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Give Your Parents the Gift of Financial Peace of Mind

Have an open conversation about money matters with your loved ones before it's too late

As the holidays approach, many of us will be spending more time with our families and aging parents. Sometimes it's surprising to witness how much they may have declined — especially mentally — since we last saw them.

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Often, whether it's out of respect for our parents or simply our own discomfort, we choose to overlook the visible signs of difficulty or "diminished capacity." They may ask the same question again and again. Perhaps their grooming habits have faltered. They may struggle to keep up with the conversation or they may have forgotten how to make that special side dish they've faithfully cooked at every holiday meal since 1956.

Without help, the cognitively impaired could quickly blow their savings or, worse, fall victim to scam artists and fraudsters. In 2010, financial abuse robbed older Americans — our parents, grandparents and heroes — of an estimated $2.9 billion.

I can't emphasize enough how important it is — for your parents' sake as well as your own — to be honest with yourself as you assess the situation, and to be honest enough with your parents to offer help with managing their finances.

A few weeks ago, one of my colleagues shared a story that reminded me why we need to intervene before it's too late. As a teenager, her brother, Jim, suffered a serious brain injury in a car accident and won a settlement in an ensuing lawsuit. Their grandfather, Bob, a successful real estate investor, was named the conservator for her brother's financial affairs.

Fast-forward 15 years and Jim has recovered the vast majority of his mental abilities. The value of his estate, however, is another story. The family wasn't close, so the early signs of Grandpa Bob's dementia went unnoted. By the time grandpa had slipped into full-blown Alzheimer's, he still controlled his and his grandson's financial affairs. In the ensuing chaos, he lost multiple properties to foreclosure — including the one he managed for his grandson.

If you've noticed signs of mental decline, there's really no time to waste. "Financial capacity" — the ability to independently manage one's financial affairs in a manner that's consistent with self-interest — is one of the first abilities to decline. In fact, research shows that our financial decision-making abilities go steadily downhill after our 53rd birthday!

Obviously, the decline quickens when dementia is involved. One study found that nearly half of subjects with mild Alzheimer's could understand investment options and figure out what their returns should be. One year later, only a quarter of the group was fully capable of those same tasks.

People with mild cognitive impairment may still have the capacity to designate a trusted person to act as their financial agent, and it doesn't have to involve going to court. A few simple advance planning tools — including a power of attorney, joint bank accounts and trusts — can go a long way toward protecting a vulnerable parent.

It might feel overwhelming or inappropriate to talk to your mother or father about their situation or to offer help, but it can be one of the most caring things you ever do. In fact, consider it your holiday gift — rather than wrapping up another cheesy tie, consider giving them the much greater gift of "financial caregiving."

Jean C. Setzfand is vice president of financial security at AARP.

Also of interest: A to-do list for estate planning. >>

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