Checklist: What to Do If Your Parent’s Dementia Makes Financial Decisions Risky

When a parent with dementia starts making risky financial moves: a calm, practical checklist your family can act on today

Watching a parent with dementia make sudden, risky purchases is terrifying. You worry about lost savings, family fighting, and whether the house, nest egg, or future care will vanish overnight. This guide gives a clear, step‑by‑step checklist your family can use to stop harm fast, document incapacity, and move toward a secure financial plan.

Why this matters now (2026 context)

In late 2025 and early 2026, banks and fintechs accelerated fraud‑detection tools using AI, and several states expanded remote capacity assessments and virtual notarization. At the same time, scams targeting older adults continue to evolve—so speed and documentation are crucial. This checklist combines immediate damage control with the legal and tax steps families need in 2026.

Snapshot: What to do in the first 24–72 hours

When a parent begins proposing or making unusual purchases—like buying a $500,000 home near a relative (a common red flag)—act immediately. The following actions preserve assets, create a record, and buy time to assess capacity and next steps.

1. Document the situation now
   • Keep a running log: date, time, what was proposed or purchased, who was present, and any written or electronic communication (texts, emails, signed documents).
   • Take screenshots and photos of online transaction pages, contracts, or solicitation materials.
   • Collect witness statements—short notes from family members, neighbors, or professionals who observed the behavior.
2. Preserve funds and accounts (emergency financial freeze)
   • Call the parent’s bank and ask for a temporary hold or flag on suspicious transactions. Ask about a bank’s "fraud watch," "financial exploitation" flag, or "special instructions" for older customers.
   • If a purchase is pending (contracts, wire transfers), notify the bank immediately and request a stop payment or reversal if possible.
   • Place fraud alerts or a credit freeze with the major credit bureaus if identity theft or large transfers are likely. This is a quick way to block new credit applications.
3. Contact the parent’s trusted professionals
   • Call the financial advisor, CPA, and insurance agent and tell them you suspect the client lacks capacity and may be subject to undue influence. Ask them to freeze discretionary transfers pending verification.
   • Notify the parent’s bank relationship manager and provide the documentation you’ve collected.
4. Use bank “trusted contact” and modern fraud tools
   • Most banks and brokerages allow adding a "trusted contact person"—someone the institution can call if there is concern about financial exploitation. Add one immediately.
   • Ask whether the institution uses AI‑driven transaction monitoring and whether they can escalate unusual patterns tied to your parent’s account.

Short term: 3–14 days — get medical and legal clarity

Once funds are temporarily protected, focus on establishing incapacity or capacity and putting durable legal authority in place if appropriate.

1. Arrange a capacity assessment

Who to see: a geriatrician, neurologist, neuropsychologist, or forensic psychiatrist with experience evaluating financial decision‑making capacity. In 2026 many clinicians offer telehealth assessments, but insist on an in‑person exam if there are questions about severe impairment.

What the clinician should document:

• A clear clinical diagnosis (e.g., Alzheimer’s disease, vascular dementia).
• Specific examples showing inability to understand or communicate the nature and consequences of financial decisions.
• A written statement of capacity or incapacity that can be used in bank files and court proceedings.

2. Check existing legal documents

Locate and review:

• Durable financial power of attorney (POA) and whether it is currently effective or “springing” (activates only on incapacity).
• Health care proxy or advance directive for medical decisions.
• Trust documents, deeds, beneficiary designations, and recent wills.

If a valid, durable POA exists and the designated agent is trustworthy, that agent generally has broad authority to halt transactions and manage money—often the fastest path to stability.

3. If no POA exists: consider emergency guardianship/conservatorship

When there’s no durable POA or when the agent is suspected of abuse, families may need a court‑appointed guardian (sometimes called conservator). This can be fast in urgent cases (temporary or emergency orders) but varies by state.

