Financial Elder Abuse is a Growing Issue

Financial elder abuse is, unfortunately, a significant and growing problem facing our aging population. Financial elder abuse or exploitation is commonly defined as illegal or improper use of an elder's money, property, or other assets. This type of conduct spans a wide variety of acts, including stealing from the elder outright, forging the elder's signature to gain access to funds, engaging in coercive or deceptive schemes to induce the elder to grant access to financial accounts or turn over assets, or violating a relationship of trust to misappropriate the elder's money or property when those assets should be used for the elder's own care.

Statistics have shown that the misuse or misappropriation of elders' funds will cause losses to those individuals totaling almost $3 billion in 2014. This statistic is likely under-reported since it does not include all of the potential changes that occurred to a person's estate plan that the person might not have made but for a subtle push one way or the other by someone with ulterior motives. Moreover, one of every six seniors is estimated to have experienced this type of financial abuse. The most vulnerable population is women, especially those living by themselves and those in need of care. However, there are many factors that cause an elder to be more at risk for financial exploitation. These factors can include:

  • lack of familiarity with finances and the technology needed to manage them;
  • the need to depend on others for assistance in carrying out basic tasks of daily life, which may subject them to overreaching and undue influence by their caretakers;
  • being uninformed about the value of their property, especially their homes, and thus susceptible to selling for less than a fair price; and
  • diminished capacity to discover the nature of the financial abuse or take action against it.

Because a large percentage of financial elder abuse occurs at the hands of the elder's family members or close friends - those in a fiduciary relationship or otherwise trusted position to the elder - an extremely high number of elder abuse cases go unreported. This fact is also attributable to the high rates of mental disabilities among individuals as they age: in the coming years, the number of Americans with Alzheimer's and other forms of dementia is projected to reach 16 million. These illnesses impair judgment, cognizance of financial exploitation, and capacity to combat such abuse.

Thus, it is important to recognize and monitor warning signs of financial abuse. Such indicators include large and uncharacteristic withdrawals from financial accounts, addition of other parties' names to an elder's cards or accounts, sudden changes in estate planning documents particularly abrupt changes to those in fiduciary roles, failure to make bill payments or meet other financial obligations when the elder has available financial resources, unexplained transfers of assets out of the elder's name, and previously uninvolved family members or other individuals claiming a right to the elder's property. If these signs of possible abuse are detected, one should contact the appropriate Adult Protective Services agency (established in every state and DC); this information can be found on the National Center on Elder Abuse's website here.

Importantly, certain estate planning methods can also be used to decrease the risk of financial exploitation before it occurs. A durable power of attorney can be a useful tool for an individual to keep assets in his or her own name but authorizing another to act with regard to the assets for the benefit of the individual. This option certainly has its drawbacks - namely, the potential for abuse of such a trusted position and the fact many financial institutions do not like the use of power of attorneys exactly for that misuse reason. If one decides to use a power of attorney, he or she must have the utmost confidence in the designated agent. Another choice is to use a revocable living trust, whereby the person's assets are held in the name of one or more trustees (individuals, institutions, or both) during his or her lifetime.

Ultimately, becoming informed about the signs of financial elder abuse and the professional resources available to combat it, in addition to employing the various estate planning techniques at one's disposal as he or she ages, will be the most effective tools to guard against financial exploitation.

Basics of Estate Planning: How Does Adoption and Step-children Effect Estate Planning?

In the past, I have discussed how not having a will can impact who receives your probate assets but this month I will specifically address the relationship between intestacy and adoption. Intestacy is what occurs when a person dies without a will or without designating that a certain asset or piece of property will pass to a specified person or entity. How and to whom the decedent's property passes in the case of intestacy is determined according to state law.

All 50 states, DC and the U.S. territories have laws giving adopted children the right to inherit from their adoptive parents, even in the case of intestacy. Practically speaking, the most common reason that an adopted child is not named in the testator's (i.e. the person making the will) will is that the child was adopted after the will was executed, and the will was not updated to reflect the changes in the individual's family. In almost all situations, the entering of a court decree finalizing the adoption, which marks the end of the legal relationship between the child and his birth parents and the beginning of the legal relationship between the child and his adoptive parents, serves as the time after which the child has inheritance rights with regard to the adoptive parents.

Generally, if an adopted child is not named in the will but the will references "children" as a class (or if the intestacy laws dictate that children are next in the line of distribution), the adopted child will be included absent evidence either that the parent intentionally excluded the child or that the child was provided for through other estate planning means outside of the will. Virginia, DC and Maryland all have statutory provisions to this effect.

