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Elder Financial Abuse: How CPAs Can Help – Part 2

SeniorsIn our first blog post of this series, we looked at three typical examples of elder financial abuse and some of the reasons why seniors are attractive targets. Helping safeguard your clients from financial abuse as they age, or experience a serious health problem, is one of the most important and meaningful things you can do for them.  In this article, we will delve deeper into types and signs of financial elder abuse, and ways to prevent it before it starts.

A growing target

The senior population is growing in the United States, and advances in healthcare generally mean that people are living longer: according to U.S. Census projections, in 2050, the population aged 65 and over is projected to be 83.7 million, almost double from 2012. The population 85 years and over will double by 2036 and then triple by 2049. Baby boomers are largely responsible for this increase, as they began turning 65 in 2011.

These increases in the elderly population will, unfortunately, be accompanied by commensurate increases in financial abuse. For your clients’ sake, it’s important that you educate them about the reality of these risks. Most clients think, “That cannot happen to me.” Many clients believe wrongly that their wealth, education or family ties preclude abuse from affecting them. But those factors provide little assurance. Once the client is educated about the risks, practitioners can more easily assess the risk of abuse to a particular client, the signs when it occurs, and most importantly, how to handle the scenario once abuse has been identified.

What is financial elder abuse?

The National Committee for the Prevention of Elder Abuse (NCPEA) defines financial elder abuse as “The illegal or improper use of an older person's funds, property or resources.” The annual cost can be as high as $36 billion, according to Consumer Reports.

Abusers can be anyone and the abuse can take many forms including:

  • Taking money or property
  • Forging an older person's signature
  • Getting them to sign a deed, will or power of attorney
  • Outright theft
  • Promising care in return for money or property, or taking money or property and threatening to leave the person alone if they tell anyone.

Scams, cons and frauds of almost infinite variety affect aging clients.

According to the National Institute of Justice, common types of fraud include phony magazine subscriptions, prize scams, donations to nonexistent charities and retrieval of personal financial information under false pretenses.

Signs of abuse

The best way to stop elder financial abuse is before it starts. Knowing the signs of elder financial abuse can help.

The National Committee for the Prevention of Elder Abuse (NCPEA) notes the following may be indicators of elder financial abuse and should raise red flags for further investigation:

  • Withdrawals from bank accounts or transfers between accounts that the older person cannot explain
  • Bank statements and canceled checks no longer come to the elder’s home
  • New "best friends"
  • Unusual and unreasonable favoritism of one family member over all others
  • Legal documents, such as powers of attorney, which the older person didn’t understand at the time he or she signed them
  • Unusual activity in the older person’s bank accounts including large, unexplained withdrawals, frequent transfers between accounts or ATM withdrawals
  • Suspicious signatures on checks or other documents
  • Implausible explanations given about the elderly person's finances by the elder or the caregiver
  • The elder is unaware of or does not understand financial arrangements that have been made for him or her

Prevention

According the National Adult Protective Services Association, the rate of financial exploitation is extremely high, with 1 in 20 older adults indicating some form of perceived financial mistreatment occurring in the recent past. However, only 1 in 44 cases of elder financial abuse is ever reported.

As your clients’ trusted adviser, one of the most valuable and essential services you can offer is to help prevent financial abuse.  The first step is educating yourself about the types of elder financial abuse and the many varieties of scams and frauds that target seniors. Keep the lines of communication open with your clients and their family members, and keep your eyes open for any signs of financial abuse.

Discuss incorporating a set of checks and balances into clients’ financial planning, estate planning documents, and legal and other transactions. Guide your clients to simplify financial matters including consolidating accounts into a single institution where feasible, automating banking, and having electronic bank statements go to more than one person. Simplification and consolidation makes it easier for designated persons to monitor and safeguard finances. Simplification makes it easier for a client with declining capabilities to monitor his or her own finances.

Get to know and team with your clients’ attorneys, insurance consultants and other advisors. Look at the financial institution your clients do business with to determine if they are “elder friendly.” Some have devoted more resources to these issues than others. The U.S. Consumer Financial Protection Bureau recently issued an advisory report for financial institutions on preventing elder financial abuse that includes recommendations such as offering age-friendly services.

Help your clients understand that a mere power of attorney may be insufficient to protect them from abuse, and that they should plan more broadly by building in safeguards. For example, a CPA or another person acting as a monitor could receive financial documents. Consider the use of joint fiduciaries or a formal monitor position built into the financial power of attorney.

An alternative to relying on a power of attorney as the primary document is instead to focus on a funded revocable trust to better protect your client. A banking institution or trust company can serve as a trustee or co-trustee. This will make it easier for the corporate trustee to step in to assist the consumer in an emergency. Suggest integrating an independent care manager provision into the trust to perform a quarterly assessment and issue a written report to the corporate trustee, as well as to a key friend or family member (or perhaps the trust protector). As a CPA, you can have yourself named as that monitor.

The AICPA’s Personal Financial Planning Section along with the FVS Section will be offering a webcast February 27 on how practitioners can protect clients from financial fraud and abuse. We will continue the discussion in the final part of this three-part series, where we’ll look at how CPAs can make the elderly less inviting targets, and review legislation intended to protect seniors from elder financial abuse.

Martin Shenkman, CPA, MBA, PFS, AEP, JD, Shenkman Law. Martin is the founder of Shenkman Law, where he focuses on estate and tax planning. He is the author of more than 42 books and 1,000 articles, and is a quoted expert on tax matters. His work appears in well-known publications, including The Wall Street Journal and The New York Times. Martin is also known for his active charitable work, which has been profiled in Forbes. See his blog post at www.shenkmanlaw.com. 

James Sullivan, CPA/PFS, MedicareAware. Jim has been a personal financial planner for almost 30 years. His practice focuses on clients who are chronically ill and their families. He has written several books including one on Medicare for the AICPA and over 70 articles on planning and paying for health care in retirement. He can be reached at jim@medicareaware.com.

Randal Wolverton, CFE, CPA, CFF, Association of Certified Fraud Examiners. Randal is a retired FBI Special agent, after 28 years of services.  Randal developed and provided training relating to fraud detection, investigation and prevention to numerous law enforcement agencies, college undergraduate and graduate programs, auditors, accountants in private practice and other professional organization and is past chairman of the AICPA Fraud Task Force. Wolverton currently provides forensic accounting services as a Sole Practitioner. 

Advising seniors image courtesy of Shutterstock.

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