February 07, 2024

Diminished Capacity – How to Best Protect Your Finances in Case of Cognitive Decline (Part One)

As we age, our “financial capacity” or our ability to make good financial decisions naturally declines. But at what age do most adults become unable to manage their finances? Surprisingly, it might be much earlier than you think. A 2009 study by Harvard University entitled “The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation,” concludes that most adults reach their maximum financial decision-making capacity at age 53. After age 53, this financial decision-making capacity will decline.

80% of the wealth in the United States is controlled by adults over 50. However, the frequency of dementia increases dramatically after age 60, doubling every five years. In addition, approximately 80% of Americans over 50 suffer from one or more chronic diseases, e.g., diabetes, heart failure, depression, etc. Consequently, the majority of adults in America experience their own peak wealth just when they are the most likely to have physical and cognitive impairments.

Many adults think they are too wise to ever be a victim of financial exploitation, and an even larger number might say that a family member or loved one would never commit such a crime against them. Research data suggests otherwise.

There is no shortage of criminals who are eager to prey on adults with diminished capacity, particularly those adults who have a lot of wealth. Financial exploitation is one of the most prevalent forms of elder abuse.

One category of financial exploitation is the typical phone or internet scam perpetrated by an unknown individual. The FBI’s Internet Crime Compliant Center (IC3) recently reported that there was an 84% increase in total financial losses to seniors between 2021 and 2022. Perpetrators of these “scams” often take advantage of seniors who may be isolated, living alone and without a support system. Victims of these “scams” may experience financial devastation and the inability to pay for necessary care.

Another more concerning category of financial exploitation is financial abuse committed by a family member or someone in a relationship with the victim. A 2019 study conducted by the Keck School of Medicine at the University of Southern California examined instances of elder abuse reported to the National Center on Elder Abuse (NCEA) resource line. Of the nearly 2000 calls logged, 42% alleged abuse and 55% of those calls alleged financial abuse. In nearly 48% of the calls in which a relationship with the victim could be determined, a family member was the alleged perpetrator of the abuse and the most common abuse reported was financial abuse (61.8%).

Ensuring the financial safety and well-being of older adults and their families is a major challenge for the financial services industry; however, financial institutions are also uniquely positioned to be able to detect potential financial exploitation before others might discover the problem. For example, the financial institution may be the first one to notice that the older account holder is calling in the same request multiple times without remembering the previous calls or may notice much more frequent or larger distribution requests than usual.

Great Plains Trust Company is committed to preventing and discovering financial exploitation of our clients, particularly those clients with diminished capacity. In addition to the regular security measures we have in place such as callbacks on distribution requests, Great Plains will be asking all of our clients to provide us with a “trusted contact”.

A ”trusted contact” is a person that Great Plains may contact about your account if there is suspicion of possible financial exploitation or if there is suspicion that the account holder may be experiencing diminished capacity. The trusted contact has no authority to act with respect to the account and may not direct any withdrawals or distributions – a power of attorney is required to act on the account. This trusted contact is simply a person that Great Plains may contact with questions or concerns about suspicious account activity or perhaps a change in behavior by the account holder that could indicate an issue with capacity.

If Great Plains suspects suspicious account transactions, a temporary 15-day hold may be placed on the account to allow time to investigate further. We will attempt to notify the account holder and any trusted contact of the hold on the account. If further investigation supports the suspicion of financial exploitation, the hold may be extended to allow time for a more thorough investigation. Depending on what the investigation reveals, the matter may be referred to adult protective services or the local law enforcement agency.

Great Plains is dedicated to preventing financial exploitation of our clients, and the trusted contact feature is only one tool towards protecting yourself. While you are not required to provide a trusted contact, it may help prevent an issue with your account in the future. Our next newsletter article will focus on what you can do to protect yourself from financial exploitation in case of future diminished capacity.

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