Financial Elder Abuse

[Bylo Selhi]

From today's WSJ.

Intimate Betrayal: When the Elderly Are Robbed by Their Family Members

Note to retirees: Beware the family.

Financial swindles are one of the fastest-growing forms of elder abuse. By some estimates, as many as five million senior citizens are victimized each year, says Sara Aravanis, director of the nonprofit National Center on Elder Abuse, which provides information to federal and state policy makers. Because of the problem's spread, "many states have laws authorizing financial institutions to report suspicions of elderly abuse," says Bruce Jay Baker, general counsel for the Illinois Bankers Association. Earlier this summer, the Securities and Exchange Commission hosted a Seniors Summit to highlight the issue, with SEC Chairman Christopher Cox noting that protecting seniors' pocketbooks "is one of the most important issues of our time."

Yet it's not dodgy financial experts or crooked caregivers who are the biggest threat. It's family. Children, siblings, grandchildren, nieces and nephews, and even spouses are the people most likely to rob the elderly, according to elder-law advocates and attorneys. The data that exist -- albeit in a spotty manner -- suggest that financial crimes rank as the third-most prevalent abuse of the elderly.

For victims and family members out to help, the way to combat the crime is to know what to look for and how to prevent it.

The abuses: Some of the offenses are straightforward: A grandson swipes checks and makes them out to "cash"; a daughter uses the power-of-attorney over Mom's bank account to apply for an ATM card and withdraws money without authority; a son taking care of Dad's finances uses his father's credit card for personal purchases.

Other crimes are more intricate and generally depend on manipulating an elderly person's emotions. Over time, a niece hired to help an elderly aunt persuades her to redirect certain assets to the niece in a will or to designate the niece as the beneficiary of investment accounts or insurance policies; a nephew coerces an uncle to put the nephew's name on the deed to the uncle's house. In some instances, a sibling caring for a brother or sister pays for substandard care and lets bills go unpaid in order to preserve assets the sibling stands to inherit.

How to detect it: If you're a retiree, you should be wary if a family member you've entrusted to help with your finances rationalizes ways to keep you from your accounts. The person might say the credit-card bill is paid and the checkbook already balanced, so there's no need for you to look at it. That could be a sign the person is trying to keep you from seeing big, unwarranted expenses or checks made out to cash.

If a family member seems eager to take you to the lawyer to sign a power-of-attorney, or talks to you about changing a will, deed or beneficiary designation on financial accounts and insurance policies, be cautious. The same holds true if the person insists on sitting in on your meeting with an attorney to help you understand what's going on. Attorneys are capable of explaining legal arrangements simply -- just ask.

For family members watching from the outside to see if an elderly person is being exploited, a lifestyle change for the elderly relative or the caregiver is a big hint. If Mom or Dad is suddenly cut off from the rest of the family, no longer pursues activities away from home -- such as church functions or a weekly card game -- or gets calls screened by another family member who always has an excuse for why the parent isn't available, "that's a big red flag," says Sally Hurme, an attorney with AARP Financial Security, an educational-outreach arm of AARP.

A family member suddenly driving a new car or living a grander lifestyle than seems reasonable should sound warning bells as well.

Approaching the victim can be tricky; retirees often balk at talking about abuse for fear they'll be seen as incapable of managing their lives. Still, communication is the first recourse. If you're convinced that abuse is occurring, contact an Adult Protective Services agency.

How to prevent it: Start with legal documents. Retirees often want a trusted family member to manage various aspects of their lives when they can't manage it themselves. A power-of-attorney allows that -- but it can also be a license to steal if misused.

To build in safeguards, structure the document to limit what your agent can do and the accounts that are accessible. Stipulate that someone else -- a lawyer, an accountant or a different family member -- receive routine account updates, and ask your financial institution to send duplicate copies of trading records and account statements to this third party.

Establish a relationship with a local elder-law attorney (you can find one through the National Elder Law Foundation, www.nelf.org). These lawyers can help set up legal safeguards. More important: They can read between the lines if you show up with someone else in tow looking to change your will or power-of-attorney.

"When you've worked with so many families, you begin to be more aware of certain traits in people that can be signs of a problem," says Donna Beshaw, president of the National Academy of Elder Law Attorneys. Such attorneys are likely to request time to speak with you alone to gauge what might be happening behind the scenes.

Finally, if you are a retiree, listen to outside observers. You might not want to believe a family member is exploiting you, but outsiders often have a clearer view. Hear what they're saying. Then, look for the signs yourself.

