Dementia Can Wreak Havoc on Family Finances

Updated on November 14, 2008.

BILL BRIDGWATER HAD the investing bug. Even as he was busy working as an executive for several IT companies, he made time to juggle more than $1 million in assets. At any given time, he was buying and selling foreign stocks, municipal bonds, certificates of deposit and real estate. On family vacations, in lieu of a novel, Bridgwater brought a laptop to the beach to check on his investments. "Nothing could come between me, my phone and my emails except a coast-to-coast flight," says Bridgwater, who lives outside Denver.

But something did get in the way of Bridgwater's mental acuity. At work his concentration began to slip, so he pulled all-nighters to try to keep up. Soon problems were cropping up in his investing life. Picking stocks, which for decades had been an enjoyable hobby, became an overwhelmingly complex chore. Bridgwater couldn't even muster the focus to correctly fill out his checkbook. When he did manage to get the numbers written in the right order, he would mix up how to write them on the next line or tear the carbon out and have to call his bank. He quit his job, and after consulting with numerous doctors, Bridgwater, then 48, was eventually diagnosed with early-onset Alzheimer's disease. He put his wife in charge of his personal accounts, moved his assets into simpler, more conservative investments and became active in the Alzheimer's Association. But by the time he figured out what was wrong, he had already lost tens of thousands of dollars.

Wild mood swings. Memory loss. Confusion. The symptoms of dementia have long been the stuff of nightmares for people as they grow older. But there's an often overlooked side effect: how the malady can cause people to make terrible financial decisions. According to dementia experts and victims' family members, the problems are often a lot more serious than forgetting how to balance your checkbook. People suffering from dementia have looked on as their investments plunged in value, misread how much money they owed in taxes, even told their brokers to buy when they meant to say "sell." Already, there are thousands of cases of seniors beset by dementia who are trading stocks to their own detriment or investing in risky products that have led each to lose hundreds of thousands of dollars. It's a situation that leaves everyone from brokers and financial planners to family members caught in a tragic bind. Financial matters can become treacherous for people who "may not even be able to spell their own name," says John Gannon, director of investor education for the Financial Industry Regulatory Authority, or FINRA, the broker-funded agency that oversees brokers and securities firms.

And things could get much worse. A Duke University study, funded by the National Institutes of Health, estimates that 14 percent of people over age 70 have some form of dementia. If that trend holds, then more than 11 million baby boomers could develop the condition. Combine that unsettling statistic with the fact that this demographic controls more than $19 trillion in assets, and experts fear that over the next decade boomers will be increasingly at risk of unwittingly destroying their own nest eggs. At the moment, there is little in the way of laws, standards or policies to deal with the problem. Some brokerages and regulators "are almost blind to the idea that folks have diminished capacity over the years," says Seth Lipner, a Garden City, N.Y.-based securities lawyer.

Like many of these cases, the story of Janet Hilowitz and her now-deceased mother, Eleanor, started as a disagreement over investment styles and turned into a multiyear struggle to prove that Eleanor had dementia. In the mid-1990s, Janet, a retired university professor in Boston, started to question her mother's financial decisions after Eleanor, then in her early 70s, moved more than 75 percent of her portfolio into technology stocks. Janet says she feared the move was too risky, but her mother was intensely stubborn and accused Janet of trying to meddle with her money. For years nothing anybody said could persuade Eleanor to alter her investments. But eventually, Janet claims, her mother admitted she couldn't keep up with her stocks anymore. That concession came in 1999 and prompted a worried Janet to contact her mother's broker at Smith Barney. Janet wanted her mother's investments moved into safer holdings, but the brokerage wouldn't help. The reason, according to Janet: She was not authorized to trade on her mother's account. It took years of court hearings, doctor appointments and psychiatric analysis for Janet to prove that her mother was, in fact, incapacitated. And while Janet argued to get control of her mother's accounts, Eleanor's assets rose and fell with the tech boom. By 2003, the year Janet was granted guardianship to manage her mother's account, the bursting of the tech bubble had claimed almost $1 million, most of her mother's life savings.