• Emergency guardianship can be requested by family, physicians, or Adult Protective Services (APS).
• Expect court hearings, medical affidavits, and possible attorney representation for the parent.
• Guardianship should be a last resort; many states prefer less restrictive alternatives (limited POAs, joint accounts, trusts).

Legal documents explained and practical choices

Understand your options so you can pick the least restrictive but effective tool to protect the parent’s assets.

Durable power of attorney (POA)

Why it’s powerful: A properly drafted durable financial POA gives an agent authority to manage bank accounts, pay bills, and stop transactions immediately.

Practical tips:

• Use a locally valid form drafted or reviewed by an elder law attorney—banks often reject generic forms.
• Consider a limited POA (authority over specific accounts or transactions) if the parent retains some decision‑making ability.
• Keep multiple copies and provide originals to the bank and key professionals.

Trusts, joint accounts, and transfer deeds

These are alternatives with tax and Medicaid implications:

• A revocable living trust avoids guardianship but requires planning while the parent still has capacity.
• Joint accounts provide quick access but can create unintended gifting and tax consequences and increase risk of abuse.
• Transfer‑on‑death (TOD) arrangements or beneficiary deeds may transfer assets outside probate but must be evaluated for Medicaid look‑back rules and taxes.

When to avoid immediate transfers to family

Resist pressure to move assets to a child or buy property for a relative. Such transfers can be reversed if undue influence is proven and can trigger gift tax or Medicaid look‑back penalties. Always consult an elder law attorney and tax advisor.

Notify agencies that protect elders

Reporting suspected financial exploitation is often both ethical and legally required. These agencies can act quickly and open investigations.

• Adult Protective Services (APS) — state or county level: they investigate abuse, neglect, and financial exploitation.
• Local police — file a report for fraud or theft if transactions are criminal.
• Bank fraud departments and the bank’s compliance officer — escalate the case as financial exploitation of a vulnerable adult.
• Regulatory agencies: file complaints with the CFPB or your state banking regulator if banks aren’t responding.

Tax and estate considerations (Taxes and Estate Considerations pillar)

Large purchases, transfers, or changes in ownership have tax and Medicaid implications. Here are the key items to review with advisors.

• Gift tax and income tax consequences — before transferring property or gifting significant sums, consult a CPA or tax attorney. Check current gift‑tax thresholds and reporting requirements.
• Medicaid look‑back rules — transfers for less than fair market value may cause ineligibility for long‑term care benefits for years. This is especially important if the parent may need nursing home care.
• Capital gains basis — moving property to a child can change the tax basis, sometimes creating future tax liabilities.
• Update beneficiary designations and coordinate with the estate plan to avoid unintended disinheritance or conflicts.

Longer term steps (1–6 months)

After immediate risk is controlled and capacity is assessed, shift to stabilizing finances and long‑term planning.

1. Formalize financial control

• If the POA is valid, the agent should meet the bank with the medical capacity documentation and request transactional access in writing.
• If guardianship is needed, work with an attorney experienced in probate and elder law to file petitions and follow court instructions.

2. Set up safeguards to prevent future exploitation

• Maintain a list of authorized payees and freeze new wire transfers unless signed off by the agent and a secondary professional (two‑signatures rule).
• Use account alerts for transactions over a set threshold and require bank confirmation for large transfers.
• Consider limited financial management services—fiduciary firms or a corporate fiduciary—if family trust is weak or there is ongoing risk.

3. Review housing and care options with the parent’s best interest in mind

Decisions about selling or buying real estate affect taxes, Medicaid, and quality of life. The right path can be one of these:

• Sell the house and use proceeds for care or purchase a safer, smaller home.
• Refinance or take a life estate or reverse mortgage only after consulting counsel—these carry costs and eligibility rules.
• Keep home but implement paid support (in‑home aide, adult day care) and strong financial safeguards to prevent risky transactions.

Advanced strategies and 2026 tools

Recent trends and tools can make protection easier—but they also require careful use.

