December 22, 2020

Elder Financial Abuse Prevention – It is the Business of Every Lawyer

Written by:

Judith M. Shaw, Esq. Maine Office of Securities, Augusta, ME
Martin Hewitt, Special Counsel, Fried, Frank, Harris, Shriver & Jacobson LLP, New York, NY
David Godfrey, Senior Attorney, ABA Commission on Law and Aging, Washington, DC
 

Billions of dollars are stolen from older adults by acts of financial exploitation every year in the United States.  The true scope of the loss is unmeasured. More elder abuse goes unreported, than reported. Data collection is inconsistent, and only reflects what is reported.  A 2018 SEC study estimated the loss in New York state alone at over $100,000,000.00 per year.[1]

So why should attorneys care?  Isn’t it up to law enforcement and government agencies to deal with all of this? Yes, law enforcement and government agencies are working very hard to address elder abuse in all of its forms, including financial exploitation.  And, yes, attorneys should care as much as the government agencies do.  The fact is, attorneys, just like financial institutions and medical professionals, are on the front lines of this battle and with the right tools and resources can make a real difference.[2]

What do you mean we are on the front lines?  What does all of this have to do with lawyers?  A lot.  First, all lawyers have ethical and moral obligations to try to protect their clients from financial exploitation.  You are a trusted person in the lives of all of your clients but especially those who are older and perhaps more vulnerable due to health issues, social isolation, or the natural effects of the aging brain.  Second, you are well positioned to identify the red flags of all forms of elder abuse and it benefits you and your clients to identify those red flags and prevent, or stop abuse.  Third, protecting your clients from elder abuse and financial exploitation results in your clients being able to continue as your valued clients.

Let’s start with your obligation to try to protect your clients from financial exploitation.  What exactly is financial exploitation? Generally, financial exploitation is the taking or use of the money or property of a vulnerable adult, for the primary benefit of another person without permission or legal authority.[3] Whether someone falls within the category of vulnerable is defined by state law. While it is important to keep in mind that nobody is requiring you to make a medical determination about the capacity of your client, it is still important that you understand the aging brain and signs of cognitive decline. The first study to consider is the work of Dr. David Laibson and his fellow researchers who found in a 2009 study that the age of 53 is the age of peak performance for financial decision making.[4]  After that, the natural aging process contributes to a decline in cognitive abilities and that decline takes place at differing speeds depending upon the health, genetic background, and other demographics of your client. Couple this study with a 2016 study that found the willingness to take risk increases as cognition declines particularly if the client’s emotions are triggered and we can see why your role in identifying and addressing the potential financial exploitation is so critical.[5]

In interacting with your clients, you are able to identify ways in which their patterns of behavior change over time.  Those changes may be indicators that something new is going on perhaps in terms of personal relationships or cognitive abilities.  Various guidance is available to help measure cognitive issues including robust resources from the ABA Commission on Law and Aging.[6]  Educate yourself and take advantage of available resources.  Keep in mind that you are most successful when your clients are making fully informed, wise, and fiscally prudent decisions. 

It is important to watch for red flags of financial exploitation.  Your direct contact with your clients gives you a unique window into what is going on in their lives.  Any signal that something odd is going on is a signal for you to ask questions and learn more about what might be causing a change in behavior, attitude or approach.  Financial exploitation can be perpetrated by unknown scammers like those perpetrating the Jamaican lottery or grandparent scams, for example.  But, most commonly, it is perpetrated by family members and sometimes even trusted professionals.[7]

While the range of perpetrators is great, the red flags of financial exploitation, undue influence and fraud are consistent. Financial exploitation may result in a new need for money. Your client may be asking about selling assets, or difficulty paying bills. Some financial exploitation is accomplished without your client knowing it is happening, by breach of fiduciary duty, abuse of authority in a power of attorney, theft of assets from financial accounts by someone who has access.  Other times the client is coerced by an application of pressure, or undue influence into giving money or property to the exploiter.  Extra care should be taken when clients suddenly want to change long term plans, replacing agents on powers or attorney, or trustees, or adding names to financial accounts.  Exploitation also takes place by transfer of assets, either as gifts or sales for a fraction of actual value (a gift disguised as a sale.) The perpetrators apply pressure or undue influence to trigger an emotional response (fear, anxiety, confusion) causing the victim to take steps that are out of character for them. For many adults all it takes is a threat to never come visit, to cut off visitation by children or grandchildren, or to admit the person to a nursing home, for the person to sign over their life savings. Attempts may be made to isolate the victim from those in their social network especially any trusted advisors.  Signs that your client is fearful, wanting to suddenly enter into transactions that are atypical and higher risk than is common for them, and becoming more withdrawn are all red flags to watch.  Be prepared to make strategic inquiries into why this shift in attitude and approach is happening and be particularly cognizant of new relationships as well as existing relationships that seem to be causing any elevated emotional reactions.

