by Vance R. Parker JD, MBA | Jan 31, 2019
In the Jan 24, 2019 article “Scamming Grandma: Financial Abuse of Seniors Hits Record,” the Wall Street Journal states that U.S. banks reported a record 24,454 suspected cases of elder financial abuse to the Treasury Department last year, more than double the amount five years earlier. Although it is hard to obtain an exact figure because so much elder financial abuse goes unreported, the AARP frames elder financial abuse as a $40 billion to $50 billion problem within the U.S. Trusts can help.
The United States reports higher rates of elder financial abuse than other industrialized nations. In Europe, seniors’ retirement funds are mostly doled out to them gradually, in monthly payments from government or other pension funds, where they are used to pay monthly expenses. In the United States, because of insufficient monthly Social Security and pension payments, workers are encouraged to save a great deal of their retirement funds themselves, held in potentially large IRAs or other accounts which they control. In fact, according to the Wall Street Journal article and the American Bankers Association, people over 50 represent only one third of the population, but account for 61% of bank accounts, and 70% of bank deposits.
In the U.S., these large pots of money in the hands of seniors (who also exhibit higher rates of illness and cognitive decline) are irresistible to thieves–who can be local door to door scammers, local or long distance romance scam artists, household workers or care providers, nefarious family members, or international financial scam and con artists who reach seniors through telephones, computers, and cell phones. Recent scientific studies reported by the National Institutes of Health tell us that as brains age, they undergo physiological changes that diminish older people’s ability to identify threats and assess the trustworthiness of potential predators. Thieves, of course, discovered these weaknesses long ago.
An elder law or estate planning attorney can create a trust for a senior who is still competent, which figuratively creates a “vault” holding the seniors’ assets, and gives the vault key to a responsible family member or institution. Only this “trustee” can make financial transactions on the senior’s behalf. When predators, such as telephone scam artists, figure out that the senior does not have the key to the vault holding his or her assets, they often quickly lose interest in continuing the scam.
Trusts may also be set up much earlier in life, so that as long as the owner of the assets is mentally competent and not susceptible to predators, the asset owner can act as his or her own trustee and account manager. As the asset owner ages, a co-trustee may be added to help watch the accounts and help the account owner when needed. If the asset owner later becomes susceptible to financial abusers or is no longer mentally competent to manage assets, another responsible family member or an institutional corporate trustee may become sole trustee and manager of the senior’s accounts.
Because trusts may contain detailed, legally enforceable instructions for how a senior’s money is to be used, but financial or durable power of attorney documents typically do not, a trust may be a safer vehicle for managing a senior’s money than a power of attorney. In addition, trusts are more complex, and frequently put together in a lawyer’s office where the trustee can potentially be screened by the drafting attorney. A power of attorney document is often easily downloaded from the Internet, and used by a thief or dishonest family member very quickly, without an attorney’s involvement, to scam a senior.
As banks and financial institutions see higher rates of fraud with powers of attorney, and because trusts are often associated with more affluent clientele, a trustee managing a senior’s assets may be treated with more deference by financial institutions, and experience fewer hassles, than an agent on a power of attorney document.
An elder law or estate planning attorney can help a family determine if a trust is right for their needs.
by Vance R. Parker JD, MBA | Aug 7, 2017
CATEGORIES: Elder Law, Incapacity Planning, Estate Planning, Trusts, Elder Care Attorney, Winston Salem, North Carolina, NC.
As they age, some seniors become less and less able to manage their own assets. Attorneys frequently use the phrase “incapacity planning” to indicate estate planning done for a client diagnosed with dementia, or with other mental or physical disabilities, who will require another responsible adult to eventually manage his financial (and legal) affairs.
THE FINANCIAL POWER OF ATTORNEY
The Financial Power of Attorney (FPOA), also called a Durable Power of Attorney (DPOA), allows a fiduciary, called an “agent”, to manage an impaired senior’s financial and legal affairs. The term “fiduciary” refers to a person who must act in the best interests of the principal when managing his assets. While the FPOA remains the most commonly known tool for managing an incapacitated senior’s assets, management through a Revocable Living Trust (RLT) can offer significant advantages.
HOW A REVOCABLE LIVING TRUST WORKS FOR INCAPACITY PLANNING
After a RLT is set up, the client’s assets are moved into the trust, and those assets are then managed by a fiduciary called a “trustee”. During the senior’s lifetime, and while the senior is mentally able, he serves as trustee for his own assets.
A spouse, and/or a trusted adult from a younger generation (such as the senior’s child), may also be added to the trust document as current co-trustees (along with the senior.) Then, at any time that the senior needs help managing his or her assets, a responsible co-trustee is available, and can step in immediately to help out, with no delay and with no additional legal requirements.
MANAGING FINANCIAL ASSETS THROUGH A REVOCABLE LIVING TRUST: ADVANTAGES
Using a RLT for incapacity planning conveys the following advantages:
- Higher Level of Authority. In both U.S. and European law, a trustee is generally provided a higher level of authority to manage assets than a FPOA agent, and a trustee usually receives a higher level of respect and deference;
- Clear Directions for Managing Assets. Trust documents normally give the trustee detailed directions for managing the senior’s assets. In contrast, FPOA documents typically do not provide any directions to agents regarding how the senior’s assets are to be managed or used.
- Banks Prefer Dealing With Trustees. Banks, brokerage firms, and other financial management firms greatly prefer dealing with trustees over agents, for these reasons, and with these results:
- FPOA Documents Are Frequently Associated With Fraud. FPOA documents are inexpensive, easy to obtain, and frequently forged. Seniors often sign these documents without understanding the repercussions, or are inappropriately pressured to sign these documents by unethical agents. In contrast, RLTs are more commonly drafted by attorneys, and signed in the lawyer’s office, thereby lowering the risk of fraud.
- Legal Department Review May Take a Significant Amount of Time. Because of the fraud risk associated with FPOAs, a financial institution’s legal department may take a significant time, sometimes months, to review a FPOA. When reviewing the application for a new RLT trustee, if any documents are required to be reviewed at all, a fairly straightforward review of the Certification of Trust document (a summary of trust terms), along with any required personal identification information, can be all that the financial institution needs.
- The Bank’s Own Form May Be Required. Because of the ongoing fraud risks, some financial institutions may require the use of their own FPOA forms, and not accept outside FPOA forms. If the senior has already become incapacitated, he or she will not be able to sign a new bank FPOA form. In contrast, such rules do not apply to RLTs.
- FPOA Forms May Become Outdated. Because of the ongoing fraud problem, some financial institutions may not accept FPOA forms which are greater than a certain number of years (5 years for example) old. If the senior has already become incapacitated, he or she will not be able to sign a new FPOA form. In contrast, however, even very old trust documents are commonly relied on.
Even where a RLT is successfully used for incapacity planning, a valid FPOA document signed together with the RLT remains useful in certain areas. The trustee provisions of the RLT only apply to the assets which are held by the trust (the trust estate.) Any of the senior’s assets not held within the trust (the probate estate) may still need to be managed through the FPOA. In addition, the FPOA may convey important authority to the agent to manage the senior’s legal affairs, in ways that may not be addressed by the RLT.
Because these subjects may be complicated, incapacity planning should be discussed directly with a licensed elder law, or estate planning, attorney.
