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Diminished financial capacity — whether from dementia, illness, or aging — leaves people vulnerable to scams, unpaid bills, and exploitation, but a handful of proactive steps taken while you still have capacity can protect you and avoid the need for a court-appointed guardian later.

When we think about a loss of independence, being unable to drive or live on our own often comes to mind. We may not even realize our ability to manage finances could be at risk someday. But failing to prepare for diminished financial capacity can leave us vulnerable to exploitation and abuse.

How does diminished financial capacity make seniors vulnerable to scams?

Sometimes when people are in the early stages of cognitive decline, no one realizes the impact it’s having —except scammers. Seniors who are already confused about financial matters are prime targets for fraudulent investment schemes. By the time they or their family realize what is happening, it’s often too late. People can lose most of their retirement funds and their financial security can be destroyed – along with their dreams of using their savings to make life easier for their children and grandchildren.

How can diminished capacity affect a senior who owns rental property?

Financial exploitation often also occurs when a senior owns a two or three family house, lives in one apartment, and rents out the other(s). Tenants sometimes take advantage of a landlord’s dementia or hospital admission to stop paying rent. The landlord may not realize it, or even if s/he does, hiring a lawyer to bring an eviction proceeding may be overwhelming. On the other hand, people with dementia may not be able to fulfill their duties as landlords either. They’re likely to have trouble keeping up with the necessary home repairs, and paying the utilities and property taxes.

This illustrates another common problem: asset management. A multi-family home in New York is often a senior’s most valuable asset, but it requires maintenance. It should also be a major source of income. Certainly, if tenants stop paying rent, the home is no longer a source of income. But even if the tenants are paying, the rent may be stuck at the going rate a decade ago. A landlord with diminished financial capacity may not remember to renew the lease or raise the rent.

What happens legally if a senior loses financial capacity without a plan in place?

The other side of this coin is debt. Bills often pile up, followed by collection notices. Even if people have the assets and income to pay their bills, it doesn’t help if they no longer have the capacity to reliably do so and no one else is authorized to pay them instead.

The legal system may intervene through the appointment of a “guardian of the property” when people lose financial capacity and haven’t prepared adequately. A guardian of the property assumes the responsibility of managing the incapacitated person’s financial and legal affairs, making these decisions on their behalf. But guardianship proceedings are usually time-consuming and costly, and the person appointed may not align with the individual’s preferences.

What steps can I take now to prepare for diminished financial capacity?

Fortunately, we can maintain more control over our financial destinies even during times of diminished capacity through advance planning. Consider which of these proactive steps are right for you:

1. Add a Trusted Contact Person to Brokerage Accounts: If your broker suspects you’re being scammed or can’t reach you, they can contact this person.
2. Organize & Store Financial Documents Securely & Accessibly: Inform trusted loved ones of the location and/or provide them with copies.
3. Share Your Financial & Legal Professionals’ Contact Information: Include your financial adviser, estate planning attorney, and accountant.
4. Update Financial Account Information Regularly: Include new accounts and changes in trusted contacts.
5. Ask your Lawyer about a Durable Power of Attorney: Enable someone you trust to make financial and legal decisions if you cannot.
6. Utilize the Social Security Advance Designation: Name someone you trust to manage your benefits if you become unable to do so.
7. Review your Investment Portfolio: Ensure the risk level and allocations align with your age, financial and medical status, and potential increases in healthcare costs.

What are the legal requirements for taking these planning steps?

Keep in mind two caveats:

• You must have the necessary mental capacity for these steps.
• You should not be unduly influenced to take any of these steps. For example, sometimes unscrupulous people pressure relatives to sign powers of attorney.

For these reasons, if you reach out to a responsible estate planning lawyer on behalf of a family member, we’ll will want to speak with your relative alone. We do that to protect the privileged nature of attorney-client communications, but also to ensure the person really wants to do the planning. Similarly, even if your family has already discussed who should be the agent under power of attorney together, we will discuss this again confidentially with your relative.

To sum up, you owe it to yourself and your loved ones to face the elephant in the family room. Prepare for diminished financial capacity now – and protect yourself later.

The steps to plan for diminished financial capacity are based on recommendations from . For information on types of scams and elder abuse, see .

To report suspected scams and elder abuse in New York to the State Attorney General, call 1-800-771-7755 or file a report at . In emergencies, always call 911.

Frequently Asked Questions

What is diminished financial capacity?
Diminished financial capacity is a reduced ability to manage money, pay bills, or make sound financial decisions, often caused by dementia, cognitive decline, illness, or the effects of aging. It can happen gradually, which is part of why it’s often unnoticed until real damage — like unpaid bills or a scam — has already occurred.

Can someone with diminished financial capacity still sign a power of attorney?
Only if they still have the mental capacity to understand what they’re signing and its consequences. Once capacity has been fully lost, it’s generally too late, and a guardianship proceeding may be the only remaining option.

Who can be added as a Trusted Contact Person on a brokerage account?
Most brokerages allow you to name someone the firm can contact if they suspect fraud or can’t reach you — typically a family member, close friend, or another trusted person. This person doesn’t get access to the account itself; they’re just a point of contact for the broker.

What should I do if I suspect a family member is being financially exploited?
In New York, you can report suspected scams or elder abuse to the State Attorney General at 1-800-771-7755 or through their online complaint form. If the situation is an emergency, call 911 first.

What happens if a guardian of the property is appointed for a family member?
A court-appointed guardian of the property takes over managing that person’s financial and legal affairs, but the process is often time-consuming, costly, and the guardian appointed may not be who the family or the individual would have chosen. This is one of the main reasons advance planning — like a power of attorney — is worth doing before it becomes necessary.