How to protect clients from financial abuse, poor decisions

Harry S. Margolis, The Daily Record Newswire

The widower with a house full of unopened items purchased on the Home Shopping Network. The great-nephew who cares for his elderly great-aunt, eventually getting her to change her will in his favor. The woman whose longtime home-care worker begins forging checks to finance a drug habit. Clients who send money in response to telephone calls assuring them they have won foreign sweepstakes.

Those are examples just from my own practice. Many others can be found in both reality and pop culture, e.g. movies such as Nebraska, which focuses on an elderly man who convinces his son to drive cross-country to claim a sweepstakes prize.

Allianz Life Insurance Co. reports in its "Safeguarding Our Seniors" study that only 5 percent of the seniors it surveyed reported being victims of financial abuse, but that almost one in five of the younger adults it surveyed reported having an older family friend or relative who was a victim. The study concludes that seniors are unlikely to self-report financial abuse.

The study also finds that the average loss from financial abuse such as telemarketing, Internet and mail scams is $30,000, but that 10 percent of victims lost more than $100,000.

A MetLife study of elder financial abuse based entirely on reported cases estimates that total damage from financial abuse of seniors in 2010 was $2.9 billion. Perpetrators included strangers; family, friends and neighbors; and businesses. Most victims were women in their 80s who needed some help with their health care or home maintenance.

According to various studies, we lose the ability to manage our finances as we get older. The most risky period is not when seniors are so demented that they obviously need a caregiver to step in, but when they have mild cognitive impairment and can still handle most aspects of their lives independently. Family members and professionals may not know to intervene or may be reluctant to confront a senior who wants to stay independent.

An ongoing study by the National Endowment for Financial Education lists the following early warning signs that financial competence is declining: taking longer to complete everyday financial tasks, reduced attention to details in financial documents, decline in everyday math skills, decreased understanding of financial concepts and difficulty in identifying risk in a financial opportunity.

There are a number of steps lawyers and their clients should consider to defend against financial abuse while also preserving clients' autonomy and financial independence to the greatest extent possible for as long as possible.

Revocable trusts and joint accounts

One of the best ways to prevent the occurrence or continuation of poor decisions by a client or his victimization by others is for someone else to be in a position to monitor account activity. This can be accomplished by the client adding one or more family members to accounts or naming one or more as co-trustees on a revocable trust.

One of the advantages of a revocable trust over joint accounts is that it does not confer any ownership interest in the co-trustee. Parents, especially those with a large number of children, may not want to add them all to their accounts. Some children may be more appropriate financial watchdogs and managers than others. Some may have financial or marital trouble that could put the accounts at risk. On the other hand, adding only one or a few of one's children to an account runs the risk that the child or children ultimately will not share the account equally with their siblings or will be perceived as pocketing the money.

A trust avoids these problems. The co-trustee has no ownership interest in the trust assets and the trust dictates how the remaining funds will be distributed upon the grantor's death. The trust funds are not subject to claim by the trustee's creditors or in a divorce. And, of course, revocable trusts have many other advantages, including avoidance of probate and flexibility in the distribution of estate assets.

Professional trustees

If clients do not have children or anyone else they trust to manage their finances - or simply hope to avoid the type of sibling tension discussed above - professional trustees can ensure that finances are professionally managed and safeguarded.

Many clients object to the cost, often 1 percent a year of the assets under management (more for smaller trusts and less for larger ones), but this fee is generally earned many times over in protection from predators, professional low-cost investments, better financial organization and the convenience of the trustee paying certain regular bills. Any one of these benefits could justify the fee by itself.

Other clients object to giving control to an institution, but in most cases professional trustees work closely with their clients in a collaborative fashion. Additionally, it's possible to have co-trustees, such as a family member and a professional trustee who work together.

Whatever is decided, just make sure the client or a trusted family member has the power to change trustees at a later date if necessary due to changing circumstances, such as the original trustee changing firms.

