasks? Is she having
trouble understanding visual financial information, such
as reading her bank statement? Is she having trouble
doing mental math, such as figuring the tip in a
restaurant? Is there a loss of conceptual
understanding, such as confusion about why she
needs to make her mortgage payments? Is her once tidy
desk now stacked with old, unopened mail? And is
she investing more aggressively than she did in the
past, focusing on the potential benefits of an
investment rather than the risks?
Remember, these issues are only warning signs if they
represent a change from the person's prior behavior.
But once you start seeing warning signs, don't ignore
them because usually, bad things happen in their
Important Disclosure Information
The article above was provided to Synovus by eMoney Advisor, LLC, and is used here with permission from eMoney or a third party content provider. eMoney does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. This information was provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
You are about to leave the Synovus web site for a third-party site
Third-party sites aren't under our control, and we are not responsible for any of the content or additional links they contain. We don't endorse to guarantee the goods or information provided by third-party sites, and we're not responsible for any failures or inaccuracies. Third-party sites may contain less security and may have different privacy policies from ours.