Planning for Diminished Capacity

The term "diminished financial capacity" describes a decline in a person's ability to manage money and financial assets to serve their own best interests, including the inability to understand the consequences of investment decisions. This cognitive decline can be the result of a serious accident, injury, or illness, though even mild cognitive impairment is estimated to effect around 16% of adults over the age of 65.

Planning for these possibilities requires difficult conversations but becoming prepared can help you and your family minimize problems down the road. Below, we have compiled a list of tasks that can assist in creating a plan of action, should you ever need it.


Organize your important documents

Even though you know where your important financial documents are stored, what if a relative or friend needed to locate them in an emergency? Could they easily find everything needed to manage your financial affairs for you? Organize and store important documents in a safe, easily accessible location and let trusted loved ones know where they can find them, if necessary. Typically, the following documents will be most important for your finances:

Bank/brokerage statements and account information

  • Make lists of the following items and store them in a safe place:
    • Accounts and account numbers
    • Online bank/brokerage passwords and security PINs
    • Locations of any safe-deposit boxes, along with where to find their keys
    • Recent bank and brokerage statements

Mortgage and credit information

  • Make a list of your debts and regular payments, including account numbers and names of financial institutions that issued the loans or credit cards.

Insurance policies

Pension and other retirement benefit summaries

Social Security payment information

Contact information for financial and medical professionals, including:

  • Doctors
  • Lawyers
  • Accountants
  • Securities professionals


Provide your financial professionals with trusted contacts

Consider adding a "trusted contact person" to your financial accounts. A trusted contact person is someone you preauthorize your financial institution to contact in specific situations, like if your broker is unable to reach you or believes you are being financially exploited. This person will not have access to your account or your money, they will only be contacted under specific circumstances, and you can further specify what information your institution may share with them. Most brokerage firms (and some banks) will allow you to designate a trusted contact person.

You can read more about designating a trusted contact person or another type of financial caregiver in our previous article, Financial Caregiving: 101.


Use Social Security Advance Designation

With Social Security Advance Designation, you can choose up to three people to serve as your "representative payee" should you need help in the future. A representative payee is someone appointed by the Social Security Administration to manage your Social Security benefits, if needed. This designation will not take effect unless you become unable to manage your benefits on your own. If your situation changes, the Administration will evaluate your Advance Designation to ensure the person you chose is suitable to serve as your representative payee at that time.

You can learn more about the Social Security Advance Designation option through their official site.


Consider a durable financial power of attorney

A financial power of attorney is a document giving someone the legal authority to make financial decisions for you if you are unable to do so. The "durable" designation means that it remains in effect even if you become incapacitated, though you can change or cancel it if you are still able to make decisions.