Hardly a day goes by without a story in the paper about the tragedy of senior financial abuse. There appears to be an epidemic, stretching across multiple dimensions as well as generations. In our middle age, we worry about loved ones. (Reportedly, one in four American households care for an elderly parent or other relative.) Eventually, we age as well, and want to spare our children from similar concerns about us. And yet, older adults are forever a prime target for the unscrupulous, in the face of real or perceived diminished physical and mental capacity. For both ourselves and those we care for, it pays to be aware of some of the hallmark signs of changes in personal financial capacity, as well as attacks from those seeking to prey on the same.
Scanning the Scams
Financial scams are limited only by the imagination of a creative swindler. They run the gamut from an email from a “friend” stranded in a foreign capital (or from a Nigerian Prince) all the way to the giant Bernie-Madoff-type Ponzi scheme. The Government Accountability Office estimated total losses from the financial exploitation of older Americans in 2010 at $2.9 billion. See this eye-opening Morningstar interview with Doug Shadel, author of the book, Outsmarting the Scam Artists, outlining the tactics of con men (and women) and the characteristics of their victims.
The “Jamaican Lottery” scam particularly targets seniors who may be home alone and pleased to receive a phone call and even more delighted that they have purportedly won a prize … as soon as they provide the caller with the personal information required to claim it. And the calls keep coming – until the victim has transferred tens of thousands of dollars to the Jamaican gangsters, to cover “taxes and other costs.” Authorities estimate 30,000 such calls a day coming from Jamaica resulting in annual losses of $300 million.
A particularly brazen scheme in Florida alleged a conspiracy between an attorney and a health care consultant who persuaded an elderly couple to drain their bank accounts of their $1 million life savings to establish a trust for his impending nursing home care. Speaking of nursing homes, there were 1,500 citations of nursing homes by state and federal officials for trust fund mismanagement in 2010.
Unfortunately, some of the most egregious cases are those in which the perpetrator is a close member of the victim’s family; perhaps the most infamous being the case of heiress and socialite Brooke Astor, whose son (and his lawyer) were convicted in New York in 2009 of plundering her $200 million estate.
I could go on and on.
From Comfort to Poverty – An Ounce of Prevention May Not Be Enough
The impact of falling for any number of scams can be devastating. A lifetime of resources accumulated for basic necessities, travel, and medical and long term care are gone. Victims typically suffer from serious emotional and physical anguish.
And prevention can be exceedingly difficult. Understandably, even as we age, we prefer to maintain our autonomy; we often do not want and may not see the need for financial help. It’s akin to taking away our driver’s license. Senior financial abuse frequently goes unreported by its embarrassed victims, especially if the perpetrator is a family member. The subject is almost as taboo as child sexual abuse. Well-meaning family members, fearing a loss of trust, naturally tend to tread lightly, even in the face of warning signs.
When signs of abuse are observed, it can be a real balancing act as far as investigating or reporting. There are a number of options in Colorado for involving the authorities and the various courts that have oversight under different kinds of abusive circumstances. These may include breaches of powers of attorney, trusts, guardianships, conservatorships and other fiduciary relationships. But before wading in, I recommend obtaining legal advice from a specialist. There are also specialized forms of family mediation; one prominent example of which (and this is not an endorsement, which we don’t do) is www.elderesolutions.com.
Warning Signals
The main point is that, especially for loved ones you’ve known intimately through the years, it’s likely your gut, nagging sense will tell you when “something different” about themselves or their surroundings may be putting their financial well-being at risk.
Following are just a few of the typical red flags you might see; triggering a need for further investigation:
- Unpaid bills and overdraft and shut-off notices piling up
- Unusual bank account, investment or loan activities
- Unusual purchases or gambling activities
- Financial records (mail or over the Internet) not showing up; this could be a sign of identity theft, as well
- Unexpected new relationships with financial “advisors”
- A change of beneficiaries on accounts or estate documents
Some additional good resources for learning about the tell-tale signs of financial elder abuse or mismanagement are the National Center on Elder Abuse and The National Association of Area Agencies on Aging.
