A financial approach to diminished capacity [Financial Perspectives]

I completed a regulatory continuing education program today and the topic of diminished capacity was a significant component of the program.

What is diminished capacity?  It is an assessment of the mental capacity of an individual.  Within our program, we reviewed scenarios where a client begins to exhibit signs of diminished capacity and he begins to make trades in his account that are out of the ordinary.  

The program then addressed the responsibilities and actions of the advisor in such a situation.  This is an important consideration not just for financial advisors but for all of us.

Some of the potential signs of diminished capacity include changes in behavior such as mood swings, bouts of depression, forgetting simple things, etc.  These signs will likely be very subtle and may not become apparent for some time.  From a financial perspective, people suffering from an impairment may have trouble counting money or paying bills.  Reviewing and understanding financial statements could also be difficult.

The recognition of any of these signs by a family member should spur them into action to help protect the interests of their loved one.  A better idea would be to strike up a conversation in advance of any impairment so that the family member could work with their relative to create a thoughtful and detailed plan of how they would want to have their affairs managed should they become incapacitated.  This is where the importance of powers of attorney and trusts come into play. With regard to investment accounts, the firm(s) may require a trading authorization to allow another person to make trades on the account.

By taking these types of measures you can help to ensure that your relatives will not open themselves up to financial exploitation.

Good luck with you planning!

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 jim@familywealthservices.net 215-332-4968

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

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