• AI‑enhanced bank monitoring: Many institutions now flag unusual patterns in real time; insist your parent’s bank escalate alerts and enroll the account in enhanced monitoring.
• Virtual capacity assessments and electronic records: Remote neuropsych testing and signed electronic evaluations are increasingly court‑acceptable in 2026, speeding guardianship or POA activation.
• ABLE accounts and disability planning upgrades: For those with younger‑onset dementia, expanded ABLE account eligibility (recently widened to include more age ranges) offers a way to save without jeopardizing means‑tested benefits—discuss with a planner if relevant.
• Limited, revocable trust funding: If capacity remains, a revocable trust can centralize financial control without probate and can be adjusted as needs change.

Common family questions and practical answers

My sibling wants Mom to buy a house near them. What should we do?

Stop the transaction. Ask for written proposals, review the parent’s finances, get a capacity assessment, and examine motivations for the purchase. If the sibling stands to gain, involve an attorney and APS if you suspect undue influence.

Can I just add myself to Mom’s accounts to stop this?

Adding yourself to accounts creates legal ownership changes and potential tax and Medicaid problems. It may be useful temporarily in rare cases, but first explore POA or limited POA drafts by an elder law attorney.

How do we prove undue influence?

Undue influence involves proof of isolation, manipulation, sudden changes in estate documents, or transactions that benefit a caregiver or relative disproportionately. Document everything and combine it with medical capacity reports and witness statements.

Sample scripts and templates you can use right now

Use these short scripts when calling banks, advisors, or APS to move things forward immediately.

Bank fraud desk script (call now)

“Hello, my name is [Your Name]. I’m calling about my parent, [Parent Name], account number ending in [xxxx]. We have reason to believe they may be experiencing cognitive decline and may be subject to financial exploitation. Please place the account on a temporary review/hold for suspicious activity, add [Trusted Contact Name] as a trusted contact, and escalate to your financial exploitation team. I can provide documentation and medical contact information.”

Adult Protective Services reporting template

“I am reporting suspected financial exploitation of [Parent Name], age [age], living at [address]. The concerning behavior began on [date] when [describe incident]. Documents and transaction records are available. Contact me at [phone/email].”

Checklist recap: action by timeframe

Keep this checklist visible—post it on the fridge or save it as a shared document.

Immediate (0–72 hours)

• Document incidents and preserve evidence.
• Call bank to request fraud/watch flag and stop pending transfers.
• Add trusted contact and enroll in transaction alerts.
• Place fraud alert/credit freeze if identity theft suspected.
• Notify financial advisor and CPA.

Short term (3–14 days)

• Arrange capacity assessment and get a medical report.
• Locate and review POA, trust, and estate documents.
• Report to APS or local police if necessary.
• Consult an elder law attorney about POA, guardianship, or trust options.

Medium term (1–6 months)

• Formalize financial control (POA or guardianship as appropriate).
• Establish long‑term safeguards: two‑signature rules, monitored accounts, corporate fiduciary if needed.
• Evaluate housing/care choices with tax/Medi care/Medicaid implications.

Final notes: reduce conflict, preserve dignity

Protecting a parent’s assets doesn’t have to mean cutting them out of decisions. Where possible, use limited POAs, joint decision‑making, and professional fiduciaries to maintain dignity while preventing harm. Documenting decisions, getting rapid medical assessments, and using modern bank tools are the fastest way to stop losses and set a secure course.

“Act quickly, document everything, and bring in medical and legal experts—those three steps buy you the time to protect assets and get the right plan in place.”

Need a next step? Start here

If you’re facing a real‑time risk now: call your parent’s bank fraud department and Adult Protective Services immediately. If you need help planning for the next phase—finding an elder law attorney, a qualified capacity evaluator, or a fiduciary—contact a certified elder law attorney in your state and a trusted CPA.

Download our printable one‑page dementia financial protection checklist (look for the link on this page) or call a retired.us advisor for help locating local professionals. Don’t wait—early action protects money, housing, and options for good care.

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