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Meanwhile, hallucinations and delusions can be very difficult for the caregiver to understand. Hallucinations are sensory issues. What would you do if her hallucinations were real? What if there really were bugs on the wall or crawling on her, or children in her room, or noises coming from another room? How would you respond? Try responding as if her hallucinations were real.
Delusions are tougher because the person truly believes something that is not true. No amount of logic or persuasion will change their minds, so forget that approach. You might ask your mom to tell you more about her belief. Why does she believe this? Delusions may be benign, or they may be frightful to the caregiver. My wife would sit by the window waiting for her dad to pick her up. He died in 1980. That was easy. I would tell her that he was delayed or made other plans, etc. But when she tried to jump out of the car because she thought I was going to hurt her, that was serious and I had no response, other than to keep driving until we got home, after which she totally forgot the moment. But some delusions, too, can be responded to as if they were real. You say you've tried distraction, but that can only come after you acknowledge their belief.
Your mom may, indeed, be experiencing dementia symptoms, but before making a guesstimate at her symptoms, have her screened by her physician.
There are medications that are given to people with dementia to help with anxiety but many of those medications can be harmful if not fatal if given to someone with LBD. So before any meds are given, this includes Over the Counter supplements please get a diagnosis.
Also quite often with LBD is a possibility of violence. Make sure you are safe. If at any time it becomes dangerous leave the room.
Have you had her checked for a UTI? My mom has them and when they kick in she does tend to be delusional and hallucinates.