According to “Current Population Reports: 1998 and 2000” (May 2003), pp. 70–88, and related tables published by the U.S. Bureau of the Census, the mean net worth of married individuals with a householder over the age of 65 is approximately $109,000 (as compared with $55,000 for the total population). Because the elderly control larger amounts of wealth, they are more likely to be targeted for financial abuse. Because many of them are frail or in poor health and may have cognitive disorders, they are ripe for victimization. Potential victims also may be enticed if they feel financial pressure because their spouses need costly care. In addition, because their wealth is often tied up in real estate, artwork, and other collectibles, they may be cash poor and concerned that they will outlive their assets. Unless there are societal changes or greater protections, the reported incidents and extent of financial elder abuse will increase dramatically as the oldest of the baby boom generation begin to enter their senior years. CPAs and CPA financial planners, as watchdogs and trusted advisers for families, are in a unique position to protect elderly clients from financial abuse.
What Is Financial Elder Abuse?
The NCEA defines financial elder abuse as financial or material exploitation. It can involve financial mistreatment, exploitation, or fiduciary, economic, or material abuse. The center explains that financial elder abuse consists of the illegal or improper use of an elder’s funds, property, or assets, without the elder’s consent (see www.elderabusecenter.org). It is often difficult to identify elder abuse because when elders make decisions, such as giving large gifts or contributions, those decisions may seem reasoned and rational to them. However, family members, with their own biases and agendas, may view such decisions as squandering their inheritances.
What is financial elder abuse? Here are just a few examples:
- A child is given a power of attorney and uses it to divert cash from her parent’s bank account.
- A lonely elderly man speaks to a telemarketer because this is one of his few contacts with the outside world. The telemarketer persuades the man to purchase an inappropriate and risky investment, promising unrealistic investment returns.
- A financial salesperson inappropriately convinces an elderly woman to purchase a variable annuity with high commissions to the seller and high surrender charges. The woman’s funds are now tied up and unavailable.
How Prevalent Is Financial Elder Abuse?
At the request of the U.S. Congress, the NCEA conducted a study that resulted in the 1998 report, “The National Elder Abuse Incidence Study” (www.aoa.gov/eldfam/Elder_Rights/Elder_Abuse/AbuseReport_Full.pdf). This report found some very disturbing trends. Reports of elder abuse increased about 150% from 1986 to 1996, to 293,000 cases. Furthermore, it is estimated that only one of every six cases of abuse is ever reported by the victims or their families. Even when reported, often little or nothing happens to the perpetrator, and the chances of asset recovery are usually slim.
Seniors are generally afraid to report abuse or too embarrassed to admit they have been victimized. Aging individuals have a rational fear of losing their independence; if they admit to being taken advantage of, their children may try to take control of their finances and they will lose some of their autonomy.
Who Commits Financial Elder Abuse?
The elderly and their adult children often have concerns about what might happen in a long-term care facility such as a nursing home. CPAs should advise their clients that it is wise to take precautions when they or their parents reside in such facilities. However, the U.S. Bureau of the Census report “2004 Population Survey” indicated that 82% of elderly women and 91% of elderly men reside at home. Many of these individuals are dependent on family, friends, or caregivers. Therefore, it should come as no surprise that the majority of occurrences of abuse, both financial and other, happen in the home.
Who is the financial abuser? Men and women are equally likely to be financial abusers of older adults. Unfortunately, the most likely abuser is a family member. In many cases, this family member has a history of substance abuse. According to “A Response to the Abuse of Vulnerable Adults: The 2000 Survey of State Adult Protective Services” (www.elderabusecenter.org/pdf/research/apsreport030703.pdf), historic data suggest that adult children most often perpetrate such abuse, but in recent years the abuser is more likely to be a spouse—especially a second spouse.
How Can CPAs Help Protect the Elderly?
