Financial Elder Abuse
Rarely acknowledged or discussed, the illegal use of an elder’s income or assets has become an increasingly common crime.
Sadly, 2014 will bring more instances of elder financial abuse — a societal blight resulting in estimated annual losses of $2.9 billion. One of every six adults over the age of 65 has been a victim of elder financial abuse. Women are twice as likely as men to be the victims, especially those who live alone and require assistance with health care or other “activities of daily living.”
The 2010 U.S. census recorded the greatest number and proportion of people age 65 and older in history: 40.3 million, constituting 13 percent of the total U.S. population. It is projected that by 2050, people 65 and older will comprise 20 percent of the total U.S. population, and the number of victims of elder financial abuse is thus likely to increase in the years ahead.
The illegal or improper use of an elder’s income or assets includes not only outright theft by deception or coercion, but also the intentional or negligent failure to use the elder’s resources effectively for her support and maintenance. Also included in elder financial abuse are breaches of fiduciary relationships, such as the misuse of a power of attorney or the abuse of guardianship or conservatorship authority. Commonly cited reasons for the recent dramatic increase in elder financial abuse include:
• The incidence of Alzheimer’s disease and other dementias that hinder judgment, increases with age. By 2050, some 16 million people will be diagnosed.
• Diminished “financial capacity” — i.e., the ability to manage money and financial assets to meet one’s needs effectively — is more prevalent as one ages.
• Elders are socially isolated, with some 28 percent of non-institutionalized elders living alone.
• Age-related physiological changes to the brain adversely impact “gut feelings” about the trustworthiness of potential predators.
Abusers include strangers, family, friends, neighbors and in-home caregivers, as well as the elder’s business, professional and financial service providers. Numerous factors materially increase the risk that a person known to the elder will engage in financial abuse, including the abuser’s use of drugs or alcohol; high stress levels and low coping resources; lack of social support, including respite care options; high emotional or financial dependence on the elder; and lack of elder care training. Stranger abuse is more likely to be reported than abuse by known perpetrators.
While data from state adult protective services (“APS”) agencies show an increase in the reporting of elder abuse, many cases go undetected, unreported and unaddressed each year. One study estimates that only one of every 14 cases of elder abuse ever comes to the attention of authorities. Another study concluded that for every case of elder abuse referred to authorities, 24 cases were not. Some of the reasons for an elder’s refusal to report her victimization include:
• The elder does not want her abusing family member to go to jail or face public embarrassment.
• The elder feels that admitting vulnerability will result in her being placed in a nursing home.
• The elder fears that the abuser will harm her even more if it is reported.
• The elder may not recall the abuse because of dementia or other impairments.
Civil and criminal remedies
All 50 states and the District of Columbia maintain an APS agency to serve as a “first responder” mechanism for investigating reports of elder financial abuse outside of a long-term care setting. A separate long-term care ombudsman (“LTCO”) investigates the complaints of residents of nursing homes, assisted living facilities, personal care homes or other community living arrangements. The National Center on Elder Abuse maintains a database of all state APS and LTCO contacts, which can be accessed by calling the Elder Care Locator Service at 1-800-677-1116, or on-line at http://ncea.aoa.gov/Stop_Abuse/Get_Help/State/index.aspx. While state criminal laws recognize elder financial abuse as a reportable action, not all states specifically recognize elder financial abuse or exploitation as a distinct crime. In those states, basic criminal laws against theft, fraud, deception, larceny, forgery and embezzlement can be invoked to prosecute elder financial abuse. Frequently, however, prosecutors are unable to pursue elder financial abuse actions for a variety of reasons, including limited budgetary resources, the effect of the incapacity or death of the victim on the ability to marshal sufficient evidence, and the refusal of the victim to cooperate with the development of the case.
The growing number of interstate and international mass marketing fraud cases presents additional challenges in prosecuting elder financial abuse. Coordination among local law enforcement authorities in multiple jurisdictions, both domestic and international, is labor intensive and problematic due largely to informal or nonexistent lines of communication between and among agencies. Some of the many federal agencies involved in combatting such cases include the Consumer Financial Protection Bureau, Federal Trade Commission, Securities and Exchange Commission, Postal Inspection Service, Federal Bureau of Investigation, Department of Justice, and Department of the Treasury, a clear testament to the vast scope of the problem.
State civil remedies for elder financial abuse include restitution, compensatory damages and punitive damages for fraud, breach of fiduciary duty, negligence and conversion of assets stolen from the debtor, rescission of transactions that have damaged the elder, and actions for an equitable accounting. Several states have enacted so-called “disinheritance statutes,” which preclude a convicted perpetrator of elder financial abuse from receiving benefits upon the death of the elder victim. Increasingly, APS agencies are creating and maintaining a registry of convicted elder abuse offenders.
