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Financial Planning > Trusts and Estates

Countering elder financial abuse

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Nearly all of us have heard a version of this story.

A stranger contacts an elderly friend or loved one by phone or a knock on the door and asks them to make a significant financial decision, offering fraudulent assurances that the senior will either make more money or receive some other benefit by taking action. Or more commonly, a family member manipulates the senior into moving money or taking risks that serve only to benefit the family member.

Sadly, some older adults are vulnerable to this type of financial exploitation. For the fortunate ones, an intervention by a trusted family member may stop a bad situation before it is too late. But all too often, the trusting senior falls victim to the growing problem of elder financial abuse.

As baby boomers age and the senior segment grows, the potential for elder financial abuse is increasing. The nonprofit Elder Financial Protection Network says that at least one in 10 elders is exploited. That alarming statistic may be understated as some seniors are too embarrassed to admit that they have been victimized.

We in the financial services industry have an important role to play in combatting elder financial abuse. The first step is for all financial professionals to become educated on the topic.

It is clear that some financial firms are already attuned to the issue by offering training to agents to help identify potential diminished capacity or financial abuse. They also act as a resource to address difficult situations.

According to the AARP Public Policy Institute, financial capacity is one of the first abilities to decline as cognitive impairment develops. Yet seniors and their families may be unaware of this decline. That is why financial professionals need to have a basic understanding of this issue and be cognizant of the warning signs. These signs can include, but are not limited to, a lack of understanding of personal goals, product choices or simple instructions; a lack of core financial skills; clear signs of memory loss; and changes in personality or physical appearance.

Red flags

If financial professionals spot any of these warning signs, they should start a thorough documentation of all discussions and decisions going forward. Also, they should determine if the client has a durable power of attorney, trust or other third-party financial arrangement, and involve that party in all decisions. As an added level of protection, they should suggest that the client bring a family member, close friend, CPA or lawyer to all future meetings.

Diminished financial capacity doesn’t necessarily mean financial abuse is taking place. Other red flags to watch for include an abrupt reluctance to interact with their financial professional, sudden changes in wills, trusts or beneficiary designation without reasonable explanation, requests to liquidate or transfer funds that are inconsistent with prior stated objectives, or an expressed concern about missing money or property.

If financial professionals recognize any of these warning signs, it may be wise to stop making any product recommendations, hold any pending transactions, and connect with the client’s designated emergency contact, relative, CPA or lawyer. If financial abuse is suspected, they should contact their personal legal counsel as well as law enforcement. Some states also require mandatory reports to Adult Protective Services, so it’s a good idea to become aware of state requirements.

As boomers age and the elderly cohort grows in America, all financial professionals need to study up on elder financial abuse. We in the industry have an opportunity to take action when warning signs appear. Elder financial abuse will only be countered through awareness, preparation and informed action.

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