Infirm Financial Abuse

Summary:
Elder financial abuse is widespread and is probably
getting worse as a result of the recession. Don’t assume it doesn’t apply to
your parent or grandparent because of the level of their wealth or their
perceived social status. Yes Virginia, it even happens in your circles, and
even in nice neighborhoods. 50% of the people over 85 have cognitive impairment.
So the number of elderly at risk is substantial. But more than the elderly are
affected.  Anyone with a cognitive
or other disability that infringes on their ability to protect themselves is at
risk. 90 million Americans have chronic health issues, and so many of them face
the same risks and need the same protections. So while most call it “elder
abuse” it is really “Financial Abuse of the Infirm.” Just no one in the media
seems to write about it!How do you prevent financial abuse of
the infirm?

√ Acknowledge
the risk and that it may affect you or a loved one. Even if your kids (niece,
cousin, neighbor….) is too good to do that, temptation especially if compounded
by dire financial circumstances can push even “good” people to do bad stuff. Do
you really know that your home health aide is more concerned about your
financial well being than that of his or her family back home (wherever that
might be)? Your wealth relative to that of a home health aide or distant relative
or even neighbor, may be perceived as being so great that their helping
themselves or their loved ones who are in greater need may not be viewed as
infringing on your financial security.

√ One of the
most significant steps is to encourage the person at risk to establish a funded
revocable living trust with an institutional co-trustee. With a bank or trust
company as co-trustees along with the individual involved, they will remain in
control as long as feasible, and financially safe from abuse. Fund the trust.
The more assets (other than IRAs, a professional practice, or certain other
assets) for which they transfer ownership into the trust the more secure they
will be since the institutional co-trustee can help keep tabs on them. The
person at risk requires contractual competency to establish and fund a trust.
This is a greater level of competency than required to execute a will.  Additional protection can be obtained
for the at-risk person by their naming a succession of individual trustees to
protect their interests. Also, someone should have the right to replace the
bank/trust company. The at-risk person can hold this if they are capable, but a
better approach might be to provide this power to an independent trust
protector who cannot also serve as trustee.

√ A durable
power of attorney is an essential step to protect the at risk person. But it is
not enough to sign a standard form without carefully evaluating its provisions.
If the at-risk person really does not have a taxable estate, or any persons he
or she is responsible to support financially, the power might expressly state
that the agent has no authority to make gifts. Gift language of various sorts
is routinely included in many standard powers (even costly lawyer prepared
documents) when in fact the temptation for the agent is not worth the
possibility of the agent abusing the gift power. Consider appointing co-agents and
an independent “monitor” charged with providing some degree of oversight of
agent actions. These checks and balances are an important step to making a
power of attorney protective rather than a tool for abuse of an infirm grantor.

√ Yep it
sounds simple and costs nothing but consolidating assets into one institution
(or as few as feasible in light of reasonable concerns about financial
institution viability and insurance limits) is one of the most powerful steps
to avoid financial abuse. A secure public institution with adequate insurance
is ideal. For those CD lovers pick an institution that participates in the Certificate of
Deposit Account Registry Service (“CDARS”), program. It allows investors to
keep up to $50 million invested in CDs managed through one bank with full FDIC
insurance, and under one agreement. We’re not advocating CDs as an investment
choice, but we are advocating consolidation and organization to protect the at-risk
person.

√ Have a
duplicate copy of the at-risk persons monthly statements sent to a trusted
person.  A long time independent CPA
is a great choice. If a cost effective arrangement can be made for the CPA to
balance all the monthly statements and send out a periodic report, even better.
This assures that at least a bookkeeper at the CPAs office is reviewing
everything. The at-risk person might also name an adult child who is not their agent
under their power of attorney (nor the current co-trustee under a revocable
trust) to receive monthly statements. The consolidation, simplification and
independent review can minimize the temptation that agents and others in
confidential and private relationships with the at-risk person might feel. That
creates real checks and balances.

√  Set up accounts for automatic bill
payment, payment to credit cards, payment plans with utilities and others that
equalize payments every month,
etc. Anything that can simplify and create regularity can make
aberrations due to theft, fraud or other abuse more obvious to spot.

√ Include in powers, revocable trusts and other
documents a periodic mandatory inspection, interview or meeting by a social
worker or similar independent organization with the person at risk, and a
requirement that they report in writing to at least two fiduciaries. This can
create another important check on personal as well as financial security.