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My mother in law lives on the same property we do and has recently accused me of trying to scare her away by breaking into her home at night and stealing things like mothballs from her drawers. She has slowly been declining for the past several years and makes several accusation mainly towards me and my daughters, her grandkids, however this is the worst to date. My husband and I currently take sole care of her financially and I am not sure what to do at this point? Should we take her to be looked at by a Dr. as she has never been diagnosed with dementia. Her daughter, my sister in law, lives in another state and has full control over her finances however plays no part in taking care of her. It is very hard as she has pushed my daughters away and continues to do the same with my husband and I. This is hard for my entire family and I do not know how to handle the situation in the best interest for all of us?

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My SIL is very aware of her mother's mental state as they do talk regularly on the phone and she spent time with her a year ago. My MIL has always been somewhat difficult and my SIL made the decision to leave in part because of her and would not take her with although my MIL really wanted to go with her. My husband and I are not on the best of terms with his sister as she is upset that we purchased my MIL's house (for less than the market value)  and taking care of her on that property which she thought she would get the money from. It is a really long story but she basically planned her retirement around getting the money from the house.
My husband and I do not have any medical or financial legal documents for my MIL and I believe my SIL is fueling all of this even though we are the ones taking care of her.
My husband and I are taking full financial care of my MIL and we cannot afford to do anymore than what we are already doing for her in the way of in home care. I work from home so I am here most of the time but it is very hard to take care of someone that clearly does not trust you and another family member is causing more grief. I can probably ask our neighbor though to discuss with her about getting checked out medically. It is very hard for me to suggest or even be assertive about her care at this point.
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Your first guess is absolutely right: for her own sake, her own welfare, you should take your MIL for a full assessment.

It's very upsetting to be accused of things like this -

Mothballs??? Are you feeding a serious naphthalene habit????!!!!!

- but just imagine how frightening it must be to believe that your loved ones are doing this to you. Your poor MIL needs help, and the sooner you get the ball rolling the better for all of you.

Is your SIL aware that her mother's mental state has been going downhill? Are you, your husband and she on good terms, or have there been any difficulties?
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