Small Business Taxes & ManagementTM--Copyright 2020, A/N Group, Inc.
A Case of Financial Elder Abuse
There's a good chance your mother, father or other relative, or even a friend might find themselves in homecare after suffering a stroke, dementia, etc. or just the problems of advanced age. They may need a full-time aide or just one in the morning or evening. Or they may just need help with their finances. And they don't have to be diminished congnitive ability to be prey for elder finanical abuse. It happens more often than reports would indicate.
The facts described below were taken from a Tax Court case. While some of the tax issues were also interesting, this article focuses on the actions of the aide.
The individual worked hard and lived simply for decades. He never married and lived in a small apartment for 50 years. Between the earnings from his profession, a long work history, and prudent investing he amassed some $3 million. By the time he was 91 he couldn't drive a car, go to the doctor by himself, and could no longer prepare his own food. He had a number of ailments including hearing loss and deteriorating vision and a stroke in the right frontal lobe of his brain. His doctor diagnosed him with dementia and cognitive decline. He had poor short-term memory and he had difficulty in remembering any information amount his assets. The doctor knew he had no immediate family (there was a niece in another state with whom he had been close) and knew he couldn't return home without arranging for in-home care. The taxpayer hired someone who had worked as a nurse's assistant. She was supposed to prepare his meals, bathe him, provide basic nursing, shop for groceries, do his banking, etc. At first she was paid an hourly rate, but soon the elderly individual agreed to pay her $6,000 a month, even though the going rate was $3,750. He gave her $1,000 a month for groceries, though she needed only $400. The elderly man's payments to the aide soon included a check for $11,100; two days later he wrote another for $100,000. In little more than five months he had written checks to her for some $400,000.
The niece used to call weekly to check in, but soon after the aide arrived her success in reaching him was sporadic. It became even more difficult some 8 months later. Within a year, neither the niece nor other family members were able to get through at all.
In little more than a year the individual wrote checks to the aide for $800,000. Soon after he wrote five checks, each for $100,000. But the game was beginning to end. He had most of his wealth in mutual funds with a well-known company. The company records all of its phone calls. (The IRS introduced these recordings in the tax case.) A representative for the company expressed concern that the taxpayer had written five $100,000 in such a short time. The representative asked the individual to repeat his Social Security number and could hear the aide's voice prompting him in the background. The company's fraud team called the elderly man to verify the checks and could again hear the aide in the background. The mutual fund company didn't honor the checks and sent a letter to explain the steps he needed to regain control. The aide intercepted all the mail. The mutual fund company suspected elder abuse and reported it to the state health and human services agency.
The aide went to an estate attorney to get power of attorney, but the attorney knew about the blocked mutual fund accounts and refused to accommodate her. It wasn't long before the local public guardian file a petition in state court for temporary conservatorship which was granted.
To add injury to insult the aide's care was mentioned in the case. The best description of the living conditions was that it was similar to that in a poor third world country.
The aide found no sympathy in Tax Court. The Court found the money paid her was not a loan or a gift but self-employment income and subject to the self-employment tax. The Court also found the aide's tax returns for the two years at issue were fraudulent as the aide reported no income from the individual and that the indications of fraud were present. The Court held that through undue influence the aide obtained $451,891.05 in one year and $474,983.22 in the next that should have been reported.
Steps to Take
While this case may have been somewhat unusual because of the dollar amount involved, some amount of embezzlement probably occurs more frequently than most people imagine. While aides have been implicated, it's not unusual for relatives and even friends to be involved. What steps can you take to minimize financial elder abuse? There's no one answer and much depends on the situation. An elderly person with no living relatives or close friends needs a different approach than one with relatives living in the same town. And keep in mind that there's virtually no way of preventing all embezzlement. Preventing theft of $50 from the monthly grocery allowance may be far too involved and costly. In the discussion below, we've assumed "you" refers to a competent relative or trusted friend.
