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Elder Financial Abuse: How CPAs Can Help – Part 1

Advising seniors

Scenario 1: Your usually chatty elderly client Nancy has become quiet and refuses to speak with you without her son Chris present. When they come in together, she is timid and acts nervous, while he is combative and secretive about sharing bank statements and other financial information. When you insist, you see discrepancies and unusual cash withdrawals, or other activity that he claims are for “household expenses, which are none of your business”.  


Scenario 2: John, a widower in his 80s, has recently met a woman – Lillie – in an online chat room and professes to be in love. She has asked him to lend her money to help start a business and he wants you to help figure out how to do that. Another common variation of this scenario is that a recent widow or widower is all too quickly becoming involved with a new partner who is rushing into marriage. This new partner insists that prenuptial agreements are unnecessary.

Scenario 3: You’ve noticed that your longtime client Gerry is often confused and repeats himself when you speak. He just informed you that he has set up a Self-Directed IRA, but he isn’t sure what it means. He is working with a new financial advisor who contacted him over the phone and assures him that it’s the best way to protect his retirement money. Another common spin on this situation involves the client receiving only a K-1 and no other information.

Three different scenarios, but all offer examples of financial exploitation of elders, or elder abuse. More specifically, the National Committee for the Prevention of Elder Abuse (NCPEA) defines this type of financial abuse as “the illegal or improper use of an older person's funds, property, or resources.” The abuse is generally perpetrated by a caregiver or scam artist, and can involve anyone from family members to organized crime.

Family member and caregiver abuse and scam artists are not new. But the extent of the problem is increasing as the senior population grows: those 85 and older make up the fastest growing demographic of the American population. By 2050, the senior population is expected to more than triple to 19 million. With this “silver tsunami” come both greater wealth and decreasing cognitive ability.

Why Seniors?

Aging Americans are ripe targets for financial abuse. According to the NCPEA, people over the age of 50 control over 70 percent of the nation’s wealth.  By age 60, the financial decision-making ability begins to decline. But a person’s perception of their ability does not change. Mental illness and cognitive deterioration increase with age as well – the average age of an Alzheimer’s diagnosis is 73, and almost half of those over the age of 85 have some cognitive impairment. Chronic illness also increases: 90 percent of seniors have at least one chronic disease, and three quarters have two or more chronic diseases.

In addition to deteriorating decision-making abilities and other ailments, seniors are often lonely and predictable, and many don’t grasp technology or finance. They rely on others, whether it be family members or paid caregivers, to help them manage their day-to-day activities and finances. They often do not know or understand the value of their assets. Seniors are also getting divorced in increasing numbers: since 1990, the divorce rate for Americans over the age of 50 has doubled, and more than doubled for those over the age of 65. This so-called silver divorce phenomenon affects seniors of varying cognitive abilities, but regardless may have a significant effect on estate planning, retirement income and assets for the long term. This is also another opportunity for an abuser – even a former spouse – to separate a senior from their money.

Who commits elder financial abuse and why?

Surprisingly, it isn’t always about the money. Abusers often have a sense of entitlement or caregiver stress, or may be unsavory characters looking to steal personal identification information. Abusers might be grown children, hired caregivers, old friends, con artists and even investment professionals. Frailty, loneliness and cognitive deterioration can make seniors targets for abuse. 

  1. Take the example of Nancy’s son, Chris. Chris is resentful that he is solely responsible for Nancy’s care. He feels entitled to compensation since he believes that he is the only family member who does anything to help. The fact that he may shut out other family members or may be doing a poor job of helping goes unmentioned. When Nancy protests, he intimidates her by threatening to cease providing care or perhaps to leave her alone if she talks to anyone about her concerns. Isolating the senior often goes hand in hand with this type of abuse.
  2. John is lonely and thinks he’s found a new partner in life. Unfortunately, he’s found someone who wants to prey on his loneliness and steal his retirement savings. Lillie is actually a 24-year-old man sitting in a room with dozens of other scammers. This might be accomplished by creating and fostering a relationship, building trust, and then having the partner sign a power of attorney that is used to perpetrate the fraud. In some instances, marriage is used as the mechanism to access assets.
  3. Self-Directed IRAs aren’t new, but they are being increasingly used to separate seniors from their money. Gerry’s new financial advisor held up the expectation of a windfall and preyed upon his fear of outliving his money. Sadly, in this instance, the windfall goes to the financial advisor. Frequently, these financial scams are based on promises of secure returns that are not plausible. Often payments are received for a period of time before the fraud is discovered.

What can CPAs Do?

These are just a few examples of the myriad types of elder financial abuse that happen. Identifying and preventing its different forms often falls toCPAs and other financial representatives, increasingly in partnership with each other. A critical part of protecting senior clients is understanding the signs of abuse and developing protections before it occurs. Education about such activities will help protect your clients. In the next part of this three-part series, we’ll explore how best to protect clients, as well as how to identify signs of abuse. For more information on this topic, access the free recorded webinar on Protecting Loved Ones from Financial Fraud and Abuse.

Key to practitioners is the fact that providing the services necessary to mitigate the risks of elder financial abuse can be a growing practice area and can involve services to a wide range of clients. These additional services can be built from existing 1040 clients or small business and professional practice clients.

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 Shutterstock.


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