Tips for Seniors
Ways to protect your finances:
* Monitor your credit-card activity.
* If you receive Social Security, have it directly deposited in your bank account.
* Be wary if a family member you aren't close to offers to help you with your finances.
* If you suspect something's wrong, find another family member you trust to talk to.

[brucecohen]

The most heart-rending case I've come upon involved an elderly woman who used her life savings to help her daughter and son-in-law buy and renovate a gorgeous country home near here. The deal was that she'd live with them, in her own apartment.

The renovations took a year. When they were done, the couple evicted the old lady. The house was registered only in the names of the daughter and SIL.

It never occurred to the mother to get independent legal advice and a written life tenure commitment.

[Percy]

Heart rending yes, but someone raised that daughter.

[arthur]

In the 60's I witnessed an Old Lady turned off her farm, her Husband got tied into these Sunday Morning Preachers and left the Farm to one of them, she was gone, dumped literally on the street.

Praise the Lord, our temple needs a new Gold roof.

[Norbert Schlenker]

In the 60's I witnessed an Old Lady turned off her farm, her Husband got tied into these Sunday Morning Preachers and left the Farm to one of them, she was gone, dumped literally on the street.

I agree that financial abuse of the elderly can occur, but this is an anecdote too far. In Canada in the 60's, the doctrine of dower still held in every common law province. No woman could be turned out of her home in favour of a church.

To go back to the WSJ article that Bylo linked, it's true that everything under "How to detect it" is worth an explanation. However, many of these "signs" have completely innocent explanations. Setting up automatic deposits or bill payments, taking a P/A on an account, going joint on an account, even having a will changed are all plausible ways of simplifying life for everyone concerned. Why should Dad be running to the bank to deposit pension cheques? Why should Mum be going to city hall to pay her electric bill? Why should probate fees be incurred?

I found this particularly amusing ....

The same holds true if the person insists on sitting in on your meeting with an attorney to help you understand what's going on. Attorneys are capable of explaining legal arrangements simply -- just ask.

.... because I did exactly this with my mother-in-law the last time she changed her will. We lived in the US at the time and we had obtained (expensive) advice from a US tax lawyer that my wife should almost certainly not be a direct beneficiary of her mother's will because of increased exposure to US estate tax. The US lawyer made a complex recommendation regarding a trust, but the implementation of that had to be done by a Canadian lawyer who was completely unfamiliar with the tax issues.

I had to sit in on that meeting, not to explain things to my mother-in-law (who likely wouldn't have understood anyway), but to explain to the lawyer why my wife had to be cut out of her mother's will in favour of a very complex trust.

[arthur]

Norbert, it sure did happen , lawyers were involved and the Farm ended up being sold.

The case may have been where she was forced to sell the farm to pay off the Church, but it most certainly happened.

Possible, due to the age and frail Health of this lady, it was a settlement to avoid unncessary stress on her??

[beaverlodge]

There was nothing in the 60's to protect the female spouse

The first advance in the financial protection of women took place in Alberta and I think that was in the 70's.

It was a lady who worked alongside her husband on the trials and tribulations of their farm struggle and was left destitute when her husband left her.

It went to court and the result was the financial protection of both spouses in the event of marital break.

The legislation that we have in place now starting with that case. The name escapes me but it was Southern Alberta.

[brucecohen]

The legislation that we have in place now starting with that case. The name escapes me but it was Southern Alberta.

I believe it's this case. Note, though, that the couple weren't married.

PETTKUS V. BECKER (1980) 2 SCR 834
In this 1980 Canadian Supreme Court decision, a 19-year old common law relationship had ended acrimoniously. During the relationship, Mr. Pettkus had developed a thriving beehive operation and when the relationship ended, Ms Becker claimed half of it. Ms Becker's salary had gone towards numerous "family" expenses such as meeting ongoing expenses while Pettkus was able to save his income, which went towards the purchase of the bee-hiving farm. Ms Becker's first argument was that an implied trust had developed in the farm and in which resulted her half-interest. If this was not the case, then she argued that a constructive trust of "unjust enrichment" had developed. These trusts are court-imposed and are designed to cure injustices where three conditions are met: where (1) someone has benefitted (2) at the expense of another and (3) the enrichment is "unjust" or without legal justification. Decision: Ms Becker was given a 50% share of the farm and beehive operation. Justice Dickson writing for the majority and in a brilliant display of legalese: "where one person, in a relationship tantamount to spousal, prejudices herself in the reasonable expectation of receiving an interest in property, and the other person in the relationship freely accepts benefits conferred by the first person in circumstances where he knows or ought to have known of that reasonable expectation, it would be unjust to allow the recipient of the benefit to retain it." Since this decision, most Canadian provinces have passed legislation which recognizes common law relationships and establishes support standards for them.

