Steps to protect senior citizens from both strangers and people they know

Financial abuse of the elderly isn’t always outright fraud or theft committed by a con artist, although that’s shockingly common.

“Often, the culprit is a family member, a friend or a neighbor,” says ReKeithen Miller, Certified Financial Planner with Palisades Hudson Financial Group, Atlanta.

Besides outright fraud, abuse may take the form of taking advantage of victims’ diminished capacity to pressure or influence them to act against their best interests.

“Abuse isn’t always the result of a carefully plotted scheme. Family members’ emotions can run high, and fights can result in collateral financial damage to an individual unequipped to defend his or her own wishes,” he says.

Take steps against financial exploitation long before mental capacity becomes an issue, Miller says. “The best defense against it is preparation.”

When you or your loved one is still capable, you should set up a durable financial power of attorney, he advises. The POA, along with other documents such as a health care directive, empowers a trusted individual or individuals to make decisions on another’s behalf.

“Appointing someone to this position gives him or her a great deal of power, so it is essential to be careful about who you choose,” he says.

If your loved one is no longer capable of executing such documents, it may make sense to consider guardianship or conservatorship. (In some states, the terms guardianship and conservatorship are used interchangeably.)

A legal guardian is authorized to make personal decisions, such as choices about housing and medical care, on behalf of an individual who no longer has the capacity. A conservator is appointed to make financial decisions. “Both are court-appointed positions, so the process can be complicated and will take time,” Miller says.

Diminished capacity runs spectrum

Mental capacity can be task-specific. Some people who are not capable of handling major transactions may still be very capable of handling routine financial matters like paying bills, he says.

Individuals who are highly functional when medicated but who don’t take their prescriptions may lose their ability to make sound decisions. Some older adults with vision or hearing loss may be able to make sound decisions in person with the proper accommodations but may not be able to reliably do so over the phone.

“Those who are most vulnerable to financial exploitation usually retain some degree of financial independence but rely on someone else for their other needs. This opens the door for a third party to exploit the relationship,” Miller says.

Look for these red flags

Is your loved one a victim of financial exploitation? The Justice Department says to watch for these red flags:

• Sudden changes in bank accounts or practices, including an unexplained withdrawal of large sums of money when the customer is accompanied by an unfamiliar person
• The addition of new names on an elder’s bank signature card
• Unauthorized withdrawal of the elder’s funds using the elder’s ATM card
• Abrupt changes in a will or other financial documents
• Unexplained disappearance of funds or valuable possessions
• Substandard care being provided or bills left unpaid, despite the availability of adequate financial resources
• Discovery of an elder’s signature being forged for financial transactions or for the titles of his or her other possessions
• Sudden appearance of previously uninvolved relatives claiming their rights to an elder’s property or possessions
• Unexplained sudden transfer of assets to a family member or someone outside the family
• The provision of unnecessary services
• An elder’s report of financial exploitation

Undue influence and affinity fraud

You should also stay alert for “undue influence,” where a person uses a position of power to influence someone else to do something he or she would not have done otherwise.

“While anyone can be a victim of undue influence, someone with diminished capacity is especially vulnerable,” Miller says. “For instance, an adult child who does not get along with his siblings may try to persuade his mother that his siblings mistreat her and that she should trust him with her finances exclusively.”

People in their 70s and 80s are often targeted for free-lunch seminar pitches. While treating someone to a free lunch does not automatically signal bad motives, anyone invited to such events should be especially wary of hard-sell approaches, Miller warns.

When you consider working with a professional, for yourself or on your loved one’s behalf, never assume that someone with professional certifications is inherently trustworthy.

“Not all certifications have a rigorous evaluation process or require the professional to maintain certain standards,” Miller says. “Make sure that anyone providing advice to your loved one observes a fiduciary standard—meaning he or she puts the interests of the client first.”

You should also be on the lookout for “affinity fraud.” It is common for fraudsters to use a shared affiliation, such as religious beliefs, to build unwarranted trust with their targets. “A financial professional who attends your loved one’s church or lives in her neighborhood deserves just as much scrutiny as a complete stranger,” Miller says.

Finally, if your elderly loved one has been financially victimized, report it to the proper authorities in your state or city, he says.

Palisades Hudson Financial Group is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with more than $1.2 billion under management. It offers financial planning, wealth management, financial management and tax services. Branch offices are in Atlanta; Georgia; Austin, Texas; Portland, Oregon; and Stamford, Connecticut.

Follow Palisades Hudson on the web (www.palisadeshudson.com), Twitter (@palisadeshudson), LinkedIn (www.linkedin.com/company/palisades-hudson-financia... and Facebook (www.facebook.com/PalisadesHudson).