Older adults, those who belong to the generation we look to for wisdom and experience, are unfortunately the frequent victims of financial exploitation by unscrupulous individuals. The vulnerability is often directly related to cognitive impairments resulting from a variety of illnesses. It may be Alzheimer’s disease or perhaps vascular dementia, but regardless of the illness, cognitive impairments permeate our society, and with that comes financial exploitation.
According to the Alzheimer’s Association, an estimated 5.2 million Americans were afflicted with Alzheimer’s disease in 2014. Sadly, the number of cognitively impaired individuals is expected to skyrocket, in part due to increasing life expectancies. The number of Americans with Alzheimer’s disease and other forms of dementia is projected to increase by more than 60 percent, from 5 million to as many as 8.4 million, by 2030. Given the inevitable increase in individuals suffering from cognitive impairments, attorneys practicing in all arenas are going to encounter clients with mental deficits.
As the number of individuals suffering from cognitive impairments increases, the number of instances of financial exploitation of older adults increases as well. According to the Illinois Department on Aging, approximately 58 percent of adult abuse reports allege financial exploitation; 20 percent allege physical abuse; 38 percent allege active or passive neglect; and 45 percent allege emotional abuse. Most disturbingly, roughly 90 percent of the financial exploitation of older adults is committed by family members or people such as caregivers whom older adults should be able to trust.
Older adults with dementia are ideal victims for offenders, as they frequently refuse to report the abuse for a variety of reasons. Victims of financial exploitation are often too embarrassed to publicize their vulnerabilities. They fear that turning in their relative or caregiver will leave them with nobody to care for them in their home, making placement in a nursing home their only option. The goal is to protect such vulnerable people from elder abuse.
Public Sector Responses
One extraordinary method of combating financial exploitation of older adults lies in reliance on the public sector. For example, in Illinois, Cook County State’s Attorney Anita Alvarez founded the Elder Abuse Task Force, which is designed to bring resources together to protect vulnerable older adults from financial exploitation. “Regrettably, financial exploitation of the elderly crosses all lines of race, financial status, and cultural background,” Alvarez declared recently. “It is an epidemic with seemingly no end in sight. That is why my office works tirelessly to educate the public on prevention, reporting, and prosecuting the offenders.”
Each state’s legislature is another important tool for combating financial exploitation of older adults. In 2014, significant progress was made when the legislature amended the Illinois Probate Act to provide that individuals found to be civilly liable for financial exploitation of an older adult or a person with a disability could be disinherited from the exploited individual’s estate. Previously, only criminal acts of financial exploitation formed the basis for disinheriting the perpetrator.
Private Sector Responses
For practitioners, delving into the finer points of an older adult’s estate plan is the quickest and most effective way to ensure individual older adults are protected. “For those diagnosed with dementia or Alzheimer’s, making legal plans in advance is important because it will allow the person with dementia to be involved and express his or her wishes for future care and decisions,” said Diana Law, managing partner of Law ElderLaw LLP. “But for those who didn’t prepare an estate plan and no longer have capacity, their risk for exploitation is higher.”
“The majority of elder abuse cases combine financial exploitation and emotional abuse. More often than not, those cases involve some form of abuse of a power of attorney for property,” relates Brandon Peck of Peck Ritchey, LLC. “Powers of attorney for property can be problematic, as they are generally easy to fill in, forge, or have signed by somebody who doesn’t have capacity.” It is important for practitioners using such estate planning tools to understand the risks involved and to give sound advice relative to those risks.
Taking Abusers to Court
Unfortunately, sometimes the damage has already been done by the abuser. The rising number of individuals with cognitive impairments is likely to lead to more attorneys facing contested estate plan litigation cases, and those attorneys should have a general knowledge of the causes of action. While laws for prosecuting abusers vary from state to state, some general causes of action used to contest an exploitative estate planning instrument or remedy other forms of financial exploitation include exploitation of lack of mental capacity, undue influence, breach of fiduciary duty, and tortious interference with expectancy or inheritance. A brief overview of each cause of action is provided below.
Exploitation of Lack of Mental Capacity
When determining whether an individual had the requisite capacity to execute certain documents, it is important to focus on the individual’s decision-making abilities, not on the individual’s age or physical or mental condition. Mental capacity is not a black-or-white concept; it runs along a continuum varying with the time of day, the task presented, life stressors, and any other considerations that may affect an individual’s decision-making abilities.
Two levels of legal capacity are generally to be considered when determining whether estate planning documents have been validly executed: testamentary capacity and contractual capacity. The type of document executed controls the level of capacity required. An individual must possess testamentary capacity to validly execute a will or a testamentary trust (i.e., a trust that governs the distribution of an individual’s property after death). Testamentary capacity is defined as “sound mind and memory.” For an individual to possess testamentary capacity, that individual must: (1) know that he or she is making a will, (2) know and remember the natural objects of his or her bounty, (3) comprehend the character and extent of his or her property, and (4) make the disposition of his or her property according to a plan formed in his or her own mind.