Some Tips for Protection and Prevention
- Communicate extensively with close family members, friends and advisors. When the need arises, consider a written family care agreement, so everyone is on the same page.
- Consider using a daily money manager.
- Complete a thorough estate plan with a qualified attorney, including preparation of a power of attorney, giving legal authority to act on behalf of another person. But choose the agent wisely and consider including limitations on the power and certain checks and balances.
- Hesitate and do your due diligence before signing any documents.
- Keep your personal information private.
- Shred old records after they are no longer needed for tax or other planning purposes; secure existing records.
Raised Antennae – The Emerging Role of Financial Advisors
While diagnosing cognitive disease is not part of most advisors’ formal training, your carefully chosen professional financial advisor, attorney, CPA, broker and others may be available as a resource to you and your family, to help you be on the lookout for these and many other sorts of red flags and warning signs. (Most unfortunately, of course, so-called advisors are sometimes the culprits themselves. In the words of President Ronald Reagan, “trust, but verify” are recommended watch-words in your professional relationships.)
However, the standards requiring – or even permitting – advisors to report warning signs they may see are inconsistent from profession to profession and from jurisdiction to jurisdiction. The professional Codes of Ethics of some disciplines – particularly in areas of confidentiality (including those pertaining to CERTIFIED FINANCIAL PLANNER™ certificants) can stand in the way. Families are well served to consider providing a release to advisors in anticipation of the potential for incapacity; so that the advisor can legally raise the issue with the client and/or family members and possibly even responsible outside third parties.
Financial Self-Defense
Recently, the CFP Board (the governing body of CERTIFIED FINANCIAL PLANNER™ certificants) released a comprehensive Guide to Financial Self-Defense for Seniors.
In a nutshell, the guide outlines ten check-points when evaluating financial advisors and the products they sometimes sell:
- Beware of the alphabet soup of designations. Take the time to understand whether they are truly earned through demonstrated understanding … or merely purchased for a price.
- Don’t buy any financial product you don’t understand.
- Be careful with “free seminars” – especially those providing a meal. There’s no such thing as a free lunch.
- Be circumspect of sales pitches.
- If it’s too good to be true…
- Be especially aware of affinity scams perpetrated by fellow churchgoers or club members.
- Read and understand before you sign anything.
- If an investment opportunity is promising high returns, it could be a Ponzi scheme. (Revisit point #5.)
- Understand the costs.
- Home equity is precious. That doesn’t mean it should never be utilized, but think two or three times before considering a home equity line of credit or reverse mortgage to solve your financial problems.
Managing Someone Else’s Money
At some point or another in your lifetime, odds are that you may be in the planning stages of having someone else manage your money, or you may find yourself managing the affairs of a loved one. The new federal Consumer Financial Protection Bureau (CFPB) (created as part of Dodd-Frank in 2010) with the assistance of the American Bar Association’s Commission on Law and Aging, recently released comprehensive guides to managing someone else’s money. There are separate guides in four different subject areas: 1) powers of attorney, 2) court appointed guardians 3) trustees and 4) government fiduciaries (Social Security representative payees and VA fiduciaries). Each of the guides can be downloaded as a separate file. The specific duties of each of these kinds of fiduciary duty are distinct, but they all share certain guidelines on managing others’ assets:
- Act in the person’s best interest.
- Perform your duties with care.
- Keep the money and property separate from your own. No comingling.
- Keep good records.
These guides are an excellent place to start when considering taking on the responsibilities of being a fiduciary.
Wrapping Up
As you can see, this is a broad subject we can barely begin to touch in a blog-length article. But if this brief overview encourages you to take even one meaningful action, the beneficial ripple effects could be dramatic for you and your family. Learn as much as you can and keep your eyes wide open on behalf of yourself and your loved ones. Know yourself, know your family and know your values. Apply planning and open communication as your indispensable tools of defense.
Most of all, as uncomfortable as the unfamiliar conversations and shifting roles may be when your parents – or you yourself – are aging, don’t ignore that inner voice when it’s telling you that something may be amiss. Explore your options. Have those conversations. Start planning, early and often, before it’s too late.