According to a University of Arkansas report, “Elder Financial Abuse: Awareness and Prevention” (www.arfamilies.org/money/consumerprotection/elder_financial_abuse.htm), public awareness and education are essential. CPAs should discuss the causes, effects, and symptoms of financial elder abuse with their clients so they can shield themselves from perpetrators. Financial advisers can explain some possible warning signs (see Exhibit 1). CPAs can speak in their local communities to provide both awareness and financial literacy to the elderly. The California Society of CPA’s (CalCPA) “Dollars & Sense” program (www.calcpa.org/content/communityoutreach/dollars.aspx) is part of that organization’s financial literacy initiative and is now also available from the AICPA. Often state legislators will host such presentations. The programs can also be offered at nursing homes, assisted-living facilities, and community organizations for the elderly. CPAs can have candid discussions with their older clients to explain that there is no shame in becoming a victim. If abuse should occur, the victims should be encouraged to report those who have committed it.
As trusted advisers, CPAs should encourage their clients to explain their dispositive and gift-planning desires, particularly if there is a second marriage. The competing interests of a second spouse and his or her children and those of the other spouse and adult children can lead to financial elder abuse. CPAs can also encourage their clients to take the steps indicated in Exhibit 2 to help ensure that their clients avoid victimization.
The most useful way to help is to offer PrimePlus/ElderCare Sevices (http://pfp.aicpa.org/Resources/ElderCare+PrimePlus+Services). CPAs can provide an array of services to clients in need or those who have already been victimized. CPAs who practice in the PrimePlus/ElderCare arena may provide financial planning, estate planning, and investment advice to help mitigate or avoid financial elder abuse. Some even provide family office services to their clients. These CPAs can be the eyes and ears for clients and their families while relieving them of the burden of maintaining complicated financial records.
What Can Be Done if Elder Abuse Is Suspected?
Morally, everyone should feel a responsibility to help protect the elderly from harm or abuse of any kind. Yet many CPAs feel that they should not get involved in cases of financial elder abuse because of liability issues or a concern that they may have to disclose personal financial information to adult children that may be protected by federal and state statutes. However, many state statutes require certain professionals, called mandated reporters, to inform authorities when they observe suspected cases of abuse. In fact, eight states have laws requiring that “any person” who suspects mistreatment of an elderly person must report it. In California, Senate Bill 1018 was enacted as the Financial Elder Abuse Reporting Act of 2005 to, among other things, add a number of professions to the list of mandated reporters. CalCPA’s lobbying efforts were able to eliminate CPAs from the list, but such inclusion could again emerge as an issue in the future. CPAs should therefore stay informed about such matters in their own jurisdictions. If they have elderly clients or plan to begin providing PrimePlus/ElderCare Services, they should consider how they will conduct themselves if they become aware of or suspect financial elder abuse while providing services to a client. They may even want to consider incorporating the actions they would take into the client engagement letter.
If CPAs decide to report financial elder abuse, they have several options. They can contact Adult Protective Services, the community’s elder care or long-term care ombudsman, or the police department. An additional resource to consider is the U.S. Department of Health and Human Service’s Eldercare Locator help line at (800) 677-1116. The CPA will be referred to a local agency that can direct him or her to resources that can help. A relatively recent force to prevent financial elder abuse has been the formation of fiduciary (or financial) abuse specialist teams (FASTs). Originally started in Los Angeles, these are interdisciplinary groups of concerned specialists from law enforcement, adult protective services, the office of the public guardian, prosecutors, health and mental health providers, and financial and legal professionals. They volunteer to help recover lost assets and to prevent further financial abuse. CPAs interested in donating time to FASTs can become part of such multidisciplinary teams.
Where Do CPAs Go from Here?
There has been a great deal of research on various kinds of elder abuse, but there has been very little in the area of financial abuse. Nevertheless, anecdotal evidence clearly shows that it is a growing problem. CPAs should support efforts for additional research to determine causes of financial elder abuse. They should also try to find ways to prevent abuse before it starts or to end it once it has begun within their client base. Providing elderly clients with the services that will protect them can be both good business and altruistic work. Properly trained CPAs can be both the first and last lines of defense, protecting those who may be ripe for exploitation.For further information about this column, contact Mr. Schulman at michael@schulmancpa.com or Mr. Freedman at mitchpfs@mfac-bizmgt.com.