Testamentary capacity is a relatively low standard of capacity. A person need not possess an absolute soundness of mind to possess testamentary capacity. As such, a diagnosis of Alzheimer’s disease or any other cognitive impairment is not necessarily conclusive evidence of a lack of testamentary capacity, depending on the progression of the cognitive impairment. Instead, the individual’s ability to understand what he or she is doing, what he or she owns, and his or her plan regarding the giving away of property are the relevant considerations to make when determining whether a client’s will or testamentary trust is valid. This low standard of capacity can often present a substantial obstacle to overcome when representing a client who may have been exploited in the execution of a will or testamentary trust. The exploiter may have the ability to manipulate the low standard of capacity when arguing that the exploited individual’s will or testament trust is valid. It is important to direct the main focus to clients’ actual abilities to understand their financial situations and their desires to dispose of assets upon death pursuant to particular plans at the time their documents were executed.
An individual must possess contractual capacity to validly execute an inter-vivos trust, a deed, and/or a nondurable power of attorney. Contractual capacity is defined as the ability “to comprehend and understand the terms and effect of the contract.” As such, the standard for possessing contractual capacity is significantly higher than that of testamentary capacity. As can be imagined, the ability to understand the sometimes complicated terms of an inter-vivos trust or deed may require significantly more cognitive sharpness than what is required for testamentary capacity. Thus, it is important for practitioners litigating the validity of an inter-vivos trust or deed to focus on the client’s understanding of its terms at the time the client executed it—the more complicated the terms, the sharper the older adult’s mental capacity must be. Particularly if a will is signed at the same time as a revocable living trust, the analysis in Illinois requires applying a testamentary capacity standard.
Undue influence is frequently used as a cause of action to contest the validity of a will, trust, or deed. Undue influence arises from any improper urgency of persuasion where the free will of a person is overpowered, causing him or her to do or forbear doing an act that would otherwise not be done or forborne. For undue influence to be established, the following must have occurred: (1) a fiduciary relationship must have existed between the older adult and the abuser, (2) the abuser must have received a substantial benefit under the document, (3) the older adult must have been dependent upon the abuser, (4) the older adult must have reposed trust and confidence in the abuser, and (5) the document must have been written by the abuser or its preparation procured by the abuser.
An important difference between the causes of action of lack of capacity and undue influence is that lack of capacity focuses solely on the older adult’s ability to understand and has less to do with the abuser’s actions. In contrast, undue influence focuses not only on the older adult’s ability to understand but also on the older adult’s vulnerability to being improperly swayed. The level of improper persuasion imposed by the abuser includes not only what was said and done but also other factors, such as the abuser’s relationship with the older adult and the resulting level of trust by the older adult. A practitioner asserting undue influence as a basis for invalidating an estate planning document must therefore focus on the technical details of an older adult’s diagnosis, the resulting effect of that diagnosis, and the abuser’s actions. These requirements can often lead to additional discovery, written and oral, relating to the actions taken by hostile witnesses and opposing parties, as well as by third-parties who may have witnessed the conduct.
Breach of Fiduciary Duty
Breach of fiduciary duty is a cause of action often asserted in conjunction with undue influence as, by definition, a fiduciary who unduly influences an older adult in relation to the older adult’s execution of an estate planning document has breached his or her fiduciary duty to that older adult. To establish a breach of fiduciary duty, the following must be shown: (1) the abuser owed the older adult a fiduciary duty, (2) the abuser breached that fiduciary duty, and (3) the abuser’s breach of fiduciary duty proximately caused damage to the older adult. It should be noted that the law presumes a fiduciary relationship to exist between guardian and ward, attorney and client, financial advisor and client, priest and penitent, caregiver and patient, trustee and beneficiary, and principal and agent.
In the context of financial exploitation of older adults with Alzheimer’s or other forms of dementia, abusers are commonly the guardian, the agent under power of attorney for property, or the trustee of a trust held for the benefit of the older adult. Common examples of a breach of fiduciary duty include the changing of a beneficiary of a trust, life insurance policy, or retirement plan; the changing of a bank account from being privately held by the older adult to being held jointly by the abuser and the older adult; placing the older adult’s private funds into an account already held jointly by the abuser and the older adult; the commingling of an older adult’s private funds with the abuser’s private funds; the abuser using funds from an account held solely for the older adult’s benefit for the abuser’s benefit; and an abuser loaning the older adult’s private funds to himself or herself, even with the intent to return the funds at a later date.