[beaverlodge]

This was the case - MURDOCK VERSUS MURDOCK

Murdoch v. Murdoch, [1975] 1 S.C.R. 423 is rightly seen as the first case that directly challenged society's assumptions about what is right and just in dividing property. Mrs. Murdoch had worked with her husband for 25 years to buy and build the family ranch. When the marriage ended, she did the then unthinkable -- she asked the courts to recognize her claim for what she and many Canadians saw as a fair share of the family property in return for the years of work she had contributed to acquiring it and building its value. Disappointment followed. Mrs. Murdoch fought her battle to the Supreme Court, only to be told that there was simply no way the law could recognize any right of property except that of her husband. Justice Laskin wrote a spirited dissent, to no avail. The majority decision in Murdoch was reactive, accepting the status quo of past law. Justice Laskin's dissent was eloquently pro-active, confronting the changing reality of equality of the sexes and women's new role in the economy.

The Supreme Court's decision may have marked the end of Mrs. Murdoch's saga. But it was only the beginning of the larger legal story. The decision galvanized Canadians, who reacted with a mix of astonishment and shock to the idea that married women had no property rights in the family home, farm or business. Public pressure was brought to bear. In short order, every province enacted laws recognizing the right of spouses to share family property, regardless of who holds legal title. The Divorce Act was amended to the same effect. it was truly a revolution in the property rights of married couples.

But the battle was not yet won. The next stage brought the remedy of constructive trust for unmarried couples and a recognition that unpaid domestic work counts in properly division. In Peter v. Beblow, [1993] 1 S.C.R. 980, the Supreme Court awarded the plaintiff the family home as a fair approximation of the value of her household services.

[Norbert Schlenker]

Thanks, Beav. You taught me something today.

However, to go back to Arthur's anecdote ...

In the 60's I witnessed an Old Lady turned off her farm, her Husband got tied into these Sunday Morning Preachers and left the Farm to one of them, she was gone, dumped literally on the street.

"Left the farm" implies death, not divorce or separation. In the 60s, dower would have protected a widow.

[ockham]

This discussion illustrates nicely why the law of property division on marriage breakdown can be so complex.

In response to the Murdoch decision, provinces passed property division legislation. That legislation did not, does not, however, preclude recourse to the trust principles for property division developed by the Court in Pettkus. So now litigants can rely on either or both of legislated principles and trust principles.

That's just the property division. You still need to deal with income division (alimony and support) and child custody and support.

Plus, by now, the parties hate each other.

[WishingWealth]

[url=http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1157061023360&call_pageid=968332188492&col=968793972154&t=TS_Home]Theft of home prompts Ontario bill
[/url]

The story of an 89-year-old Toronto man who lost his home to identity thieves has left many homeowners in Ontario feeling "scared and vulnerable," Tory MPP Joe Tascona says.

Tascona, the provincial government services critic, was referring to Paul Reviczky, who was recently shocked to learn that the thieves, using a fraudulent power of attorney, had sold the home he had owned since 1980 to an unsuspecting purchaser, and that under Ontario law he may never get it back......

In The Toronto Star.

This has not only happened to the elderly but when it does, they are left with a total sense of disbelief that this can happen at all in our society.

Too bad the real perps and their 'enablers' are not thrown in the slammer for say: 25 years real time.
And if they show good behaviour in jail, they get to watch Hockey Night in Canada starting on the 15th year.

Shame on us that we are so passive when bad stuff happen to others.

WW

[brucecohen]

[url=http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1157061023360&call_pageid=968332188492&col=968793972154&t=TS_Home]Theft of home prompts Ontario bill...
[/url]

Notice that this would be a private member's bill, not a govt bill. Private member bills face a long and uncertain path to passage. Notice too that the minister responsible promised quick action without prodding by the opposition. The problem of home theft is not new. I recall several media reports over the past year and the legal community was aware of it before then. That was the reason my lawyer cited for having me buy title insurance when I purchased my current home. If the govt can act expeditiously now, why haven't they done so already?

[Bylo Selhi]

That was the reason my lawyer cited for having me buy title insurance when I purchased my current home. If the govt can act expeditiously now, why haven't they done so already?