Lawyers are often used to facilitate financial exploitation, by being asked to prepare deeds or other property transfers, to change agents on powers of attorney, or trustees on trusts, to prepare financial documents such as loan or securities agreements that are nothing more than a disguised theft.  We owe our clients inquiry into these transactions.  Some lawyers become complicit in exploitation by knowingly participating in exploitation. Sadly, every year we read reports of lawyers being sued for malpractice or answering ethical complaints for playing a role in exploitation.   Not quite sure if there may be undue influence?   Look for four common elements: 1. victim appears to be vulnerable; 2. suspected influencer appears to have power or authority over the person; 3. suspected influencer has taken steps suggestive of undue influence; and 4. the influencer’s actions appear to have resulted in unfair, improper, or suspicious outcomes.  You might also check out the detailed assessment tool for undue influence developed by California which can be accessed at https://www.elderjusticecal.org/undue-influence.html.

You think you have a reason to believe your client is being financially exploited.  Now what? Talk to your client honestly about what you are seeing and why you are concerned.  Assess the client’s understanding of what is happening. Offer to help the client. Know your reporting obligations and options under state abuse reporting laws.  If you must report, tell your client why you must report.  If you are not a mandatory reporter, discuss with your client the risks and benefits of reporting and ask your client what they want to do.  If you believe your client has diminished capacity, look at the Comments to Model Rule of Professional Conduct 1.14 (and your states version of the rule) for guidance.

And, importantly, be sure to monitor your own boundaries.  It is hard to watch a client go through the challenges of abuse and exploitation especially if it is at the hands of their own family but do not be too quick to step in and fill the gap.  Taking it upon yourself to buy groceries, arrange for housing, and transporting your client is not the best approach and can backfire.  Educate yourself on where to direct your client to obtain services and do a warm handoff to make sure the services are provided.

Time for some final thoughts.  If you think because you are not an elder or estate planning lawyer these issues are not important, you are wrong. A client who wants to make an unsecured loan to a distant family member, or who suddenly wants to give their home to their adult child, or sell their car to a neighbor for a fraction of the real value; may be the next client through your door. The practice of law is about relationships and service.  How are you going to serve your valued clients today?

 

[1] Elder Financial Exploitation Why it is a concern, what regulators are doing about it, and looking ahead, STEPHEN DEANE, available at https://www.sec.gov/files/elder-financial-exploitation.pdf

[2] Information on training and protocols for addressing financial exploitation in this article is derived from Compliance challenges in the world of elder financial exploitation, JUDITH M. SHAW, Journal of Financial Compliance, 2 (2), 155-164 (2018)

[3] The general definition of financial exploitation and the ability to find the laws in each jurisdiction is available at https://www.justice.gov/elderjustice/prosecutors/statutes?field_statute_state=All&field_statute_category=All

[4] Agarwal, S., Driscoll, J. C., Gabaix, X. and Laibson, D. (2009) ‘The age of reason: Financial decisions over the lifecycle with implications for regulation’, Brookings Papers on Economic Activity, Vol. 2, pp. 51–117.

[5] Spreng, N. R., Karlawish, J. and Marson, D. (2016) ‘Cognitive, social and neural determinants of diminished decision-making and financial exploitation risk in aging and dementia: A review and new model’, Journal of Elder Abuse & Neglect, Vol. 28, Nos. 4–5, pp. 320–344 available at: http://lbc.human.cornell.edu/Publications_files/Spreng_etal_JEAN_2016.pdf (accessed 14th May, 2018).

[6] https://www.americanbar.org/groups/law_aging/resources/capacity_assessment/

[7] See State of Maine v. Robert Kenneth Lindell, Jr., a case involving a securities professional, trustee, and former legislator, whose conviction was upheld by the Maine Supreme Judicial Court in April 2020.  The decision can be accessed at this link:  https://www.courts.maine.gov/opinions_orders/supreme/lawcourt/2020/20me049.pdf

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