As noted above, a clear breach-of-fiduciary-duty case can arise in the context of an agent under power of attorney, a caregiver, or a guardian using his or her access to the older adult’s assets to blatantly steal money from the older adult. However, a fiduciary may unknowingly breach his or her fiduciary duty to an older adult without malicious intent. For example, imagine Sally, the caregiver for Jack, a man suffering from Alzheimer’s disease, takes a trip to the local drugstore to fill one of Jack’s prescriptions. While waiting at the counter to pay for the prescription with a debit card for a bank account held solely for Jack’s benefit, Sally sees a magazine she would like to purchase. The clerk at the counter is particularly slow that day, and the line behind Sally is growing bigger and bigger. Understandably wishing not to hold the line up any longer, Sally decides she will simply pay for the magazine with Jack’s debit card instead of making two transactions, promising to herself that she will reimburse Jack’s account for the price of the magazine as soon as possible, which she does. Despite Sally’s clear lack of intent to steal from Jack, Sally has just breached her fiduciary duty to Jack by misappropriating Jack’s money for her own benefit.
The magazine purchase here demonstrates one oversimplified way how a fiduciary for an older adult with cognitive impairments can unwittingly breach his or her fiduciary duty. Practitioners must be wary of this kind of conduct, as it may spiral out of control and lead to much more substantial misappropriations or commingling of funds. Say the magazine exchange goes smoothly and Sally begins “loaning” bigger sums of money to herself from Jack, always intending to pay the money back. Sally’s lack of clear record-keeping begins to muddy the waters, and all of sudden hundreds or even thousands of dollars of Jack’s money begin to go missing, such money becoming hard or even impossible to distinguish as belonging to Sally or Jack. What started as a simple loan of five dollars for a magazine has turned into a much more serious matter, and a breach of fiduciary duty cause of action is warranted. Litigation may be necessary to sort out the problem and ensure that any of Jack’s missing money is returned to its rightful owner.
Tortious Interference with Expectancy or Inheritance
One of the most crucial goals of proper estate planning for older adults is ensuring that their estate plans accurately reflect their wishes regarding the disposition of their assets after death. That goal is the touchstone of estate planning. Attorneys often become involved in maintaining that goal when it is subverted by an abuser’s interference with the older adult’s intent through tortious acts such as fraud, duress, or undue influence. Fortunately, practitioners have as one of their tools in combating such exploitation a cause of action for tortious interference with a testamentary expectancy. Tortious interference with a testamentary expectancy can be used to contest wills, trusts, or deeds.
To establish tortious interference with a testamentary expectancy, the following must be demonstrated: (1) the existence of a testamentary expectancy; (2) an intentional interference with that testamentary expectancy; (3) tortious conduct such as fraud, duress, or undue influence; (4) a reasonable certainty that the testamentary expectancy would have been realized but for the interference; and (5) damages.
For example, say Mary has two children, Bob and Carl. Bob has been devoted to taking care of Mary in her later years, spending each day helping Mary with her normal daily routine. Carl, on the other hand, has barely spoken to Mary for 30 years; he left for college and never came back. As a result, Mary decides to make a will leaving her entire estate of over $1 million to Bob, leaving nothing to Carl. Eventually, Mary is diagnosed with Alzheimer’s, her physical and mental health begins to rapidly decline, and she does not have much time left. Carl catches wind of his estranged mother’s declining health and decides to investigate—he knows his mother has a lot of money. Upon Carl finding out that he has been completely disinherited, he begins to work on Mary. All of sudden, Carl starts visiting Mary on a daily basis. Carl knows his mother’s mental health is in serious decline, and he takes the opportunity to actively cause Mary to develop a trust and confidence in him that she would otherwise never have had. Carl makes up stories of all the good times he and Mary have had in the past 30 years, when he in fact had no involvement in Mary’s life. Carl also makes up stories of Bob’s disappearance, knowing his mother will be unable to distinguish her two children. Due to her rapid cognitive decline, Mary cannot determine that everything Carl tells her about himself and Bob is a lie. Carl then waits for the perfect time to bring up Mary’s estate plan, ultimately influencing Mary to cut Bob out of her will completely and leave her entire estate to Carl. Bob may have a cause of action for tortious interference with a testamentary expectancy against Carl based on Carl’s undue influence of Mary.
As demonstrated above, tortious interference with a testamentary expectancy can be very similar to undue influence —with a few very important differences that every practitioner should know. First, the only remedy for an undue influence cause of action is that the will be set aside. On the other hand, the remedies for tortious interference with a testamentary expectancy include damages to be paid to the injured party. Generally, a party must contest a will based on undue influence or any of the other bases for contesting a will within the state statute of limitations for a will. On the other hand, tortious interference with a testamentary expectancy may be subject to the state statute of limitations for claims to recover personal property. This statute of limitations issue is a changing area of the law and differs from state to state.
In conclusion, the rapidly growing population of aging adults has led to the stunning increase in the incidence of financial exploitation. The graying of America has given the unsavory members of our society a new target. The vulnerable older adults we represent are often affected with Alzheimer’s disease or other forms of cognitive impairment, and they deserve protection from abuse. Attorneys throughout the country should be vigilant and protect their clients from abuse and neglect.