How to deal with memory loss and finances

When Connie Crawford's mother, Sue, became widowed in 1986, she was ready to have some help with her finances.

"Then she started having some mild memory problems and I took over paying her bills," Connie Crawford, of Tucson, Arizona, recalled.

Crawford, her brother and her sister found that their mother became confused about her bills, not remembering which ones she already paid and which ones were due. Medical bills were especially anxiety-producing.

"If she got an [explanation of benefits] from the insurance company, she'd think it was a bill and pay it immediately," Crawford said.

Sue Crawford is now 101, and Connie, 58, has taken on more financial responsibility over the years.

As the ranks of seniors age, many are experiencing memory issues, leaving it unclear about how they will handle their finances or who will help them. By some estimates, between a quarter and half of the population has some symptoms of Alzheimer's by age 85. Experts expect the number of people with the disease to double by 2050.

For the Crawford family, it was clear that Sue's three children would step in and take over the financial tasks that became too difficult for her. They had gotten all their paperwork in order — durable powers of attorney, health-care proxy and properly titled bank accounts. And they did it well before their mother started having difficulty signing her name or reading financial documents.

"I didn't have any trouble getting access to her money," Connie said.

They also had many conversations about what kind of care she'd want when she was no longer able to care for herself. Sue now lives in a nursing facility.

But it doesn't always go like this, noted Steve Starnes, a certified financial planner with Grand Wealth Management who specializes in planning for people with memory loss.

"Money is an uncomfortable topic for parents and children," he said. "That's just a cultural aspect."

There's denial on both sides. Elderly parents don't want to admit they're having problems, and adult children may have difficulty acknowledging that their parents need help.

As a financial advisor, Starnes cannot bring in family members without his clients' consent. But he has helped to facilitate family meetings when clients have given him the go-ahead.

"The best advice I can give in these conversations is to focus on the goal of helping Mom and Dad feel a sense of independence," he said.

As soon as you recognize your parents are having memory issues, get yourself to an elder-law attorney's office to draft up a durable power of attorney that will allow you to make financial decisions on their behalf.

Important, too, is a health-care proxy that names someone else as a medical decision maker if your parent is incapacitated. Without these documents, you'll be forced to petition the court to become your parent's legal guardian or the estate's conservator, a process that can take several months.

"It's very hard to get an emergency hearing," noted Sanford Mall, an elder-law attorney in Farmington Hills, Michigan.

Even with all the documents in place, it might still be hard to get some financial institutions to recognize them. "Powers of attorney are only as good as the third party that accepts it," he said.

For maximum flexibility, Mall suggests making the powers of attorney effective immediately. A springing power of attorney typically requires two doctors to certify the dementia diagnosis and can raise questions from banks.

Jody King, vice president of Fiduciary Trust, meanwhile, recommends making a master list of every account with the contact's name and email. Make sure to include liabilities, too, such as a mortgage and credit cards. And don't forget about online accounts, whether financial or not.

"You want to make sure that if a family member is searching for someone to contact, they have all the information they need," she said.

Because people can live with forms of Alzheimer's or dementia for so long, often in good physical condition, their care needs can change often.

"If we're in the early stages of the disease, you want to make sure the individual is involved in the discussions of care so they can articulate what they want and don't want," King said.

She encourages families to visit assisted-living and nursing facilities together to get an idea of the options.

Caring for a person with dementia can be expensive. But many families make the mistake of getting too much care too soon, said Starnes.

"I'd hate to waste the money to put someone in a nursing home with round-the-clock care early on," he said. "The reality is that most people will only need that level of service for a year or two."

You can get a lot of value out of a long-term care insurance policy for dementia because of how long care is needed. That isn't always the case for illnesses that progress faster.

But long-term care insurance policies can be expensive, and Starnes only recommends them for people with assets of more than $250,000. People with less are likely to qualify for Medicaid and can get their nursing-home care paid for.

Those with assets of more than $1.5 million have enough resources to pay for care out of pocket, financial experts explain.

As dementia progresses, sufferers become more vulnerable to financial abuse.

"Sometimes we will start to see a lot of payments going out to charities, and sometimes we will start to see family members, neighbors, friends asking for money," King said.

Because the situation invites abuse or the appearance of abuse, elder-law attorney Mall recommends using trusts as the way to pay an elder's care. It's too hard for a person to act as a fiduciary otherwise, he said.

"What I see happen a lot is the other family members who didn't want to be involved, after the person has died, all of a sudden want an accounting of how every dime was spent," he said. A trust provides that accounting.

Sometimes financial abuse can come at the hands of advisors, too. Mall tells of a client who, at age 80 and suffering from mild dementia, was sold an annuity with a 10-year surrender period by a broker. He is trying to get the surrender period waived by arguing his client wasn't competent to make an informed decision.

As more people suffer from memory loss, they'll need to put plans in place to make sure their finances don't suffer, too.

— By Ilana Polyak, special to CNBC.com