Checklist: Elder Financial Abuse

Aging clients are growing in number and practitioners should address their needs.

Consider the Six Following Facts:

1 By 2050 the population aged 65 is projected to be 83.7 million. This represents significant growth, almost double the figure from 2012. The population 85 years and over will double by 2036 and then triple by 2049. The numbers are significant and the impact on CPA practices should be as well.

2 The 85-and-over United States population, the fastest-growing cohort in the country, is projected to rise from 5.8 million in 2010 to 19 million in 20501. The needs of these very elderly clients will be more pronounced, especially in terms of protection from elder financial abuse.

3 The biggest health concern is Alzheimer’s, which strikes at a 47 percent rate among the over 85 population2.

4 Mental illness and cognitive deterioration increase with age. So an aging population will result in an increase of these challenges as well. The average age of an Alzheimer’s diagnosis is 73. Almost half of those over the age of 85 have some cognitive impairment. Chronic illness also increases with age. 90 percent of seniors have at least one chronic disease, and three quarters have two or more chronic diseases. The challenges of chronic illness are broader than merely the cognitive issues associated with aging. Practitioners must recognize that mere physical frailty may make client targets for financial abuse.

5 The age for peak financial decision making is age 50. Financial decision making ability begins to decline by age 60 and is significantly impacted by age 80. Even more worrisome is the same studies indicated people’s perceptions of their abilities do not decline. At what age are most estate plans crafted? Likely much older3. The fact is that many clients wait too long to create an estate plan that addresses the challenges of aging. This delay exposes these clients to greater risks of elder abuse. Creating estate plans and signing documents at a time when the client is frailer and his or her cognitive abilities more limited may itself be the opening that perpetrators exploit. This growing gap between financial ability, and the aging client’s perception of his or her financial ability, is one of the gaps that perpetrators of elder financial abuse seek to exploit. It is also very telling of why preventing elder financial abuse is so difficult. Those who are vulnerable often perceive themselves as fully capable of making financial decisions. They will often simply not see any frailties to address in further planning. Practitioners that are truly acting in the long term role as “trusted adviser” may be the optimal professional to encourage planning.

6 Half of all people age 65 and older live alone4. This makes comprehensive planning, not merely the preparation of documents, essential for the protection of these clients. Many of these clients are not only vulnerable as a result of health challenges, but isolated in terms of having few if any family or friends to safely rely on to name in fiduciary capacities. Too often estate planners, and others, assume everyone has appropriate family members to name to serve as an agent under a power of attorney (or successor trustee under a revocable trust). The result is that these clients may be ill served by an estate planning process that presumes family or other trusted persons to serve in these vital capacities. That too could prove the unraveling of any safety the plan might have afforded. Different steps are needed.

Questions CPAs Should Ask

Planning for aging clients requires a different focus than other engagements. CPAs can clarify their role and delineate how they can protect aging clients by asking questions. Consider:

❏ 1. How can CPAs educate clients about the growing risks of elder financial abuse (identity theft, etc.)? Unless clients, and often their loved ones, are informed of the magnitude of the problems they are unlikely to pursue optimal planning.

❏ 2. What role can CPAs play to minimize the risks of elder financial abuse?

❏ 3. What practical steps can the CPA recommend to most aging clients to lessen the risks of financial abuse?

❏ 4. a) What roles can or should a CPA serve in under a client’s financial plan?

b) What liability does the practitioner face serving in those capacities?

c) What liabilities do the firm that the practitioner is affiliated with face?

d) Who should earn the fees involved, the practitioner, the firm, or some combination?

❏ 5. What steps can CPAs take to step fully into their role as the “trusted adviser” to protect aging clients? 6 What additional services can practitioners offer aging clients to minimize the risks of elder financial abuse, identify when abuse has occurred, and otherwise help protect aging clients?

❏ 7 How will the dynamics of the estate planning team change as a client ages? b) What new persons may serve on that team?

❏ 8 What role can CPAs serve when an agent under an aging client’s power of attorney acts? b) Similarly, what role can CPAs serve when a successor trustee under an aging client’s revocable trust serves?

❏ 9 Who should the practitioner deal with: agent under power of attorney, successor trustee under a revocable trust, guardian, care giver, who?

❏ 10 What steps should CPAs encourage clients to take with their estate planning attorneys to implement documents and safeguards to minimize the risks of elder financial abuse?

❏ 11 a) What signs of cognitive impairment should practitioners be alert for?

b) What corroborating evidence is advisable to obtain?

c) Who should a CPA consult with to determine a client’s capacity to take various actions?

d) Does the CPA have authority to speak to the persons who can provide the necessary input? If not, what approvals are necessary?

❏12 As the CPAs role widens, are additional services covered under existing malpractice coverage or is additional coverage advisable?

