The Elderly: How to Prevent Financial Abuse

Three real-life cases shed light on this problem.

If ever an ounce of suspicion is worth a pound of redress, it's dealing with financial abuse of the elderly. Scam artists and others want free money, and the wealthy elderly are an irresistible target. If there is an estate of material size, you can count on unscrupulous people wanting to get a piece of it — or even all of it.

You can also count on increased vulnerability with increased aging. Cases abound of caregivers who use undue influence or even medication to get their wealthy patients to sign documents that they wouldn't if they had all their faculties. Lawyers may be able to unwind cases of undue influence, but it is expensive, and it can mean years in court.

Let's take a look at three real-life cases of financial abuse of the elderly, and what the lawyers who speak about these cases suggest as ways of preventing abuse.

A Woman with Mild Cognitive Impairment

A client of attorney Laura Wartner was diagnosed with mild cognitive impairment. She was still able to go out and enjoy herself with her friends, but she had become forgetful. Unfortunately, one of the people who worked for her took advantage of her forgetfulness. “Hey, you haven't paid me this week,” he'd tell her. Frequently, she'd end up paying him twice for the same work.

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Wartner discovered the scam and put in place someone else to pay the bills, “one my client already knew and who could be trusted. Once my client was surrounded by the right team, she could still enjoy her life without worrying about getting scammed.”

Wartner also arranged for her client to have a debit card for one of her accounts so she wouldn't have to ask for, or keep track of, every penny she spent. That fund was monitored by her financial adviser and by Wartner for signs of fraud. “We recognize that our client has diminished capacity, we want to treat her with dignity and respect, and we want to preserve as much freedom for her as possible while protecting her from people who will take advantage of her,” Wartner says.

Advice: If the person has mild cognitive impairment, arrange for someone else to pay the bills, and have the individual's financial adviser or other trusted person provide oversight. Help preserve the person's dignity and freedom by arranging for them to have a debit card to pay for daily life expenditures.

An Elderly Woman with No Friends

Attorney Michael de León Hawthorne explains what can happen when an elderly person comes under the influence of a companion who is looking for easy money. By age 89, Antonia Hansen (not her real name) had lost virtually all her longtime friends and her spouse.

The main person Hansen trusted was her hairdresser. She had become accustomed to confiding in the stylist, depending on her to take care of her basic needs. Hansen became extremely isolated from her family, other than one son who Hawthorne believes had his eye on inheriting most of her wealth and disinheriting her other children.

Over time, the hairdresser convinced Hansen to let her take over her life. As Hansen's health deteriorated, it became easier for the hairdresser to assert more control over her. Once in charge, the hairdresser and Hansen's son went about restructuring the woman's finances. They had her redo her will so the hairdresser and the one son would inherit her estate.

“The bottom line,” says Hawthorne, “is the hairdresser got hundreds of thousands of dollars and the son walked away with millions. The other children of Hansen were cut out of the will. Hansen amended her will nine times towards the end of her life, and the last amendment was done by the attorney who represented the one son on other matters.”

Hawthorne says this situation could have been prevented with a relatively small investment in time and money relative to Hansen's net worth. Families with substantial assets should recognize ahead of time that unscrupulous people may target them and that they need to protect themselves. Systems, he says, can be set up with professionals ahead of time in order to protect the elderly when their capacity diminishes in the future.

“Protect yourself just as you would protect a business,” he advises. “In a well-run business, there are structures in place to keep someone from getting control of the whole company without going through a proper process.”

In the case of someone who is vulnerable as Hansen was, Hawthorne recommends separating assets in several accounts with different levels of accessibility. For instance, one-third of the money could be in an account freely available to the client and a designated agent, such as her attorney. The client has some money to spend and can enjoy financial freedom.

The other two-thirds of the money would have more substantial controls and safeguards over distributions, and checks and balances via agreements and oversight. If a scheming caregiver tries to drain the smaller account, the client would still have enough money to live comfortably with the bulk of the assets, which would be protected through these safeguards. Major contracts and expenditures from the rest of her money would require approval from a board of advisers.

Hawthorne recommends that people with an estate large enough to tempt theft have the protective provision in their agreements and corporate structures. Ideally, while they still have full mental capacity, the individual stipulates in such agreements that material changes or distributions are valid only if a trustee or other trusted person witnesses and approves the actions in accordance with the terms of the agreement.