This snippet from the article is particularly damning [my emphasis]:

The draft bill will contain a "reverse onus" provision that requires banks and mortgage companies to show they took reasonable steps to ensure the transaction was genuine — before allowing them to take legal action against the homeowner. "Mr. Reviczky purportedly gave a (non-existent) grandson a power of attorney to sell the property on behalf of his 89-year-old grandfather," [MPP] Tascona said. "Why wasn't a simple telephone call made to Mr. Reviczky to confirm the situation?" Tascona charges that institutional lenders are not responding to obvious "red flags" in title fraud situations, "because we are in such a hot real estate market and prices are going up." "These institutions are perhaps overworked and they are not doing their due diligence," Tascona added.

The institutions may be overworked but if they, rather than the homeowner, were on the hook when things went awry I'll bet they'd quickly do more due diligence. Probably so much more that consumers would start to complain about how difficult it is to buy or sell a house.

[WishingWealth]

Court ruling frees Toronto couple from fraudulent mortgage

Looks like there are some new and interesting developments on this front.

Nothing like sticking those millions to the banks and other 'authorities'.

All of a sudden, the unstoppables meeting the unmovables will see some action and the conundrum will be solved in no time flat.



WW (A bit optimistic I know)

A Toronto court ruling that has freed a couple from a bogus mortgage is "unprecedented" and a "breakthrough," the victims' lawyer said Wednesday.

Superior Court Justice Randall Echlin ruled Tuesday that Seyed Rabi and his wife, Shohreh Shafiei, were the innocent victims of identity thieves who placed a $247,860 mortgage on the couple's property.

....
In Tuesday's decision, the judge said that if the Toronto-Dominion Bank had exercised "due diligence," it would have detected the scam that left the couple without their home.
...
Echlin invalidated the mortgage and said the bank was not an "innocent victim" of the crime.

...
Phillips has introduced a bill aimed at preventing real estate fraud; it is now undergoing second reading.

[chiaroscuro]

I saw the title and honestly thought the title was about Finance Minister Jim Flaherty.

[Springbok]

Court ruling frees Toronto couple from fraudulent mortgage

Looks like there are some new and interesting developments on this front.

A company called Teranet, (now an income trust - TF.UN available at a bargain price!) is working on a pilot scheme to computerise real estate closings. Apparently this will reduce chance of fraud:


“There is tremendous potential in the Closure service to combat mortgage and title fr
said Susan Elliott, President of Teranet subsidiary BAR-eX Communications Inc. Th
BAR-eX web site will offer the Closure service to lawyers following the pilot. “Closure
enable all parties to a real estate transaction, for the first time, to pay money online d
to its rightful and final destination. By removing the extra handling of funds present in
today’s manual process, we are reducing the opportunity for various types of fraud.”

Click Here for link.

[Bylo Selhi]

Financial abuse of seniors all too common

At Christmas most of us feel an extra duty of care for those less fortunate. We fill Salvation Army kettles, dole out more coins than usual for hands extended from street corners and send out cheques to favourite charities. At this busy time of year we should also think about a special duty of care for those who may be fortunate enough to have a roof over their heads and sufficient to eat but who are vulnerable on a different level. In today's world, seniors have the most to lose from indifferent or inappropriate financial advice...

It illustrates something we see time and time again – financial abuse of seniors. Examples of this include the ever-popular account churning, age-inappropriate investments and investments they don't understand. If we had a dollar for every senior who invested in principal protected notes, thinking they are the same as GICs, we could retire tomorrow. Quite simply, we feel that there should be a special duty of care for seniors. The onus must be on financial institutions to ensure that our older citizens understand what they're buying. Equally important, every purchase made by a senior must pass this test – is it appropriate for this person, at this point in their life? If there's the slightest doubt then they almost certainly shouldn't be in that investment...

That's certainly not the case with the dear old lady whose portfolio is on our desk now. She has to make her first RRIF withdrawal this year but all her funds are locked up in freshly purchased, deferred sales charge (DSC) laden mutual funds. There's a clear pattern evident: every time her funds reach the end of their DSC schedule her adviser reinvests the money in new funds with new DSC charges...

It can be very difficult to talk to older people about money without sounding nosy, ill-mannered or grasping – especially if you're related to them. Money, to that generation, is a very private matter. But this is the season of generosity. If you have a senior in your family, try to assure them that you're not prying but let them know you're willing to be a sounding board if they're confused about financial issues.

[Rip]

That's certainly not the case with the dear old lady whose portfolio is on our desk now. She has to make her first RRIF withdrawal this year but all her funds are locked up in freshly purchased, deferred sales charge (DSC) laden mutual funds.