A last-resort judicial remedy for elder financial abuse is the appointment of a court-supervised conservator as a defensive protective measure. Regrettably, however, practitioners have reported a disturbing recent trend of “offensive” conservatorship proceedings that deprive the elder of her rights and property and often facilitate the disposition of the elder’s estate as desired by ill-intentioned parties. In this context, another unsettling offensive tactic that has emerged in recent years is “granny snatching,” by which an elder is removed involuntarily from her home state to another jurisdiction for the sole purpose of filing a conservatorship action there based on her physical presence in that jurisdiction.
A multifaceted approach
The war against elder financial abuse must be waged on national, state, local and personal fronts. There are numerous federal initiatives designed to combat elder abuse, including the recently adopted Elder Justice Act (“EJA”), the first comprehensive national legislation directed at elder abuse. The EJA establishes the Elder Justice Coordinating Council, comprised of the heads of the numerous federal departments and agencies with concurrent jurisdiction over elder abuse matters, which makes recommendations to the Secretary of the Department of Health and Human Services every two years regarding ongoing efforts to coordinate elder justice activities. Increasingly, specially trained multidisciplinary teams of state-level criminal justice and social service professionals are being deployed to enhance efforts to prosecute elder financial abuse.
Assembling a multidisciplinary team of allied professionals to regularly advise an elder can also contribute significantly to the prevention of elder financial abuse. Key members of such a team could include her estate planning attorney, elder law attorney, geriatric care manager, life care planner, investment advisor, government benefits specialist, home accessibility specialist, accountant, household manager, bookkeeper and elder mediator. While the compensation of these allied professionals can be costly, the end result of their team efforts could save the elder multiples of that cost by preventing significant financial abuse and exploitation.
Using a defensive power of attorney
The defensive use of the elder’s general durable power of attorney (“GDPOA”) can also minimize the potential for elder financial abuse. The GDPOA is a technique whereby the elder (referred to as the “principal”) authorizes a person of her choice (referred to as the “agent”) to act on her behalf with respect to her assets until that authority is revoked by the principal during her life or upon her death. Title to the principal’s assets remains in her name. The authority granted under a GDPOA is “durable” — i.e., it survives the principal’s subsequent incapacity — and is not revoked in such event (as was the case under common law). While clients appreciate the simplicity and privacy afforded by this non-court-supervised alternative to a conservatorship, the lack of formal oversight and accountability may facilitate the abuse of the broad authority typically embodied in a GDPOA. Proper counseling of the elder by her estate planning attorney, and customized drafting of the GDPOA to address the elder’s specific worries about the powers granted to the agent, can minimize the potential for abuse. Of particular concern to many elders is the abuse of gifting authority or other powers that could defeat the principal’s estate plan if used improperly by an unscrupulous agent. Appointing co-agents can provide a built-in oversight mechanism to detect and deter potential abuses of authority under a GDPOA.
Revocable living trusts
Many clients prefer to use a funded revocable living trust (“RLT”) instead of a GDPOA. The RLT technique requires that title to the elder’s assets be held in the name of the trustee of the RLT during the elder’s lifetime. The trustee of the RLT thus serves as the gatekeeper with respect to those assets. Ideally, the elder should not serve as the sole trustee of the RLT, lest a perpetrator gain inappropriate access to the assets of the RLT before her diminished capacity is suspected or verified. If the elder is serving as a co-trustee of the RLT with another person, this allows for a second set of eyes to assist the elder in evaluating any financial proposals from third parties while the elder is able and inclined to participate in these determinations. As the elder’s inclination or capacity to be involved in such matters declines (whether because of age, infirmity or general disinterest), the co-trustee can gradually take on more responsibility as the elder cedes it.
If these informal options for handling the finances of an incapacitated elder are unavailable or ineffective, it may be necessary to secure a court-appointed conservator for the elder. Notwithstanding the procedural safeguards typically embodied in state statutes concerning the appointment of conservators, and their monitoring after appointment, egregious abuse by court appointed conservators contributes significantly to the widespread incidence of elder financial abuse. However, enhanced screening of potential conservators, including criminal and credit checks, as well as fingerprinting, and more diligent court monitoring after they are appointed, can also significantly reduce the incidence of such abuse.
Elder mediation is increasingly used as a tool to prevent the escalating family conflict that often leads to elder financial abuse. This voluntary dispute resolution technique may be appropriate to address the following types of matters:
• Less restrictive alternatives to a court-supervised conservatorship (e.g., an RLT or GDPOA).
• Identifying the proper persons to serve in fiduciary supportive roles for the benefit of the elder (e.g., as trustee under an RLT or as agent under a GDPOA).
• Resolving disagreements between co-agents or co-trustees.
• Identifying which professionals (e.g., investment advisors, attorneys and accountants) will be retained to handle the elder’s professional services needs.
• Assessing the financial implications of various residential options for the elder (e.g., aging at home with private caregivers, or transitioning to a continuing care retirement community).
Elder financial abuse is a pervasive problem that impacts persons in all social classes and economic strata: from a childless woman living alone in her government subsidized studio apartment to Brooke Astor in her opulent Park Avenue home surrounded by “caring” family members. Educating the general public, as well as the multidisciplinary professionals who serve our elders, is a critical first step toward stemming the rising tide of elder abuse.