According to the experts, financial abuse of the elderly is rising, even to epidemic proportions. When you hear of elder financial abuse, you may think of unscrupulous home improvement contractors, phony investment schemes or internet scams. However, it is reported that 90% of elder financial abuse is by known perpetrators, such as family members, caretakers and new best friends. 2/3rds of the cases are by adult children or the spouse of the senior.
As you age, your health and memory decline and you become more vulnerable to financial exploitation. It could be as simple as someone stealing your checks you have yet to cash. Often times it is more emotionally manipulative. Here are just a few examples of financial exploitation of seniors I have encountered over the years.
It is sometimes very tempting for the person you named as your financial agent in your power of attorney or trust to see all your CDs and money market accounts just sitting there. He or she may become greedy and decide to take your inheritance early. I have seen cases where family members have taken tens of thousands of dollars out of others’ accounts for his or her own benefit.
Your financial agent may have lost a job or is otherwise having trouble making ends meet. He may think “Oh, I will just borrow some money to pay my bills.” Unfortunately there is usually no way of paying it back. This is theft.
Your child or other trusted person may get you to quit claim deed your house to her with the “understanding that it will be divided among the children. There are several problems with such a deed. Often times the home is kept or sold to the exclusion of all others. And if you need nursing home care within five years of that deed, your home is now a divestment. That gift would disqualify Medicaid from paying for your nursing home care for a period of time, even if you had no other assets. The home would have otherwise been an exempt asset if owned by you while you are in a nursing home.
There is also the type of child who is a professional dependent and who may have convinced you that he needs your help. You now are regularly giving him checks which could be in the thousands of dollars. You may also have a child who regularly takes you to the bank to withdraw cash for your day-to-day living expenses. That cash, sometimes also in the thousands of dollars, then just mysteriously disappears. You may have a child who lives with you, but contributes nothing to the household operation, either financially or time-wise. All too often, a child moves in with you and just sponges off of you.
Your daughter may take you to her lawyer to make a will and then you, not surprisingly, leave everything to her. But then your son, who gets wind of this, then takes you to his lawyer for a new will. You now leave everything to him and also name him as your financial agent in a power of attorney. I call these “Dueling Estate Plans.” The child whose name is on the most current power of attorney is in charge until the next power of attorney revokes the previous one and names another child.
When preparing your estate plan, never underestimate the power of greed. Children or other loved ones, who always seemed like a loving family, can quickly become junkyard dogs when it comes to your money, even while you are still alive.
Beware of the family members who pretty much ignored you during your lifetime and only after you become elderly and need assistance that they are there to help out. They then swoop in to take over everything and accounts start dwindling and other assets start mysteriously disappearing.
How do you protect yourself? Well firstly, record your wishes in your estate planning documents and choose the right persons as your financial agents. Not only should the persons that you choose to handle your financial affairs be trustworthy, they should also have the financial skills with which they can handle your property.
I have had some clients want to name their oldest child as financial agent because they are the oldest. Well, financial money management skills may not be the gifts that God has given your oldest child, who just spends any money that they can get their hands on. All of your family members have different skills and abilities. Do not feel obligated to name them just because they are the oldest.
For example, I have family members with whom I would trust my life, but I wouldn’t trust them with any of my money. Over the years, they have demonstrated their inability to properly manage finances.
Another way to protect yourself is to have your financial agent appointment in your power of attorney or trust to be effective only upon your mental disability, instead of immediately upon signing. Your mental disability would be determined by a disability panel that could include family members, close friends or even medical professionals.
One of your best protections is to set up a trust based estate plan. You then could name an independent trust protector and power of attorney protector who oversees the actions of your trustee and power of attorney agent. Your protector then would have the oversight power to review the activities of your financial agents and also have the power to remove those financial agents if they are not acting in your best interests. Your protector also could have the power to petition the court to protect your interests.
As an additional protection, you could also name an independent third party such as a bank or trust company as your trustee. These professional trustees are in the business of handling and investing money and distributing it in accordance with the instructions that are in your documents. These professional trustees do not have the same self-interest that a child might.
Sure, it will cost your estate an annual fee for the professional management of your trust assets. But would you rather have that annual fee or have your entire estate depleted by greedy children? And sometimes it is not even the children themselves, it could be in-laws, who would be in this case be, the outlaws.
You can also put a no contest clause in your trust as another way to protect your assets. If your children either directly or indirectly challenge your trust without any basis to do so, they can be disinherited.
If you suspect that you or a loved one is the victim of financial exploitation contact Adult Protective Services and/or police/sheriff. In such situations, you or a loved one could also petition the probate court for supervision of your finances with a conservatorship or supervised trust.
With your estate plan, you can have your cake and eat it too. You can protect your assets for you during your lifetime to make sure your needs are being properly provided. After you are gone, you can give what you have to whom you want the way you want when you want. Speak with a knowledgeable legal professional to set up your plan to accomplish your objectives and to protect your assets for you and your loved ones.
By Matthew M. Wallace, CPA, JD
Published edited January 22, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Guarding your nest egg