Involvement of financial planners

While a trustee provides direct oversight and management of trust assets, a financial planner can do so as well, if less directly, while providing broader financial advice. A financial planner can advise on short- and long-term budgeting, investments and financial management. By meeting with the client on a regular basis, the financial planner can help protect against financial misdeeds and, with the client's permission, notify family members of any major change in spending habits.

Some financial planners manage accounts similarly to trustees, while others leave the client to implement financial plans under their oversight. Some financial planners charge by the hour and others a fee for assets under management, usually in the 1 percent range. Other planners charge for products they sell, such as insurance or annuities. We are wary of planners who make their living on commission because the interest of the planner and the client are not well aligned.

Planners generally earn their fees many times over by helping clients organize their finances, plan for the future, make good decisions and avoid bad decisions - for instance, selling stock after a sharp drop in the market. They often take a more comprehensive view of their clients' financial picture than do trustees, who are only responsible for the funds in trust. But their role can also be less direct than that of trustees, providing more opportunity for financial shenanigans to occur while they're not looking.

Liaison with accountants

Accountants have contact with their clients at least once a year when they prepare their tax returns. This can be an ideal opportunity for them to be on the lookout for changes in their clients' financial behavior, which may be as simple as a client not returning the annual questionnaire the accountant sends out. The client may have gone elsewhere for tax return assistance, but the failure to respond may be a clue signaling the onset of dementia or the wrong person stepping in to "help" the client.

We would recommend to accountants that they add to their form a question about who they should contact in the event the client does not respond, coupled with permission to reach out to that person. A more formal "letter of diminishing capacity" also could be executed.

Client maintenance plan

Many estate planning attorneys in recent years have instituted client maintenance plans for both business and client service reasons. After clients have executed their estate documents they can join the plan for an annual fee which covers a number of services, including an annual review. Typically, this involves a meeting with the client and family members, as well as other advisors to the client such as his accountant and financial planner.

The main purpose of this annual review is to make sure the client's plan is up-to-date and that all of its elements are coordinated, but it also serves to make sure the client is doing well. Family members who might be tempted to cross lines should have second thoughts knowing that professionals will be looking over their shoulders.

While many clients object to paying an annual fee after they have paid a substantial amount to have an estate plan prepared in the first place, they may reconsider if they see it as insurance against much more costly financial victimization in the future.


Seniors can be more susceptible to scams on the Web as well as off of it. In addition to the Nigerian prince who just needs a bit of our cash to share his great untapped wealth, we now receive emails from our friends who are stranded in Bangkok with their wallet and passport stolen, needing us to wire them some funds. When such an email appears to come from a loved grandchild, a grandparent is likely to respond.

Fortunately, modern technology not only taketh away, but also giveth.

The True Link Card, for example, is a debit card that the owner can control online, while giving the user some independence and autonomy. Through online settings, which the owner can change at any time, the card may be programmed for use at some stores and not others. It may block ATM withdrawals and cash at purchase, while authorizing specific merchants, such as the plumber or auto repair shop.

A senior who may be reluctant to give up control of her finances, may be willing to give family members online access to accounts which will permit them to monitor activity while only intervening if they see unusual transactions. For those seniors with early dementia which is sometimes accompanied by paranoia, this may have to be accomplished through subterfuge with the family member helping the senior set up an online account, while at the same time recording the username and password. offers constant monitoring of registered accounts for $4.99 a month, reporting any unusual transactions to the client as well as to any family members or other trusted advocates they designate.


To the extent a senior's financial transactions can be seen by others, abuse will be discouraged and, if it occurs, be caught quickly before too much damage has taken place. Along with transparency, regular human contact acts as a prophylactic.

Seniors with frequent interaction with family members and others are unlikely to fall prey to financial predators. Those who are more isolated also are more vulnerable, in part because of the human contact provided by some sham artists. We might make a special effort to keep in touch with clients without close family members so we can know to intervene if necessary.

Published: Thu, Sep 03, 2015