Checklist: Elder Abuse Planning Considerations

❏ 1 What is Elder Financial Abuse?: The crime must be defined to be identified. Elder financial abuse can be defined as the illegal or improper use of an older person's funds, property, or resources.5 That definition, as the crime itself is broad and wide ranging.

❏ 2 Reporting is Rare: Studies suggest that only one in 44 cases of elder financial abuse is ever reported. Whatever the actual figure may be, and that is likely impossible to discern, low reporting occurs for a variety of reasons. These reasons help better understand the crime of elder financial abuse and why advance planning to prevent, or at least identify it, is so important:

a) The frailty that creates the opportunity for elder financial abuse progresses to the point where the victim/client is not able to pursue the crime.

b) The duration and cost of legal remedies are both significant. The elder financial abuse victim may not have the strength, time, or financial resources to pursue the perpetrator. Even if family members or others discover the abuse they too may lack the willingness or ability to commit the requisite financial resources to pursue the victim’s legal rights.

c) Many of the elder financial abuse crimes are committed by family, close friends or others and the victim is embarrassed to discuss the matter.

❏ 3 Signs of Elder Financial Abuse: Understanding some of the common signs of elder financial abuse may assist practitioners in identifying problems. Consider:

a) Large payments, transfers, investments or other transactions occur and there is a dearth of supporting documentation about those arrangements. For example, the client’s bank account may reflect wire transfers of large sums to a title company or other third party to fund a purported investment but there is no documentation of the underlying contracts or details of what the wire was for (e.g., no operating agreement corroborating the investment, nor subscription documents signed that reflect the investment, etc.). Similar to this is new and unusual transactions. Sometimes even small unusual transactions may be an indicator of larger underlying problems.

b) When queries are made of the elderly client, agent under the client’s power of attorney, care giver or other persons involved about financial matters, the explanations provided are implausible, or worse. For example, the elderly client used to withdraw $100/week for incidental cash expenses (tips to delivery people, lawn care in the summer and snow shoveling in the winter, etc.). The amount has increased to $500-$1,000/month and the explanations are that “inflation has had an impact.” That is not sufficient to justify such a large increase. The poor explanation itself leads to further suspicion. Common explanations from family fiduciaries and caregivers might be similar to: “It’s none of your business,” “It’s for food,” or other comments that represent more of a deflection of the inquiry than an answer.

c) While it may be common for an agent under the client’s power of attorney to route mail, especially financial mail, to the agent’s address rather than to the client, often a better approach and one that is less worrisome, might be for the agent to receive duplicate statements and the client to continue to receive the originals. If an agent receives all statements it undermines any planning for checks and balances. Also, while it may be common for some seniors to shift mail to Post Office Boxes to minimize the risk of mail being stolen and confidential data compromised, who has access to that post office box? Who picks up the mail in the box?

d) While many clients have a favorite child, niece, grandchild, etc. most people seem to still bequeath assets in equal shares among a class of beneficiaries. When a dispositive scheme departs from this norm, especially if there is another suspicious connection to that beneficiary, this is a cause for concern and practitioners should, along with the assistance of counsel, investigate. A common example is a client whose will and beneficiary designations for decades benefited a list of beneficiaries equally. Then suddenly that historic division was modified in a new will or beneficiary designation to favor one family member who is spending increased time with the aging client, or has other unusual relationships.

e) While many clients intentionally have different dispositive patterns under beneficiary designations and legal documents, if there are not logical explanations as to why, that may indicate a financial abuse. For example, a client might name a new spouse as beneficiary of assets under her will and her children from a prior marriage as beneficiaries of a life insurance policy. That avoids fights over personal property or a home that might be used and funded by both. It might also be possible that the insurance or other asset that is not included in the taxable estate is given to a non-spouse beneficiary. On the other hand, if the client’s beneficiary designations were signed many years ago, and as the client’s health has deteriorated the client signed a new will that has a new and unusual dispositive scheme favoring one particular beneficiary that might be a sign of elder abuse. The favored beneficiary may have orchestrated the execution of the new will but not had the foresight or ability to identify and change the other beneficiary designations.

f) The care the elderly client is not receiving is inconsistent with the income or wealth she has. This might be a sign of heirs unreasonably manipulating the situation to minimize care costs and maximize their inheritances.

g) Household belongings have disappeared. This might be obvious from merely visiting the elderly client’s home. For example, marks on the wall where paintings once hung, or different shades on wood floors indicating where oriental carpets once lay, may be obvious. Another way to identify missing personal property is to compare the listed property on the homeowners’ policy to the actual property on the premises.

h) If the elderly client does not understand financial and other arrangements that have been made for him, are there fiduciaries who do understand it and sufficient checks and balances to protect the client?

i) If the client recently has reconnected with long lost relatives or has just made new "best friends" that could be a wonderful sign of socialization, or an indication of a perpetrator seeking to capitalize on the elderly client’s wealth and declining capabilities. Has the new found family member suddenly been added to a will or named agent under a power of attorney or been listed as a co-owner of a bank account?

