Planning for Financial & Legal Challenges Associated with Alzheimer’s and Dementia

Last Updated: March 12, 2023

Financial and legal issues are not generally the first thing that most people think about when faced with providing care for a loved one with Alzheimer’s or another form of dementia. These are vital issues that should not be overlooked and put off. In particular, there are several legal documents that someone with dementia should sign so when their decision-making capability is diminished in the later stages of the illness, care, and financial decisions are done by someone that they trust. Final wishes, like their preferred living situation, long-term care plans, care for a pet, and even funeral arrangements, need to be made while the person with dementia still has decision-making capacity.


Legal arrangements documenting current plans are a smart idea for all senior citizens, not just those with dementia. Many legal documents need to be signed by an individual with the mental capacity to make decisions, meaning that they can sign documents and understand their implications. When someone is diagnosed with dementia, amending existing legal arrangements and setting up new arrangements can become complicated. Revisions or drafts of new legal arrangements should be written as soon as possible after dementia diagnosis so that your loved one still has the mental capacity to make sound decisions and can make their wishes known. Wishes of a non-legal nature, such as preferred living situations and power of attorney, can be described simultaneously.


Understanding Guardianship

When people with dementia no longer have the mental capacity to sign a legal document and understand what it means and what its implications are it makes setting up legal arrangements and making decisions for them harder. For example, a loved one might refuse to need help but have serious problems with different activities of daily living. Guardianship is a legal arrangement that allows caregivers to make financial, healthcare, and other important decisions on behalf of a loved one who can no longer make decisions because of a disability, mental incapacity, or mental illness.

Seeking guardianship can be a complicated and frustrating process. It usually involves legal proceedings to establish that the individual is indeed incapable of making decisions for themselves. That means you are declaring the person incompetent. In addition, if guardianship is not done correctly, the case may take longer or be dismissed altogether. Consider obtaining a lawyer who is familiar with your state laws. In most cases, guardianship proceedings follow this general format:

1. The caregiver or another individual (called the petitioner) files a petition to declare the incompetence of the person with dementia to the Superior Court clerk for the county.

2. The clerk may require documentation from a doctor, social worker, psychiatrist, and another healthcare worker to establish whether a hearing is needed.

3. The sheriff’s office will serve a notice of the hearing to the person with dementia and the person filing the petition must also make sure that all family members are notified.

4. An attorney may be appointed to represent the person with dementia. The hearing will allow any objections to, or evidence for and against, declaring the person incompetent.

5. The clerk or a jury will look at the evidence and decide whether the person is incompetent and then will hear the evidence and decide who should serve as a guardian.

Once designated, a guardian is usually able to make decisions about an individual’s finances, health care, and well-being. However, the legal proceeding may choose to establish separate guardianships. Contact your local Area Agency on Aging (AAA) or Alzheimer’s Association to get in contact with an elder law attorney, social worker, or another individual who can assist you with more about guardianship.


Important Legal Documents for Persons with Alzheimer’s or Dementia

The following legal documents should be written and signed before a person is diagnosed with dementia. These documents protect the finances, health, and rights of an individual with dementia. In many cases, a lawyer and/or a notary public must write or verify the documents.

Durable Power of Attorney

A durable power of attorney is a type of advance directive, which is a written, legal document that spells out a person’s wishes if they are unable to make decisions. A durable power of attorney allows another individual, usually a close friend or family member of the person with dementia, to make decisions on their behalf upon incapacitation. A second person should be named as a backup power of attorney in the event the first person named cannot act as power of attorney when the time comes. This person may act in the best interests of the individual, making decisions about their finances, properties, and estate. Power of attorney must be established while the person still can make informed decisions, and it must be a durable power of attorney for the arrangement to still be valid once the person no longer has mental capacity. Power of attorney may or may not include a right to make decisions on healthcare, as outlined in the agreement. Sometimes this document is called a durable power of attorney for healthcare or medical power of attorney.

