Eighty-seven-year-old Elizabeth suspected something was awry when her son told her she couldn't afford to move into an upscale assisted living facility. A few years before, she had given her son durable power of attorney -- a document granting him fiduciary responsibility to make financial decisions on her behalf as long as she is alive. Elizabeth knew she had the money, and when she questioned him about the shortage of funds, he just told her she was wrong.
Elizabeth, wary of her son's response, told a friend who contacted Pennsylvania's Adult Protective Services (APS). An investigation by the agency revealed that her son had transferred $225,000 from her account into his own. Fearful of alienating her son, Elizabeth chose not to prosecute. Luckily, he hadn't spent the money and could give it back. Had Elizabeth chosen another person to oversee the account, it may have prevented her son from abusing his trust, says Alan Smith, director of the local agency on aging that investigated the case.
Still, Elizabeth was smart to act on her suspicions. (Elizabeth and all other victims in this story are not identified by their real names.) Many elderly victims of financial fraud do not. Ashamed that a trusted family member, friend, or caregiver might be deceiving them -- or worse, that they may be deemed incompetent to manage their affairs -- they often choose to keep these problems hidden. As a result, hard data documenting this sort of fraud is lacking.
What is known is that 80,000 such cases were reported last year, and more than two-thirds of the victims were defrauded by someone close to them. "Financial exploitation is growing out of control because we have an aging population," says Ronald Costen, director of Temple University's Institute on Protective Services in the School of Social Administration.
That's why the issue has moved to a front burner in law enforcement, government, and the banking industry. Both houses of Congress are considering versions of a comprehensive bill called the Elder Justice Act, which funds public education, better data collection, and training for law enforcement and elder care professionals to combat the problem. A handful of states from Massachusetts to California have programs that work closely with social service agencies and banks to recognize fraud and report it.
Experts say individuals can act as well, by creating checks and balances to better protect loved ones, and eventually, themselves. Also, knowing the red flags that are the hallmarks of financial abuse can help to minimize the damage.
It's best to start planning before a senior becomes unable to manage the finances. Document in writing such issues as who will have durable power of attorney, who will oversee the accounting of the finances, and what needs to be done if a problem arises. Too often these questions are confronted in times of crisis, and by then it may be too late.
That's what happened to Molly, 68, who was admitted to a New York hospital last year with renal failure. She gave the durable power of attorney to one of her sisters, who proceeded to empty Molly's account of nearly $50,000 and gamble away the money in Atlantic City.
Molly pulled through her illness and discovered the missing funds. She reported the loss to the police, who investigated and turned over evidence to Elizabeth Loewy, assistant district attorney in charge of the Elder Abuse Program in Manhattan. Loewy prosecuted the case and won, requiring the errant sister to return the money. Cases like this would have been more difficult to prosecute in the past. "The courts, which have always thought of financial abuse involving a durable power of attorney as a civil problem, have begun to look at the issue as a criminal one," says Loewy.
Since many financial frauds center on the durable power of attorney, it's critical that document be properly drawn. By itself, this instrument requires no regulatory or legal oversight or accounting of the spending. That's why elder fraud experts call it "a license to steal," says Lori Stiegel, associate staff director for the Commission on Law & Aging at the American Bar Assn.
To prevent such abuse, hire a lawyer to customize the document, recommends Loewy. Make sure it explicitly states what bills and other financial transactions you want the agent to handle. Some states allow agents to make financial gifts to themselves without limit or restriction. Carefully review or delete these clauses.
Insist that the agent not commingle his or her own funds with those of the person granting power of attorney. It makes it easier to monitor the finances. Another safeguard is to notify the bank of any monthly bills to be paid by the agent with power of attorney. Have the bank agree to to alert another family member if there is an attempt to withdraw additional funds.
Even a well-drafted power of attorney is not foolproof. To add additional protection, assign a third-party, preferably a lawyer or other nonfamily member, to review all spending and monthly financial statements. That oversight would have gone a long way to prevent the fraud in the cases of Elizabeth with her son and Molly with her sister.
It can also help if the problem is a rogue broker, adviser, or caregiver. Ann, a homebound Manhattan 98-year-old, had her health aide move in to help with personal care and eventually pay bills, says Loewy. By the time her children noticed the aide had been double-paying herself, more than $50,000 had been drained from Ann's account. This case is a good reminder to do a background check on caregivers. Employment agencies aren't required to do them on home health aides. But even if your agency does one, complete your own as well.
Finally, enlist help from the local bank. Many seniors have ongoing friendly relationships with tellers in bank branches. "Financial professionals are often on the front lines of defense and are in a unique position to become aware of suspicious activity," says Catherine Allen, chief executive of BITS, a nonprofit financial service industry consortium comprising 100 of the largest financial institutions in the U.S. BITS recently developed a Fraud Protection Toolkit, which trains tellers and others to recognize potential frauds.
For example, a teller at a Pennsylvania branch of Wachovia Bank (WB), which worked with BITS to create the toolkit, noticed that a known older customer had come into the bank with a stranger. The senior requested that the person be granted a durable power of attorney and then asked for a big withdrawal. The teller delayed the transaction and alerted the state's APS. It turns out the stranger had been suspected of defrauding several seniors in the neighborhood. Linda Mill, senior vice-president of the loss management group at Wachovia, says 7 out of 10 incidents where tellers reported suspicious activity turned out to be fraud cases.
No one likes to think a family member, friend, or caregiver would steal money from them. But it does happen, and it is best to plan ahead to guard against it.
By Toddi Gutner