❏ 4 Perpetrators: Understanding who might perpetrate elder financial abuse is important to protecting against it, and identifying it when it occurs. A key point is that there are a myriad of possible perpetrators, not just the fiduciaries or home health aides as many people assume.

a) Financial abuse can be committed by a caregiver. In simple forms the caregiver simply steals valuable jewelry or art from the patient. In other circumstances the caregiver might walk the patient past an ATM several times a week pocketing withdrawals the patient may not even remember making. It is sadly not uncommon to see caregivers manipulate their patients to sign new legal documents resulting in the caregiver inheriting, or obtaining through other means, significant sums and sometimes the entirety of the patient’s estate to the detriment of the natural heirs the patient may have otherwise intended.

b) Anyone from the client’s family members might be involved. While many are shocked by family members abusing an elderly parent or relative, this is all too common. In many cases the perpetrator does not view what is tantamount to abuse and theft as a wrong. Rather, they view it as an entitlement. “I gave my life taking care of mom, I deserve what I am taking and so much more.” The rationalizations, however, don’t change the result of what was done.

c) Organized crime has grown in its involvement in elder abuse cases in light of the amount of money at stake. Criminals can abuse the elderly in a range of ways including not merely theft of the elderly person’s assets but also laundering money through the elderly client’s accounts. Theft of the client’s identity, abuse of credit card information obtained under false pretenses, and other complex techniques are all common.

d) Relationships are often created for the express purpose of foisting an elder financial abuse scheme to abscond with assets. Elderly widows and widowers are often preyed upon but others who seize on their new vulnerability following the loss of a long time spouse or partner to create a new relationship for the express purpose of marriage followed by divorce, or perhaps just being named as an agent under a financial power or co-signer on an account. By the time the grieving widow or widower realizes what has occurred the culprit has often taken significant funds and moved away.

❏ 5 Educate Clients: Practitioners should make a concerted effort to educate clients, and their loved ones about the risks of elder financial abuse and protective measures that should be taken. Too often these conversations never occur. CPAs might focus meetings on tax compliance or investment allocations (if the CPA is handling the client’s investments). Estate planning attorneys have traditionally focused on documents and tax minimization. Financial advisers have traditionally focused on investment planning and while that has broadened to more comprehensive financial planning it often does not appear to address the elder financial abuse risks adequately. As noted above, one of the key reasons clients do not seek this information is that they are of the attitude: “Elder financial abuse cannot happen to me…I have a good family, I am wealthy…I am educated…etc.” Whatever the rationalization it is simply not true. Elder financial abusers show no bounds in who they will victimize. Many clients, and even advisers, believe wrongly that their wealth, education or supposedly close knit family precludes this from affecting them. It is not so.

❏ 6 Family Realities Should Change Planning: Many plans presume that every client has an array of trusted family members to name to serve in various fiduciary capacities, e.g. an agent under a durable power of attorney to handle finances when the client is incapacitated, a health care agent to make medical decisions, etc. The reality is often quite different. Only 20% of American families are intact families with a husband, wife and children. And even of that small percentage not all have good relationships with children, or children who are financially sound. Practitioners should have open discussions with clients as to who they have named in these capacities and whether the people they have named are really appropriate. Too often a client meets with a new attorney for an hour or two and races through these decisions. A lawyer who has no prior background with a client or the client’s family is at a severe disadvantage to a CPA who may have a decade’s long relationship with the client to observe or identify issues in who is named. It is advisable to broaden the discussion to include other advisers. It is important that the attorney or other adviser making the inquiries ask much more than “Who would you like to name as agent under your power of attorney?” Questions should include: “How long have you known this person?” “What is your relationship with this person?” “How and why do you feel confident this person would not abuse this role?”

Checklist: Financial Planning Considerations

❏ 1 Longevity Considerations: With clients potentially living for two or three decades past retirement age, planning to assure adequate financial resources for that duration is vital. Financial modeling can provide a more realistic assessment of the range of financial results a client may experience. This planning, which should be at the foundation of determining an asset allocation and other major financial decisions can provide an invaluable touchstone to compare actual expenditures when endeavoring to monitor for financial abuse. Without a baseline financial analysis it may be difficult to ascertain whether payments actually made are questionable.

