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Use estate planning to prevent elder financial abuse

by Amelia Burke | Contributor
November 11, 2022

The purpose of estate planning is not only to distribute property at your death; it can also protect you from financial exploitation while you are alive. Estate planning tools, such as revocable living trusts and durable powers of attorney, are some of the best ways to protect against elder financial abuse.

Furthermore, a comprehensive estate plan protects individuals from financial exploitation by giving them a complete understanding of their financial situation and communicating their wishes to their loved ones and a team of professionals.

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What is elder financial abuse?

In addition to mental and physical abuse, seniors are at a higher risk of financial abuse than the average population. According to the federal Elder Justice Act, elder financial abuse is the fraudulent or otherwise illegal, unauthorized or improper actions by a caregiver, fiduciary or another individual in which the resources of an older person are used by another for their personal profit or gain. Elder financial abuse also includes actions that deprive a senior of the benefits, resources, belongings or assets to which they are entitled.

Elder financial abuse happens more often than people realize. Every year, many older Americans end up losing their life savings to financial exploitation. The National Council on Aging estimates that in the United States victims of elder financial abuse lose $36.5 billion annually.

Furthermore, financial abuse often goes unreported either because the individual's mental or health conditions make them unable to recognize what has happened or they are too embarrassed to report the crime after they realize what a family member or trusted advisor has done to them.

What are the two categories of elder financial abuse crimes?

There are two main categories of elder financial abuse crimes: fraud committed by strangers and exploitation by relatives and caregivers.

  1. Fraud committed by strangers - This type of fraud usually involves purposely deceiving the victim with the promise of goods, services or other benefits that are non-existent or grossly misrepresented.
  2. Exploitation by relatives and caregivers - Typically, in this type of exploitation, a person in a trusted relationship with the elderly victim steals, withholds or misuses the elder's property for their personal advantage or profit.

Certain individuals are at a heightened risk of financial abuse crimes, including those:

  • With cognitive impairments, such as dementia or Alzheimer's disease.
  • In poor physical health.
  • Isolated from friends and family.

How can estate planning protect against financial exploitation?

One of the best ways to protect yourself against financial exploitation is through estate planning. Estate planning can protect individuals directly through tools such as the revocable living trust and durable powers of attorney. It also helps prevent abuse by helping older Americans understand their financial situation and increasing communication around the person's finances with their family and a team of professionals.

Revocable living trust

A revocable living trust is created when a grantor (the person who makes the trust) transfers property into the trust. The trust property is owned by the trust, a separate legal entity, not the grantor. Once the property is in the trust, it is managed by a trustee in accordance with the guidelines laid out in the trust.

The trust agreement names beneficiaries and determines how the property is managed and distributed. Because the trust is revocable, it can be modified throughout the grantor's life.

A revocable living trust creates a buffer between a potential victim of abuse and the perpetrator. It is very difficult for unauthorized individuals to access trust assets compared to assets owned in the person's individual name. The assets are secured by the trustee.

The trustee is a fiduciary, meaning they must act in the best interest of the grantor and beneficiaries. The trustee faces legal consequences if they fail to act in accordance with the trust agreement or misuse trust assets. For an added layer of protection, the grantor can appoint co-trustees or require an independent party's consent to any trustee change or amendment.

Durable power of attorney

A durable power of attorney (PoA) is a legal document in which you appoint a trusted individual to make financial and legal decisions on your behalf if you become incapacitated. The PoA should give directions of your expectations and include specific powers that your agent (also known as an “attorney-in-fact”) is authorized or prohibited from taking.

Examples of specific powers include paying bills, filing taxes, managing bank and investment accounts and selling real estate. It can be as limited or broad in scope as you want.

A durable power of attorney protects people by stopping individuals from exploiting their incapacity. Once a durable power of attorney is activated, the elder is no longer authorized to sign financial documents. Instead, the individual has a trusted person making decisions on their behalf.

Like a trustee, a PoA agent has a fiduciary duty to the principal. They must act in the principal's best interests and are liable if they abuse their position.

Gain knowledge of financial situation

Estate planning helps individuals gain a complete understanding of their financial situation. When writing a will or trust, an individual must take an inventory of everything they own. If an elder has a complete understanding of their finances, they are much less likely to be manipulated or exploited.

After creating the initial documents, the individual should meet regularly with their attorney to update their estate based on any change in circumstances. These meetings allow the individual and their attorney to identify red flags and detect abuse early.

In addition to an attorney, it is common to meet with a team of professionals (accounts, tax professionals, etc.) throughout the estate planning process. These professionals provide an added defense against financial exploitation.

