Who Will Make Financial Decisions for Me If I Have Dementia?

As individuals age, cognitive decline can make it difficult-or even impossible-to manage finances independently. Dementia, including Alzheimer's disease and other memory-related conditions, can impair judgment and leave individuals vulnerable to financial abuse. Establishing a trust can help protect an aging individual's assets, ensuring their financial well-being and preventing exploitation.

If you or a loved one are concerned about financial protection in the event of dementia, legal planning is crucial. Contact us by either using the online form or calling us directly at 414-253-8500 for assistance.

Understanding Financial Decision-Making in Dementia

When dementia progresses, an individual may lose the ability to:

• Pay bills on time
• Manage investments
• Recognize financial scams
• Make informed financial decisions

Without proper legal safeguards, family members may struggle to step in and manage financial matters. In some cases, court intervention through guardianship or conservatorship may become necessary, which can be a costly and time-consuming process.

The Risks of Financial Abuse

Dementia can leave an individual particularly vulnerable to financial abuse. This may come from:

• Scammers and fraudsters targeting the elderly
• Unethical caregivers taking advantage of their access
• Even family members misusing funds for personal gain

One of the best ways to prevent financial abuse and ensure responsible financial management is by setting up a trust.

How a Trust Can Protect Aging Individuals with Dementia

A trust is a legal arrangement where a designated trustee manages assets on behalf of the trust's creator (the grantor). By placing assets in a trust, individuals can set clear guidelines for how their money should be managed if they become incapacitated due to dementia.

Key Benefits of a Trust for Aging Individuals

1. Protection Against Financial Exploitation

   • A properly structured trust ensures that only a trusted individual or institution has control over the finances, reducing the risk of fraud or abuse.

2. Avoidance of Court-Appointed Guardianship

   • Without a trust, family members may need to petition the court for control over financial matters. A trust prevents this legal hassle by already designating a trusted individual to manage funds.

3. Clear Instructions for Financial Management

   • The grantor can set specific instructions on how the trustee should handle money, pay bills, and distribute funds.

4. Flexibility in Asset Distribution

   • Certain trusts, like revocable living trusts, allow for adjustments if circumstances change, ensuring the individual's evolving needs are met.

5. Preservation of Government Benefits

   • If the individual relies on Medicaid or other assistance programs, trusts like Medicaid Asset Protection Trusts can help safeguard assets while maintaining eligibility. (Learn more about Medicaid trusts.)

Types of Trusts That Can Help

Different types of trusts serve different purposes in protecting aging individuals from financial abuse. Choosing the right trust depends on financial goals, family dynamics, and healthcare needs.

1. Revocable Living Trust

A revocable living trust allows an individual to retain control over their assets while they are still mentally competent. If dementia progresses, the successor trustee (a trusted person named in the trust) takes over.

• Pros: Flexible, avoids probate, allows for smooth transition
• Cons: Does not protect assets from Medicaid spend-down requirements

More on revocable trusts.

2. Irrevocable Trust

An irrevocable trust permanently transfers assets out of the individual's control, providing strong protection against financial abuse and Medicaid claims.

• Pros: Protects assets, shields against creditors, maintains Medicaid eligibility
• Cons: Less flexibility since the grantor cannot change trust terms

More on irrevocable trusts.

3. Spendthrift Trust

This trust is beneficial when the individual is still capable but prone to poor financial decision-making. It limits access to funds and prevents creditors from seizing assets.

• Pros: Prevents reckless spending, protects against creditors
• Cons: Requires careful trustee selection

More on spendthrift trusts.

4. Testamentary Trust

Created through a will, a testamentary trust takes effect after the individual's death, ensuring assets are managed according to their wishes.

• Pros: Ensures assets are protected for heirs, can be customized for special needs planning
• Cons: Requires probate before activation

More on testamentary trusts.

5. Medicaid Asset Protection Trust (MAPT)

For individuals needing long-term care, a MAPT helps protect assets while qualifying for Medicaid benefits.

• Pros: Shields assets from nursing home costs, preserves wealth for heirs
• Cons: Must be established at least five years before applying for Medicaid

More on Medicaid trusts.

Choosing the Right Trustee

Selecting the right trustee is one of the most important decisions when setting up a trust for dementia protection. The trustee is responsible for managing assets, paying bills, and making financial decisions in the best interest of the individual.

Who Can Serve as a Trustee?

The trustee can be:

• A trusted family member or friend - This option works well if a responsible and financially savvy individual is available. However, family members may have conflicts of interest.
• A professional trustee (such as a bank or trust company) - Professional trustees provide expertise and impartiality but may charge fees.
• A combination of both - Some individuals choose co-trustees, such as a family member alongside a financial institution, to balance personal care and professional management.