Unlike adopted children, stepchildren do not enjoy the same legal rights to inheritance from their stepparents. Most state intestacy laws limit intestate succession to blood relatives, although a minority of states provide some avenue for stepchildren (or foster children) to inherit if certain conditions are met. For example, California law provides that a parent-child relationship exists between the stepparent and stepchild or foster child if, firstly, “the relationship began during the person’s minority and continued throughout the joint lifetimes of the person and the person’s foster parent or stepparent,” and, secondly, “it is established by clear and convincing evidence that the foster parent or stepparent would have adopted the person but for a legal barrier.”

Due to these stringent requirements, and their minority status in the state probate codes, stepparents are well-advised to indicate clearly in their wills that they intend to designate their stepchildren as recipients of testamentary gifts. Ambiguity in testamentary language will likely lead a court to conclude that the stepparent only intended to include his or her legally recognized, or natural, children in the will. Care should be taken in clearly communicating the testator's intent to an estate planning attorney to ensure that his or her objectives are carried out as planned.

Estate of the Month: Philip Seymour Hoffman's Estate Has a Tax Problem

The prolific and Oscar winning actor Philip Seymour Hoffman, died earlier this year from a drug overdose. Hoffman starred in such movies as Moneyball, Charlie Wilson's War and others will be sorely missed. However, his untimely and unexpected death raises a number of important estate planning issues that can educate us not what to do.

Hoffman left his entire estate to his longtime partner, Mimi O'Donnell, to whom he was not married at the time of his death. Moreover, he did so in a will that had been executed almost 10 years prior to his passing, at a time when he only had one child, Cooper, with O'Donnell (the couple subsequently had two more children, Tallulah and Willa, neither of whom are mentioned in his testamentary documents). You can find a copy of his will, executed in 2004, here.

The one thing I always find fascinating is that number of people that have estate plans drafted by attorney that do not regularly practice in estate planning. This is particularly true of people with larger estates. Taking a look at Hoffman's will, and just like Whitney Houston's estate plan, there is a likelihood that Hoffman's will was drafted by an attorney that did not regularly practice in the estate planning area. This means he was not familiar with the "ins" and "outs" of estate and tax planning. As shown below, Hoffman's estate has a number of errors. You wouldn't go to a general physician if you needed knee surgery, would you? But, some people think it is okay for their estate plan.

The fact that Hoffman and O'Donnell were not married at the time of Hoffman's death and the absence of any reference to Hoffman's second and third children in his will created a number of obstacles to his estate administration that could have been avoided with more careful planning. Firstly, Hoffman's is yet another celebrity estate facing extremely adverse tax consequences. His estate has been estimated at $35 million for estate tax purposes. Federal and New York state estate taxes will consume between $12 and $15 million. That is over one third of his estate and could reach as high as forty-three percent (43%.) This amount is computed by taking into account the value of assets over $5.34 million and taxing them at a rate of 40% (as per the federal estate tax), and then adding in New York's tax rate of 16% on assets over $1 million left to non-spouses. Eek!

Had Hoffman and O'Donnell been married, this picture would have changed drastically. Being married provides a number of legal protections not afforded to unmarried couples. Hoffman would have been able to transfer an unlimited amount of funds to O'Donnell during life or even at death tax-free (this vehicle for transfer of marital wealth through estate planning is known as the "marital deduction"). As I have discussed before, there are also several options to further minimize an estate taxes including a trust set up for the benefit of the person you wish to transfer money to. By choosing not to marry, Hoffman and O'Donnell also lost the benefit of the tax-advantageous estate planning strategies available to married couples like portability. Further, the money that O'Donnell inherits from Hoffman could be re-taxed at her death as a result of her own taxable estate. In other words, in all likelihood, the Feds, and potentially New York state, will get another bite at Hoffman's estate.

Much like Michael Crichton's estate, there is the question of how Hoffman and O'Donnell's two children born after the will was executed in 2004 will be provided for directly, if at all. Hoffman's will left money in trust to Cooper, the couple's oldest child, but contained no clause indicating that reference to the couple's existing child in the will was to include children born after the will's execution (known as the "after born child" problem or a "pretermitted" child in estate planning). There is certainly a case to be made that Hoffman did not intend to disinherit his other two children, as they had not been born as of 2004, but the lack of explicit reference to the children may cause the issue to be more contentious than Hoffman would have wanted. If Hoffman provided for his second two children through other means of wealth transfer, for example through a life insurance policy, this could further complicate the issue by seeming to indicate that he did not wish to leave them money in trust.

Hoffman could have avoided controversy over his will - and a hefty tax bill - by employing another means of transferring assets to O'Donnell, updating his will more frequently to reflect his current wishes and changes in his family, and writing more flexibility into his estate plan.

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