Originally published on Kiplinger.com on November 27, 2019
BY: TIMOTHY BARRETT
Trust Counsel, Argent Trust Company | (502) 569-7400
One in 20 older adults is a victim of financial mistreatment, according to the National Adult Protective Services Association. Most fail to report their victimization, fearing a loss of independence. In fact, experts fear that only 1 in 44 cases is reported. The True Link Report on Elder Financial Abuse 2015 estimates that more than $36 billion is fraudulently taken from the elderly every year.
The most common perpetrators of financial abuse are family members, unscrupulous caregivers and professional advisers, such as lawyers, accountants and financial advisers.
Advocacy groups use the term “endangered person” to refer to anyone who is a target of abuse due to a cognitive or physical impairment or other susceptibility. Third-party scammers, unscrupulous vendors and cheating service providers commonly prey on the endangered, but I want to focus on another group that sometimes takes advantage of endangered persons despite legally owing them a heightened duty of care — fiduciaries.
Who are fiduciaries?
A fiduciary is someone who has agreed to manage the affairs on behalf of another person with a duty to act always in the endangered person’s best interests, avoid conflicts of interest and self-dealing, and not exceed their authority. Let’s look specifically at the most common fiduciaries:
- Guardians (appointed by a disability court);
- Attorneys in fact, also known as agents (appointed under a power of attorney);
- Relatives serving as trustee (appointed by the trust settlor); and
- Professionals, such as trustees, attorneys, accountants and investment advisers (selected by the endangered person or a family member).
Sadly, there simply isn’t much official oversight available to identify and stop an abusive person acting in one of these roles.
Guardians are usually monitored by a court that reviews annual reports. Agents have no court or regulatory oversight. Individual trustees usually have only the trust agreement requirement to provide an annual accounting — usually statement summaries. Professional trustees, attorneys, accountants and investment advisers are subject to rules, regulations, an internal audit and an independent disciplinary tribunal/agency that may audit them and acts on registered complaints.
In spite of all these measures, malfeasance still occurs with surprising regularity. It is usually only discovered well after the fact, and often results in great loss to the endangered person, with little or no recoverable funds.
Please understand that the services these fiduciaries provide are all necessary and highly beneficial. The vast majority of fiduciaries take great pains to act always in the endangered person’s best interests. However, when a fiduciary abuses those powers, early detection is essential to avoid calamity.
What kind of financial abuse is happening?
Common abuses of endangered persons include:
- Writing checks from their account or cashing their pension or Social Security checks for the fiduciary’s own benefit.
- Pressuring them to make gifts or personal loans to the fiduciary.
- Taking out loans and reverse mortgages to transfer home equity to the fiduciary.
- Purchasing long-term annuities for them that mature well after their life expectancy, leaving the remainder to the fiduciary.
- Investing their funds in pyramid schemes and other investments touting unrealistic returns, which pay the fiduciary commissions and bonuses.
- Using their credit cards for the fiduciary’s own expenses.
- Selling or taking their personal possessions, such as autos, jewelry, clothing, etc., for the fiduciary’s own use.
- Inducing them to change their Last Wills to better favor the fiduciary.
Signs to be on the lookout for
Educate yourself and your family on the warning signs of financial abuse. Don’t ignore your suspicions and watch for these common signs. Be prepared to intervene if the endangered person:
- Is purchasing numerous, repetitive or unnecessary costly home improvements, landscaping and repairs.
- Has their utilities, services or coverages suspended for lack of payment.
- Is isolated by a person who exerts a high degree of control over their finances, purchases and/or caregiving.
- Suddenly complains of having little or no money, of running out of medications, of a lack of suitable clothing, of losing valuable personal items or that someone keeps asking for funds or personal items.
How to protect yourself from financial abuse
Here are some tips for anyone who is at risk to help stop or discover financial abuse:
- Enlist several members of your family, siblings and children, to monitor your fiduciaries. Don’t rely on just one relative as gatekeeper for your finances. You may need to sign releases so they can access the fiduciary’s records and receive periodic statements. Have them meet monthly to review your finances as a checks-and-balances measure.
- Make sure all your estate planning documents are in order. Execute an advanced health care directive and a durable power of attorney for financial affairs. Authorize more than one relative to serve and have them present when you discuss your plans with your attorney and accountant.
- Engage more than one trustworthy person to assist you with day-to-day bill paying, receive and review your account statements, monitor bank accounts and credit requests. Introduce them to your financial advisers and investors and sign releases so they can review your investments.
- Have one of these trustworthy persons help you hire and monitor caregivers, lawn care and housekeeping services, and never hire a home improvement or maintenance contractor without their input.
- Invite these trustworthy persons to make unannounced visits, keep communication open and ensure against your isolation.
- Volunteer to do the same for your friends, siblings and parents.
It’s a shame to think that you have to protect yourself from those who are supposed to love and care for you the most, or from supposedly trustworthy professionals with whom you’ve shared your most private personal and financial affairs. However, we know that darkness often obscures hidden dangers, and so isolation and secrecy provide the cover for fiduciary financial abuse.
Timothy Barrett is a senior vice president and trust counsel with Argent Trust Company. Timothy is a graduate of the Louis D. Brandeis School of Law, 2016 Bingham Fellow, a board member of the Metro Louisville Estate Planning Council, and is a member of the Louisville, Kentucky and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Program Planning Committee.