Springing Power of Attorney

A springing POA is similar to a durable power of attorney but with one major difference. The durable power of attorney legally begins as soon as the document is signed. In comparison, the springing power of attorney is a smart option for your loved one with alzheimers because this is the best type of POA to use to plan for the future because it does not transfer rights until needed. Because Alzheimer’s and dementia are progressive diseases, meaning they worsen over time, it is important to try to plan for the future. Suppose your loved one still has their mental capacity and is able to sign and create a document legally. In that case, this type of POA lets them keep their rights and responsibilities until they can no longer do it themselves and need assistance from a trusted friend or family member. This POA springs into effect when it is needed. That means that your loved one has as much independence as possible before the disease makes it so that they are not mentally capable. For this reason, it is a recommended option for Alzheimer’s and dementia patients. Additionally, it is recognized by Medicaid making the process easier if your loved one is seeking assistance for long-term care because this POA is activated when they are incapacitated.

Power of Attorney for Healthcare OR Designation of Healthcare Surrogate

Power of attorney for healthcare is a specific arrangement that names an individual, generally a close friend or family member, to make decisions about their healthcare. This person can decide the kinds of treatment the person will receive, who will treat them, and when long-term care should be considered. This person will also be expected to help make end-of-life decisions, like resuscitation, if there is no living will in place (see below).

Living Trust

A living trust, also called an “inter vivos” trust, allows an individual with dementia to set up a plan for how their finances and property will be managed when they are no longer mentally and legally capable of doing so. A trust names trustees to take over responsibility. This can be family members, friends, associates, or even financial institutions. Setting up a trust usually means putting all investments, bank accounts, and property into the name of the living trust as well. A living trust has more restrictions than a durable power of attorney. Because of this, many lawyers recommend that people complete both documents.

Living Will

A living will is another type of advance directive. It is a written, legal document where individuals can specify what sort of medical intervention and treatments they want or don’t want if they are terminally injured or ill. Individuals can also specify if they want medical treatments to keep them alive, including feeding tubes and resuscitation. Individuals who have a DNR should mention this in their living will. Learn more about DNRs below. Living wills can spell out an individual’s wishes regarding complicated medical decisions at a later time when there is disagreement or confusion among family members. It should be noted that having a living will does not guarantee that doctors, hospitals, or family members will follow an individual’s wishes.

Do Not Resuscitate Order

A do not resuscitate order, also called a DNR, is also a type of advance directive. It is a medical order that states the individual does not want cardiopulmonary resuscitation (CPR) performed if their breathing or heart stops. A DNR is only relevant when it comes to CPR. It does not give any other medical instructions.


A will expresses how an individual wants any remaining assets and belongings handled once they are deceased. This means they choose whether it is disbursed to individual beneficiaries or dissolved and given to charity. When setting up a will, an individual designates an executor who will oversee the disbursement of the estate. This executor cannot make decisions for the person while they are still alive. Wills are state documents, and the governing laws applying to them vary from state to state.


 Financial Management – Another responsibility that caregivers have when their loved one’s dementia progresses is financial management.  Learn about financial planning for dementia care.  


How to Get a Power Of Attorney For Someone With Dementia

A power of attorney gives up one’s responsibilities and rights by transferring them to a trusted friend or family member. The process of creating a POA is harder if your loved one has been diagnosed with Alzheimer’s or dementia. If the individual can understand what they are signing and the associated consequences, then they can sign the document. This is of course the easiest route and signifies that your loved one still has their mental capacity and is planning for the future. There is one large contingency. Depending upon the State Medicaid office and how they have evaluated the individual, it can change the legality of the power of attorney. For instance, if your loved one has recently created and signed a power of attorney but the state had already deemed them incompetent, then the POA becomes null and void. This is an extreme case, but in this situation, the person would become a ward of the state and to transfer back decision-making abilities to a friend or family member would be an expensive and long legal process done through the court system.

If the person with dementia still has their mental capacity, this is the time to put into place legal documents that ensure their wishes are followed in terms of housing and their care, but also how their finances are handled as the disease progresses.

A type of power of attorney called a springing POA “springs” into effect as an individual’s health deteriorates and in cases of Alzheimer’s and dementia, their symptoms and health progress to later stages of the disease. Again, to be valid this would have had to be created while your loved one was still mentally capable and able to legally sign a document.

When these options do not work, it is time to look at guardianship through the court. This is stating your loved one is not capable mentally and needs someone (who they trust) to be their voice and make money and care choices.

Laws vary state by state, so it is important to check with a professional as to your situation. Making POA arrangements as soon as your loved one is diagnosed is key if they did not already have one. Being prepared for the future by naming a legal decision-maker is protection to ensure your loved one’s best quality of life.