I recently attended a reunion dinner with my college friends whom, unfortunately, I have been out of touch for almost 30 years. We spoke of new friends and old friends, careers and our children, who are now graduating from college and beginning their careers.
The conversation then turned to our parents. Many sadly had passed, and others are not as mentally sharp as they were when they visited us at college many years ago. A common theme arose. As our children are entering adulthood, our parents need more of our time for many reasons — one being that older adults often fall victim to scams, often on the internet or over the phone. We are guiding our children to avoid unfortunate financial decisions in the same way our parents helped us when we were young.
Now, the negative effects of aging, combined with the craftiness of telephone, text message and email scammers, causes us to worry about our parents’ financial safety. Ironically, my classmates and I all have similar stories, and I’ve encountered others in my legal career.
- “Someone called my mom and told her that my son (her grandson) had been arrested on spring break in Colorado. Cash bail would need to be sent by FedEx to Las Vegas. The person said my son asked that his grandma not call his parents.”
- “A person posing as an IRS agent called my mom and told her that my recently deceased father owed $20,000 in back taxes, interest and penalties. The person said she was responsible since they filed joint returns, and that she would be arrested unless payment was wired by the end of the day.”
- “My dad got a call from a person posing as a DEA officer telling him that his Social Security number and credit card were used to rent a car that was later abandoned on the Mexican border. He was told that he needed to verify his personal information to be exonerated.”
Not too long ago, our parents would have had the presence of mind to recognize these as the scams that they are. You would never send cash bail to Las Vegas by FedEx, particularly if your grandson was not even in that city. The Internal Revenue Service always corresponds by mail and never calls taxpayers. You never need to provide your Social Security number when renting a car; law enforcement would not need your credit card information during an investigation; and you should never give personal financial information to an unknown caller.
Banks and financial advisers suspecting fraud often face a dilemma when an elderly client requests a large cash withdrawal or transfer. These institutions must keep their clients’ account information private unless specific instructions are given allowing account information to be shared with a family member. This often comes in the form granting authority under a Durable Power of Attorney or other means. A parent can add a child as a joint tenant to their account in most states, and this should give the financial institution more comfort in sharing information. But joint tenancy may have unintended legal effects that may be contrary to a parent’s wishes.
A family dilemma
It is as hard for us to take control of a parent’s financial life as it for them to lose any of their independence and financial freedom. We don’t want to accept our parents’ weaknesses. They have always been proudly independent, made sound financial decisions and have survived the many financial struggles that came with raising their family.
If you live near your parents, and your siblings live farther away, you may be in the best position to come to their aid if you notice changes that may cause them to be a potential victim. You want to avoid uncomfortable conversations with a parent and your siblings. You worry about other family members questioning the decisions you make on a parent’s behalf, and you want to be transparent.
Understanding power of attorney
A durable power of attorney (DPOA) is a legal document that allows an attorney-in-fact, perhaps a child, to act on behalf of another, possibly a parent, immediately upon signing the document. A DPOA may be ineffective in protecting a parent against a scammer. Since parents remain solely in control of their accounts, they are always assumed to have mental capacity, and the bank employee may not have enough information to recognize a potential scam. A DPOA will, however, give a financial institution more freedom to proactively communicate with a child about their parents’ accounts if fraud is suspected.
Keep in mind, though, that there is no guarantee that the banker or financial adviser will share any concerns with an attorney-in-fact and is under no legal obligation to do so.
Is guardianship a solution?
The guardianship, conservatorship or curatorship code in your state is one way to solve this dilemma. Establishing an adult financial guardianship or conservatorship is a legal process in which a court appoints a person or financial institution to manage the assets and undertake all financial obligations on behalf of a person who is unable to do so because of loss of mental capacity due to age or cognitive dysfunction. A financial guardianship is created by a court order, typically in conjunction with a guardianship of the person that gives another the legal authority to make decisions protecting the individual’s personal well-being. The guardian of the person does not necessarily need to be the same as the conservator (or guardian of the property).
Guardianships of both types require a state court judge to determine that a person, the conservatee, needs protection. Judges regularly require an independent psychological evaluation and will often appoint an attorney to represent the interests of the proposed conservatee.
Recently a judge told me that that appointing a guardian for an adult is one of the most difficult decisions that he must make, since personal liberty is a foundational principle of our country, and it is taken away when a legal guardian is appointed. Mental degeneration due to advanced age affects people in different ways. Sometimes a person can make sound medical decisions, safely drive and thoughtfully participate in social situations, but be very unsure, overly trusting or inconsistent in financial matters. In these cases, a judge may find it least intrusive to limit a guardianship only to financial matters.
Imposition of a guardianship can be expensive and involves direct judicial intervention into family life. In addition to paying costs and legal expenses to petition for the appointment, the guardian must file an annual court accounting explaining how the conservatee’s funds have been used. Secondly, the person requesting the guardianship must provide evidence that this action is needed. Such evidence is often found after fraud has occurred. Lastly, a guardianship will not eliminate the need for probate at the conservatee’s death.
A family solution: A revocable trust
A revocable trust can be an effective alternative to titling a parent’s account in joint tenancy, relying solely on a financial power of attorney, or guardianship. A parent can affordably create a revocable trust, sometimes called a living trust. The parent can serve as co-trustee with a child and a bank or trust company, or solely with the institutional trustee.
The trust agreement establishes the relationship between the trustees and the beneficiaries. It can include additional language requiring all co-trustees to receive written notice of revocation and for all remainder beneficiaries to receive annual account statements. The parent’s accounts are then re-titled and owned by the trust in an account that can be maintained and invested by the institutional trustee or another designated person.
A parent can collect income and direct payment of any bills, taxes and expenses and make gifts to others as long as he or she is willing and able to do so. When he or she is no longer able to do so, the remaining trustee will manage the trust account for the parent’s benefit, with all transactions reported in a statement that the co-trustee or remainder beneficiary would receive.
The beneficiary or co-trustee, or the institutional trustee, can see changes in spending patterns, unusual withdrawals or other activity, including excessive loans or gifts to other family members, that might cause concern. The trustee or co-trustee would then be in place to proactively manage the trust for the parent’s benefit at any time, compared to the delay caused by reactively petitioning a court for a guardianship order. Upon the parent’s death, the assets would transfer to the remainder beneficiaries with no need for probate.
Communication technology has provided many societal benefits, but also brings risks, which is why we must teach children about potential threats to their safety and well-being coming from the internet and elsewhere. Telephone and internet scammers know our elderly population is also vulnerable and that they may have considerable savings. Therefore, they are targeted.
The question is not whether a person’s parents will be contacted by a scammer; the question is when, and whether they will be able to recognize the threat.
Consult an attorney experienced in estate and elder care planning to discuss with you and your family the proactive steps that can be taken to minimize this risk. Perhaps the best solution for your family is to plan with a DPOA or a non-probate transfer, such as a revocable living trust, to protect your parents and their assets.
James Ferraro is a vice president and trust counsel in the Shreveport, La., and Kansas City, Mo., offices of Argent Trust Company. Ferraro is a 2003 graduate of the University of Missouri at Kansas City School of Law, past president of the family and the law section of the Kansas City Metropolitan Bar Association, is a member of the Tax and Estate Planning Council of Shreveport and a Regional Ambassador for the Kansas City Estate Planning Symposium.
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