❏ 2 Minimize Financial Risk: Practitioners should guide clients to minimize the risks of elder financial abuse. Guide clients to simplify financial matters including consolidating accounts into a single institution where feasible, automating banking, and having electronic bank statements go to more than one person. Simplification, consolidation, and checks and balances, makes it easier for designated persons to monitor and safeguard finances. Simplification makes it easier for a client with declining capabilities to monitor his or her own finances. This can also minimize the number of paper bills and statements a client receives. While this may sound simplistic, the reality is that most clients have too many accounts, disorganized financial records and worse. These lapses can provide weaknesses for perpetrators to exploit. Too many financial accounts likely means more paper documents in a mailbox to steal, more records to keep track of which an aging client may not be able to, more opportunities to confuse the client with sham investment recommendations.

Checklist: Estate Planning Considerations

❏ 1 Minimize Estate Planning Risk: Be certain the client has met recently with his or her estate planning to update his or her estate planning documents. Too many clients, and even practitioners view the fact that a client “has a will” as sufficient. It is not so. First, client circumstances change. If a home health aide has a client change a deed or account to transfer on death to the aide, the family will lose out. Having existing documents may prove irrelevant if an attorney, or other adviser, is not periodically reviewing account ownership, beneficiary designations and more. When was the last time the documents and planning were reviewed? Did the planning specifically focus on longevity planning issues or was it simply tax and dispositive planning (e.g., who gets what).

❏ 2 Gift Provisions in Powers and Revocable Trusts: Rethink the gift provision included in powers of attorney and revocable trusts. The default provision for many clients might appropriately be a restriction prohibiting gifts. This is in sharp contrast to the historic practice of using annual gift exclusions as a default. Gift provisions have been notorious for their abuse by those perpetrating elder financial abuse. For the vast majority of clients the use of annual gifts is simply a tax anachronism.

❏ 3 Make Powers Safer: Consider the use of joint fiduciaries and/or a formal monitor position to integrate some protective checks and balances into a financial power of attorney. While nothing may prevent co-agents from colluding to financially abuse the principal, the likelihood has to be lower than a single agent unilaterally taking that action. Having someone monitoring the actions of the agent, especially if that is a CPA with financial training and expertise, is even a better precaution. Few people take this latter step.

❏ 4 Domicile Issues: Planning for aging clients should consider the possibility of needing to change a client’s domicile even if the client may lack capacity to do so. Domicile has traditionally been addressed by estate planners as a means of avoiding state estate tax in a decoupled state. With the increased importance of longevity planning, a broader and earlier consideration of domicile planning might be important. Whatever the reason that domicile may be changed, those charged with monitoring the client’s finances for potential elder abuse should be especially vigilant. Changing domicile may result in a change to a new lawyer who can practice in the new jurisdiction. Who selected that new lawyer? The client or a child attempting to convince the parents to change the dispositive provisions? Will laws in the new jurisdiction be harmful to the client’s financial security? Might they expose the client to a more robust spousal right of election for a recent spouse? Does the client even understand the ramifications?

❏ 5 Collaboration: Planning to minimize elder financial abuse should be a collaborative team of all advisers: the clients’ attorneys, insurance consultant, CPA, wealth adviser, care manager, charitable gift officer, and other professional advisors. Communicating with the client’s attorney and other advisers will enable every adviser to provide better quality service. Not only is planning for aging a multi-disciplinary task, but clients often tell different parts of their “story” to different advisers. Collaboration can help put the disparate pieces of the client’s “puzzle” together. Has the client named a reputable financial institution as a successor trustee instead of family? That might bring valuable safeguards, but the other members should not assume that the financial institution is beyond question and that the institution will actually fulfil its fiduciary duties to monitor a client’s assets for which it serves as trustee. There is never a guarantee. But adhering to a team process can provide vital checks and balances.

❏ 6 Make Revocable Trusts Safer: A banking institution or trust company can serve as a trustee or co-trustee to bring with it professionalism and independence (but see caution in the preceding paragraph). Consider integrating an independent care manager provision into the trust to perform a quarterly assessment and issue a written report to the corporate trustee, as well as to a key friend or family member (or perhaps the trust protector). As a CPA, you can have yourself named as a monitor charged with compiling periodic statements and perhaps more.

1. Old Age in America, by the Numbers, Dale Russakoff, July 21, 2010 http://newoldage.blogs.nytimes.com/2010/07/21/aging-in-america-how-its-changing/?_r=0 .

2. Mark Miller, “Why Cutting-Edge Healthcare Will Help The Rich Live Longer,” May 8, 2015, Reuters.

3. Serena Elavia, “50 is Peak Age for Financial Decision Making,” Sept. 18, 2015, http://thetrustadvisor.com/headlines/peak-age? The article cites a Texas Tech University study.

4. Bonnie D. Kupperman, “Alone and Lonely in an Aging Population,” https://www.myseniorportal.com/content/digest-archives/editorial-comments/aging-population-being-alone

5. The National Committee for the Prevention of Elder Abuse.