Who takes care of the store?
We see it more and more now on AgingParents.com: seniors as owners who can no longer do the management work. Sometimes it is the adult children who bring the problem to our attention. They see Dad not maintaining those rental homes he’s had for decades. If tenants complain, it does nothing. They see Mom not collecting rent from her business venture, a small mall. They realize that the spaces for rent are vacant and have been for some time. No effort to rent them is underway. The children are alarmed. It could be a single rental home, a commercial building, a large portfolio, or whatever the senior owns. Cognitive decline was not expected. Nobody paid attention and things went wrong.
Financially successful people often invest in real estate, but for those who manage properties themselves, we see a lack of planning on how to break free from the management role. The same problem can arise when an owner has a long-standing management company that is not held accountable for their work due to the owner’s cognitive impairment. Again, no one is looking at the direction. This is a perfect opportunity for owner theft.
In one case, a wealthy man owned a rental apartment next to his house. The longtime tenant ruthlessly took advantage of the 85-year-old landlord and simply stopped paying the rent. He lived for free and manipulated the landlord into believing that the tenant was giving him help in exchange for using the apartment when no such exchange had taken place.
In another case, the 87-year-old landlord of an office building with long-term tenants failed to take steps to fire a highly problematic tenant who had been there for 20 years. The landlord hated her but did not exercise his right not to renew his lease. Instead, he waited for her to announce that she was leaving. He had another person interested in the space, willing to lease it, but he seemed confused as to what to do to secure that new lease. He managed the property by himself.
These two eldest who were owners had adult children who could have intervened. In the first case, the rental apartment, the elder resisted attempts by the son to intervene. The eldest suffered from dementia but was functioning quite well in other areas. He angrily fought his son’s attempts to take over his financial affairs. He had previously appointed his son to do this very thing. The freeloading tenant manipulated the eldest into signing an agreement giving the tenant free rent for five years.
In the office building case, the 87-year-old’s daughter clearly wasn’t close to her father and didn’t care about his dismay. She may have been prevented from getting involved by her father, who was stubborn and unwilling to admit that he was struggling with the investment. In both cases, the only way to prevent abuse and manipulation was for someone named earlier to step in and take responsibility for the management of the assets. It works well when the elder is cooperative. This creates a legal mess when the elder resists.
Cognitive decline and money management
Research tells us that even in the early stages of dementia or other cognitive disorders, financial judgment is impaired. It’s kind of the first ability to decline and it’s hard to see at first. The older person with impaired financial judgment can hold a normal conversation, have an ok voice and appearance. But if you ask them about bookkeeping or accounting, they probably can’t stay clear. The decline is subtle at first and gets worse over time. Something is wrong before a family member notices. Sometimes this results in loss of property value as well as loss of income.
What family members can do is be aware that as a person ages, their acumen for financial management of property (and other matters as well) may diminish. If you’re aware of aging parents’ real estate investments, it’s worth learning about them and offering your “in case of emergency” help. Ask your aging parent to tell you about it, even if you already know a lot. This approach can appeal to his ego: ask for advice. Do this before you see any signs of trouble and you’ll likely be successful in preventing the loss of income and value of any real estate they own.
If you just assume that if mom or dad has been managing the family’s real estate investments for decades and all is well, you’re taking too much risk to make it all right. Aging takes its toll. Most of us need help as we get older, especially when we hit 85. By then, one in three people will have Alzheimer’s disease. If you don’t like these odds, do your best to get involved with the real estate they have before the investment loses value from lack of attention. Fraud is all too common. Predatory real estate brokers, shady management companies and dishonest tenants can ruthlessly take advantage of vulnerable seniors. Don’t let this happen in your family. If you see your aging parent losing their ability to manage real estate and preventing you from stepping in, it’s time to seek legal advice so you can learn about your options.