What to Consider When Choosing a Trustee?

A trustee should be:

• Trustworthy and responsible - They must act in the best interest of the individual.
• Financially competent - They will be handling bills, investments, and distributions.
• Able to manage conflict - Family dynamics can be complex, and the trustee should handle disputes fairly.
• Willing and available - Managing a trust requires ongoing attention, so a trustee must be committed.

Power of Attorney vs. Trust: Which One Do You Need?

Many people assume that a power of attorney (POA) is enough to protect financial decision-making if dementia sets in. While a POA is an essential legal tool, it has limitations compared to a trust.

Feature	Power of Attorney	Trust
When it takes effect	Only if the individual is incapacitated (unless it is an immediate POA)	Can be used before and after incapacity
Court involvement	Banks and financial institutions may reject older POAs	Avoids court interference
Protection from financial abuse	Can be misused if given to the wrong person	Trustee must follow strict fiduciary duties
Control over asset distribution	Limited	Fully customizable

A trust provides greater control and protection over financial matters, whereas a power of attorney is still useful for day-to-day decision-making. Ideally, both should be included in an estate plan.

When Should You Set Up a Trust?

The best time to set up a trust is before signs of cognitive decline. If dementia progresses too far, the individual may no longer have the legal capacity to establish a trust, forcing the family to seek court-appointed guardianship.

Signs it's time to act:

• Forgetfulness in paying bills or handling money
• Increased susceptibility to financial scams
• Difficulty understanding financial statements
• A dementia diagnosis (even in the early stages)

Taking early action ensures the individual's wishes are followed and prevents financial mismanagement.

How to Set Up a Trust for Dementia Protection

Creating a trust requires careful planning. Here are the key steps:

1. Determine the right type of trust - Consider revocable, irrevocable, spendthrift, or Medicaid asset protection trusts.
2. Choose a trustworthy trustee - Select a responsible individual or professional.
3. Define financial management guidelines - Clearly outline how money should be managed and distributed.
4. Fund the trust - Transfer assets, such as bank accounts, real estate, and investments, into the trust.
5. Work with an attorney - A legal professional ensures the trust is properly structured and aligns with financial goals.

Contact an Attorney for Dementia Financial Planning

If you or a loved one is concerned about financial protection in the event of dementia, setting up a trust is a powerful way to safeguard assets and prevent financial abuse.

At Heritage Law Office, we help families create customized estate plans that provide peace of mind and long-term security. Contact us today by filling out our online form or calling 414-253-8500.

Frequently Asked Questions (FAQs)

1. What legal documents should I have in place if I am diagnosed with dementia?

If you are diagnosed with dementia, it is important to have the following legal documents in place:

• Revocable living trust - Ensures financial management by a trusted individual
• Durable power of attorney - Grants authority to someone to handle financial matters
• Healthcare directive (living will) - Specifies medical treatment preferences
• Last will and testament - Directs how assets should be distributed after death

These documents help protect your financial and personal interests before cognitive decline worsens.

2. Can I change or revoke my trust after a dementia diagnosis?

If the trust is revocable, you can modify or revoke it as long as you are legally competent. However, if dementia has progressed to the point where you can no longer make sound decisions, changes may not be legally valid. Irrevocable trusts generally cannot be changed once established.

3. How can a trust prevent financial abuse of an elderly individual?

A trust prevents financial abuse by:

• Appointing a trusted fiduciary (trustee) to manage assets responsibly
• Limiting direct access to funds for individuals who may be financially vulnerable
• Restricting unauthorized withdrawals or spending
• Providing oversight and accountability through co-trustees or professional management

By removing direct financial control from the aging individual, a trust significantly reduces the risk of exploitation.

4. What happens if no financial protections are in place before dementia sets in?

If no legal protections (such as a trust or power of attorney) are in place before dementia progresses, family members may need to petition the court for guardianship or conservatorship. This process can be:

• Expensive - Court fees and legal expenses can add up
• Time-consuming - It may take months to obtain approval
• Stressful - Family disputes over financial control may arise

Setting up a trust in advance avoids court intervention and ensures financial matters are handled smoothly.

5. Can Medicaid take assets from my trust if I need long-term care?

It depends on the type of trust. Revocable trusts do not protect assets from Medicaid, meaning funds may still be used for long-term care. However, a Medicaid Asset Protection Trust (MAPT) can safeguard assets if it is created at least five years before applying for Medicaid benefits.

If you are concerned about Medicaid and long-term care planning, speak with an estate planning attorney about setting up the right type of trust.