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Some types of dementia are more prone to hallucinations and anxiety. If she has not been properly diagnosed it can make medicating more difficult.
And a person can have more than 1 type of dementia.
If you can when she is having a hallucination talk to her calmly in a quiet voice.
Tell her that she is safe.
If the hallucinations happen at a particular time or in a particular place you can try to prevent some of the anxiety.
Close blinds in the evening so you can more easily control light and shadows. Closing blinds also prevents the windows from acting like mirrors seeing reflections can make it seem like there are more people in the house.
shadows can also look like other things. A coat rack can look like a person standing in the hall for example. A pillow on a couch could look like an animal.
You can’t control anything but your reaction. Check out Teepa Snow YouTube videos. They might help you understand her situation a little better. I’m sorry you and your mom are going through this rough time. As the dementia progresses her symptoms will change. Ask her doctor for help.
Don't try and tell her that what she is seeing and/or hearing is not there - it won't do any good. It's her reality and you sometimes have to visit her reality. Do you know if they are people she knows or are they strangers? Does she know what these people want?
All you can do is reassure her that you are with her and nothing bad is going to happen to her. Try and redirect her attention to something else. Play music she likes or sing and try and get her to sing with you.
You also may need to see her dr and have him prescribe anti-anxiety medication to take the edge off. As the sun goes down try and have some bright lighting in the home. Try and not let her nap too much during the day. Both of those may help to keep the sundowning to a minimum. Keep her on a schedule, especially as evening approaches.
I wish you the best.
You write in your profile that you think it might be time to place your mom in a facility where she could get more help but don't want to "put her away".
Placing and elderly parent isn't putting them away; it's getting them the 24/7 oversight and medical care they need and deserve. My opinion only.