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Get Ready Now for When You Can't Handle Your Money

NEW YORK (TheStreet) -- We've all heard about the risk of outliving our money, but that one has a companion: outliving your ability to handle your money.

One in 10 men and one in five women will suffer dementia, and for those who live past 85, the figure soars to 50%, says Steve Starnes, a financial planner with Savant Capital Management, speaking in an interview with Morningstar, the market-data firm.

How do you prepare for a time you might not be able to make sound financial decisions?

Because dementia comes on quietly and is hard to spot, it's difficult to know at what point others need to step in. A person with diminished abilities may not be able to decide when to make a financial handoff, and family members may be divided over what to do.

In fact, Starnes says, difficulty with finances can be one of the first symptoms of dementia, and people can make costly mistakes before anyone realizes there are problems. He cites a client who had withdrawn all his IRA assets in a single year, creating a whopping $100,000 tax bill that could have been avoided.

"He didn't know what he was doing but otherwise [seemed] very healthy," Starnes recalled.

To avoid this kind of mess, older folks should talk over the subject with family members well before any signs of trouble arise, and they should consolidate accounts and assemble clear records to make it easier for someone else to take over, he suggests.

Someone responsible with money should be chosen to help when the time comes, and the older person's wishes should be clearly stated in various documents -- a will, a power of attorney, a medical directive and perhaps a revocable living trust.

The big question: how to determine when that person should take control?

The power of attorney can be written to empower the helper to step in at any time, as that person sees fit. Or it could contain a "springing provision" that would give the helper that authority only after, say, a doctor views it as necessary.

"From a practical perspective, you're doing all this planning to make it easy for someone to help you, and I generally advise clients not [to] have a springing provision unless there's a reason to worry about someone having that decision-making authority," Starnes says. "I would say write the document so that this person can help you anytime that you need help."

Family members can ease into this sensitive area by starting as a partner rather than abruptly taking over. One could, for example, start accompanying the older person on visits to doctors, financial advisers, attorneys and tax preparers, simply offering to help keep things organized and to ask questions. Then one could gently offer to shoulder part of the burden.

Of course, the big dangers are picking an unscrupulous helper, or getting mired in a falling out among family members. That could involve honest disagreements about the best way to handle finances, or it could involve family members looking to profit.

Bottom line: This is an issue best addressed early rather than late. Start considering it while you are still able to clearly evaluate all skills and values you want in a financial helper, and while you can weigh the conflicts that could develop among those with an emotional and financial stake in your health and wealth.

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