What is their point? Are they saying that DSC Funds are in and of themselves a bad thing? Is there some other inferred issue?

There's a clear pattern evident: every time her funds reach the end of their DSC schedule her adviser reinvests the money in new funds with new DSC charges...

This of course would be a bad thing.

[AltaRed]

That's certainly not the case with the dear old lady whose portfolio is on our desk now. She has to make her first RRIF withdrawal this year but all her funds are locked up in freshly purchased, deferred sales charge (DSC) laden mutual funds.

What is their point? Are they saying that DSC Funds are in and of themselves a bad thing? Is there some other inferred issue?

The issue could be inflexibility due to limitations on 'freebie' (10%) annual sales of DSC funds to meet mandatory RRIF withdrawal requirements.

[Bylo Selhi]

First of all, let me be clear that I didn't write either of the snippets attributed to me by Rip. They were written by David Cruise and/or Alison Griffiths, according to the byline.

That's certainly not the case with the dear old lady whose portfolio is on our desk now. She has to make her first RRIF withdrawal this year but all her funds are locked up in freshly purchased, deferred sales charge (DSC) laden mutual funds.

What is their point? Are they saying that DSC Funds are in and of themselves a bad thing? Is there some other inferred issue?

Whether one believes that DSC funds are inherently a "bad thing" seems to me to be irrelevant in this situation. Whoever sold the elderly lady these funds presumably knew her age and how much she would have to withdraw from her RRIF each year for the next ~7 years (the typical DSC amortization period.) Is it ever appropriate to sell someone a DSC fund when the adviser knows (or ought to know) that some of the money will be needed before the DSC amortizes and hence will be subject to an early-withdrawal penalty?

There's a clear pattern evident: every time her funds reach the end of their DSC schedule her adviser reinvests the money in new funds with new DSC charges...

This of course would be a bad thing.

Exactly. There's no obvious benefit in doing that. If the old funds were no longer appropriate then why wait until the DSC amortizes to switch? If the old funds were still appropriate then why not switch to the FE-version so as to earn double the trailer (or just leave the funds as they are (or even better, rebate the 50bp that are no longer required to amortize the DSC, but I digress...))?

[jiHymas]

Equally important, every purchase made by a senior must pass this test – is it appropriate for this person, at this point in their life? If there's the slightest doubt then they almost certainly shouldn't be in that investment...

This seems to me to be a bit simplistic. There are a lot of investments that wouldn't be appropriate considered in isolation, but are appropriate in the context of a balanced portfolio.

[Rip]

Is it ever appropriate to sell someone a DSC fund when the adviser knows (or ought to know) that some of the money will be needed before the DSC amortizes and hence will be subject to an early-withdrawal penalty?

Well no, but in this case we don't know if the DSC fees are actually going to be an issue given the free withdrawal allowance. Hence my question...what is the point?

...and I apologize about the mis-assigning of the quote.

[brucecohen]

I have some problems with the Star article:

1. As Rip noted, the 10% "free" annual withdrawal that's standard on DSC funds (except low load DSC) would be more than enough to cover this lady's RRIF withdrawal requirement. That's why the 10% provision was created.

2. Regarding the guy whose broker insisted that he sell everything before moving accounts: was the advisor venal or just incompetent? If the client held only mutual funds, the advisor gained nothing by the sale -- DSCs go to the fund company. Maybe the advisor really did think everything had to be sold. Of course, if we're talking stocks and bonds, the advisor would have gained...and may well have charged top dollar commish.

3. As Jim noted, one investment taken in isolation might be considered appropriate for a senior, but not when placed in the context of the overall portfolio. Also, there's a school of thought that when a well-off senior places high importance on leaving an estate, at least part of the portfolio can/should reflect the horizon etc of the heirs.

That said, I certainly share the writers' concerns about PPNs being sold as pseudo-GICs, their concerns about advisors' inability to communicate though that applies to clients of all ages, and their concerns about clients' inability to understand though that too applies to all ages.

[Bylo Selhi]

I have some problems with the Star article...

Points taken. (And also many, if not most, DSC funds allow the investor to both take out 10% annually without penalty and to get distributions paid out in cash rather than reinvested.)

That said, however, it seems to me that we're missing the thrust of the article: If you know a senior who seems financially vulnerable, especially a relative or close friend, take some time to talk to them about their situation and be sensitive to the possibility that someone they trust, not necessarily a financial advisor, may be taking them for an expensive ride.