Advice: Arranging checks and balances for an individual who may be a target of the unscrupulous can prevent looting and other inappropriate actions.  Do it ahead of time, long before there's a clear need for it. An unrelated caregiver should not be the one handling the checkbook, and safeguards should be put in place to prevent a person's estate from being materially modified at the very end of life.

Have the assets of a vulnerable person's estate placed into separate accounts with different levels of protections, so that if one set of assets gets looted, the remaining assets would be sufficient to live on comfortably for the rest of the person's life.

An Elderly Man Dependent on Caregivers

According to attorney Michael D. Whitty, banks in Illinois alone have reported tens of thousands of cases of elderly people who've been financially victimized. Whitty cautions that a caregiver may use affection, romance, or sex to persuade their elderly charge to leave substantial amounts, even everything, to the caregiver.

“The fact is, it's possible to fall in love even if you're mentally incapacitated,” says Whitty.

The details in the following story are the kinds of abuse Whitty would like to see prevented. In cases where they can't be prevented, he'd like to see each state's legal system act as a brake on financial abuse by caregivers. Here's the case of Joseph Cooper, which is not his real name.

Joseph and Irene Cooper had a 60-year marriage, but no children. They had met at college. While they made some cash gifts to their grand-nieces and grand-nephews, the majority of their estate (including Joseph's IRA) was directed to their college under the estate plan that was in effect when Irene died.

As Irene's health declined, the couple retained a service to provide caregivers to visit their home daily. The service provided two unrelated caregivers who came to the Coopers' home on alternating days. After Irene's death, Joseph became increasingly dependent on the caregivers, who would complain about their low pay and how it might require them to move on to other, better-paying work. Joseph would try to keep them around with holiday bonuses and, eventually, quarterly bonuses. The caregivers talked Joseph into hiring their spouses, children and even ex-spouses as contract employees for services Joseph ostensibly needed, but at inflated wages relative to the value of the services provided.

As time went on, Joseph was persuaded to make even larger gifts to his caregivers to provide what amounted to a retirement plan for each. Joseph remained sharp enough to persuade and direct his attorney and financial advisers to implement the estate plan changes the caregivers had persuaded him to make.

None of those advisers was aware of the full amount being arranged for the caregivers; each was aware of only the portion that required their cooperation. Joseph's situation was a good example of how undue influence does not require a lack of capacity to succeed in redirecting the target's gifts and estate plan. The largest gifts and estate plan changes all took place while the Illinois legislature was considering a statute that would render these transactions in favor of unrelated caregivers presumptively void.

When Joseph died, facts became evident soon enough to allow Joseph's family and his college to act to prevent the caregivers from receiving Joseph's IRA and the refund from his assisted living residential facility. After years of expensive litigation, the caregivers finally settled for much less than they had hoped to receive.

Joseph's situation demonstrates the risk posed by unrelated caregivers who gain control of their charge's finances.

Advice: Caregivers should not handle a vulnerable person's finances without close supervision. It is better that such a caregiver be an independent insured professional who is paid according to a set schedule. The vulnerable individual's financial assets should be held in different institutions, so that if a scammer is able to drain one account, the other accounts and assets are still protected, and the individual can still lead a comfortable life. An elderly person who has become forgetful but still has a somewhat active life can be given some financial freedom with a debit card that is insured, but not the unlimited access to their funds. While the person is still in complete possession of their faculties, have a provision in their agreements that future changes to their plan or agreements cannot be made without going through a process to help prevent theft or undue influence. This will prevent an unscrupulous caregiver from getting the elderly person to change their will when under duress, medicated or mentally incompetent. Encourage your state legislature to adopt a statute like the one in Illinois, which presumes that gifts greater than $20,000 are invalid unless the recipient can prove there was no duress or other exploitation. You could also provide for such protections in an agreement that bypasses the will process.

Photo by Nappy on Unsplash

About the Author(s)

Mitzi Perdue

Mitzi Perdue (Mrs. Frank Perdue) is a public speaker and author of How to Make Your Family Business Last. She's also a war correspondent in Ukraine with more than 50 articles published on Russia's war on Ukraine.


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