Communication

The process of creating an estate plan gives individuals the opportunity to communicate their wishes to their loved ones. When family and friends know the plan, it is less likely that a stranger or trusted individual can take advantage of confusion. It is also easier for loved ones to spot red flags when they know the individual's plan.

How do you choose a trustee or power of attorney agent?

Revocable living trusts and durable powers of attorney only work as a protective shield against financial exploitation if you pick the right trustee or PoA agent. You give these individuals immense power, so it is critical to choose someone you trust. Otherwise, the trustee or agent could use their position to exploit you themselves.

You can name an individual or professional trustee (i.e., bank trust department, lawyer, accountant, etc.). No matter which you choose, you should only appoint someone who you trust has your best interests at heart. You should avoid appointing paid caretakers, individuals with substance abuse problems, or someone who has mismanaged money in the past.

As an added protection, you can name co-trustees. You can decide whether the co-trustees have independent authority to make decisions or whether both co-trustees' signatures are required for every transaction. Additionally, you can instruct your PoA agent to regularly report to a third party on the financial transactions they complete on your behalf.

Trustee and power of attorney designations should be reviewed periodically. These designations can be changed at any time if circumstances change and you decide they are no longer the right fit. If you modify a living trust or PoA, make sure that you notify financial institutions and provide copies of the updated document.

Common examples of elder financial abuse

Below are three examples of elder financial abuse and how estate planning could have been used to prevent it.

1. Direct theft of money or property by an in-home helper, caregiver or family member.

When Sally's father, Steve, began showing signs of cognitive decline in his 70s, Sally decided to seek extra in-home care for him. Steve was on multiple medications and needed help completing daily activities, such as shopping and cooking meals. Sally found an in-home caregiver on Care.com who she and her father quickly grew to love and trust.

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Six months later, Sally received an odd call from her dad asking to borrow money. She reviewed Steve's financial statements and was shocked to find that his debit card had been used for cosmetic procedures and vacations.

Every one of his credit cards were maxed and money had been transferred out of his retirement accounts. Sally fired the caregiver, contacted an attorney and began the long road of trying to recoup Steve's life savings.

This tragedy could have been avoided if Steve's property had been in a revocable living trust. His assets would have been protected and managed by a trustee looking out for his best interests.

Additionally, Steve could have created a durable power of attorney, granting Sally the power to control his finances once his cognitive abilities began to decline.

2. People impersonating someone (e.g., tax collector or debt collector) to claim from an elderly victim.

Peter was terrified when he received an aggressive phone call from an individual posing as an IRS agent. The “agent” told him he owed taxes and needed to make an immediate payment via a wire transfer, or he would be arrested by the police.

Frightened and confused, Peter provided the agent person and credit card information. It was not until Peter told his son of the incident that he became that he was the victim of a scam.

If Peter had a revocable living trust with a co-trustee, the co-trustee could have recognized the scam and prevented Peter from removing funds. Furthermore, through the process of creating a comprehensive estate plan, Peter would meet with a team of professionals and gain a complete of his financial situation. He would be aware that he did not owe money to IRS and would have been able to easily recognize the call as a scam.

3. A family member exerting undue pressure on a senior to include them in their will.

When Bill was diagnosed with dementia, his youngest son Larry, who was unemployed, moved in with him to assist with his care. Bill did not have an estate plan in place. While Larry was living with his father, he took advantage of his decreased cognitive ability and pressured him to write a will leaving his entire estate to Larry and disinheriting his other children.

If Bill had a comprehensive estate plan, the revocable living trust and durable power of attorney would have prevented his son from exploiting his incapacity. Furthermore, all of his children would have been aware of his wishes and able to recognize the abuse early on.

What to do if you suspect elder financial abuse

Elder financial abuse is against the law and carries significant punishments. Perpetrators can be sued in civil court and held criminally liable. The penalty will depend on the exact circumstances of the case and the state where the crime occurs. If you suspect that you or a loved one is a victim of financial exploitation, you should reach out to an attorney immediately.

Below are some warning signs of elder financial abuse to watch for:

  • There is someone new in the elder's life is giving advice on financial or legal matters.
  • There are sudden changes to legal or financial documents.
  • A new friend restricts access to an elderly relative or won't allow you to speak to the family member without you being present.
  • There are unusual changes in spending.
  • The elder appoints a professional caregiver or paid helper as a power of attorney agent.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

Phone - 844.445.3422
Email - info@legacyassuranceplan.com
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