If you see something, say something. That's the catch phrase for anti-terrorism campaigns, but it applies here. The mutual fund company recognized a potential issue. People fall prey to con artists because they're too trusting. With hindsight, the niece should have made a trip to visit her uncle when she first had difficulty getting through to him. Be suspicious. That doesn't mean you have to accuse someone, but popping in for a visit when things don't sound right can signal that someone is checking and that alone my forestall problems. Regular surprise visits may discourage unlawful activity.
Cognitive measurement. Try to get some idea of where the individual is currently. Age isn't the only factor. We've seen individuals well into their upper 90's who are more competent than those in their 60's. The review should be done by a professional.
Easy mark. One of the first rules of a good con artist is to look for an easy mark. If a mark looks like work, they'll probably move on. The obstacles don't have to be insurmountable, just tougher than the next potential target.
List of assets. Before real problems arise, you and the relative should make a list of assets, bank and brokerage accounts, safety deposit boxes etc. You won't know what's missing if you don't know what you have now. While a will may have a detailed list, it's unlikely to include all a person's current assets. More than a few individuals have unconventional holdings such as small bank accounts, possibly even from another state, undeveloped land, etc. You should also consider household and personal assets such artwork, antiques, jewelry, etc. One of the easiest ways for an aide or other party to steal is to take items that won't be readily missed.
Mail. If an aide comes daily or is living in the home, consider having mail sent to a P.O. box or to your home or that of another relative. That means changing the mailing address. That can also be invaluable if the elderly individual is still living at home by themself but can't remember to pay bills, deposit checks, etc. Many companies that bill regularly (e.g. utilities) will send duplicate bills to another address. You should also note and act on any suspicious mail. That could be a letter from a title company, real estate broker, etc.
If you're not changing the address, checks from social security, dividends, etc. should be directly deposited. There should also be a regular follow up to make sure the income is recorded on bank statements, brokerage account, etc.
Consolidate bank accounts. If there are a number of bank accounts, paring the list down will make monitoring activity easier. The ability to write checks from large accounts should be restricted to you or require both your signatures. Better yet, keep only enough in a checking account to pay a couple of months' worth of bills. Keep additional funds in another account with restricted access.
Freeze credit. If the individual is still mentally capable, there's nothing wrong with one or two credit cards with reasonable limits. Tell the credit reporting agencies to freeze access to credit reports.
Check receipts. If the aide has to purchase groceries, supplies, etc. they should retain the receipts for review. You don't have to examine each one. If one month's receipts turns up nothing out of the ordinary, spot checks can be done with a review of out of the ordinary receipts. Occasionally questioning a expense will show you're checking and do a detailed review periodically. If someone knows you're checking, they're less likely to steal.
Mandatory vacation. If the aide is there full time, consider requiring a mandatory vacation. If he or she is covering up activities, they'll tend to show up. Don't hire a replacement aide who's related to the steady one.
Safe deposit box. If the individual has deeds, stock certificates, jewelry, collectibles, home documents, etc. use a safe deposit box to safeguard the assets. Tax returns, brokerage statements, etc. can reveal a lot of information. If they're stored in the house, get a quality safe.
Brokerage activity. If the individual has brokerage accounts, they should be reviewed monthly for unusual activity. Churning of an account by an unscrupulous broker can result in significant commissions and losses.
Don't brag. The elderly individual shouldn't flaunt their wealth. Some show such as artwork, cars, etc is obvious. But disclosing any more than necessary should be avoided.
Check on the checker. If someone else, such as a another relative or friend, is checking on the individual, consider hiring a CPA for an annual or even 6-month review of bank, credit card, brokerage, etc. accounts for unusual activity. Discuss with the CPA the scope of the work. You should also discuss with him or her what other steps can be taken to prevent theft.
Talk to an attorney. You should discuss with an attorney issues such as getting a power of attorney, living will, trusts, etc. The problem becomes more involved if there are no trusted relatives or friends or you live in another part of the country. In some cases you might have to consider a conservatorship. An attorney who's well versed in the matters should be able to provide guidance.
While there's no one, easy answer, doing nothing is definitely not a good approach. Perhaps the most important thing you can do is to make it clear to whoever is helping the elderly individual that someone is checking on a regular basis. That's important for both the financial and physical well being of the individual.
Copyright 2020 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 10/23/20