My dad has beginning dementia and we are paying my sister 2k plus 1k for caregiver a month to care for him at her home. We just moved him out of his house so we havent told him he is paying for this out of the limited funds he has. The plan is for me to fly in next month to discuss finances. My sister is now telling me he will freak out and that i shouldnt tell him at all or tell him half the amount. I am in charge of his money. I feel I have to as he totally trusts me. She says he has become more paranoid about money and he should actually, he doesnt have much left. I feel i am stealing from him and she feels she will have to deal with his stress and comments that he is paying his daughter to care for him. 90% of the time he is fine, but that 10 - 20% he is confused and clearly cant live alone. Should I tell him or not?
Otherwise, it might be a good idea to wait on making the decision on whether to tell your dad this or not. Feel him out when you get there. See how the conversation goes and then decide. Don't make any decisions until you see him for yourself.
Do what makes Dad most comfortable. Don't worry so much about "the truth" -- when dementia is in the picture that becomes a flexible concept.
The thing is, in his 90% frame of mind, your father surely understands that he's not living on fresh air; and he isn't paying - or at least it doesn't sound as if he's paying - anything out of normal bounds. If you were to break down for him his costs in terms of rent, property taxes, utilities bills, groceries and so on, would that make sense to him? And if that goes smoothly, you could then think about adding 'domestic and personal assistance' to explain where the other $1K is going.
Trickier would be explaining to him what happens next. But ideally you and sister plus any other family members will be able to work out a plan, including a budget, and go through it with him if only to reassure him that there is one.
I'm not sure paranoid is the right word for your sister to use! - seeing as you say your father is right to be concerned. And pretending everything is fine and there are no problems to resolve when it isn't and there are... well, if he's lucid most of the time you're not going to fool him for a moment. Wouldn't it be easier to set his mind at rest by being straightforward about what is going on and how you are - my applause, btw - working together to handle it?
I just mention this for thinking about what comes next. While geewiz is right that many assisted living places only accept Medicaid after a period of private pay, that is far less true for nursing homes. If Dad runs out of funds while still in a state that your sister can handle, the family pitching in makes sense. If Dad runs out of funds and also declines and needs more intense care, Medicaid may need to be considered for a nursing home. (This will cost much more than $3,000/month.)
Just in case, having a written agreement now for Dad's room and board and care will be handy if you need to apply for Medicaid down the road.