Though elder fraud and financial abuse can be costly in monetary terms, the emotional toll they take can be more severe, according to the AICPA Personal Financial Planning Trends Survey. More than two-thirds (68%) of the CPA financial planners polled in the survey said that the emotional impact of elder fraud and abuse was substantial. By contrast, just 32% said the financial impact was substantial, and 45% said it was minimal.
Phone and internet scams were the type of fraud or financial abuse the largest percentage of respondents had witnessed over the past five years. Three-quarters of the 688 CPA financial planners polled in the survey said they had clients who fell victim to these types of scams in the past five years.
Other types of scams and potentially financially abusive situations CPA financial planners said they had encountered over the past five years included:
- The inability to say “no” to relatives (60% of respondents said they had come across this situation).
- Identity theft (49%).
- Providing support for nondisabled adult children (43%).
- Credit card theft (30%).
- Being taken advantage of by an in-home caregiver (26%).
Most clients aren’t prepared for the possibility of diminished capacity
Nearly half (48%) of CPA financial planners said they had clients who showed signs of dementia or diminished capacity for the first time in the past year, the survey found. When asked about their clients’ attitude toward the possibility of mental decline in retirement, just 17% said their clients were taking proactive measures to protect themselves. Thirty-six percent said clients had talked about the issue but weren’t sure what steps to take, while 28% said clients only dealt with the issue when they had to and 20% said clients ignored the possibility of mental decline altogether.
CPA financial planners reported taking various steps to protect the finances of clients suffering from dementia or diminished capacity:
- 92% said they made sure those clients had a power of attorney and a health care proxy;
- 66% had been authorized to contact clients’ relatives and other professionals on their behalf;
- 44% had been authorized to contact clients’ attorneys;
- 37% had money placed in a trust;
- 34% automated annual required minimum distributions from clients’ retirement accounts; and
- 23% said clients had plans to move to a specific assisted-care facility.
How to protect clients from financial abuse
One way to prevent elder fraud and abuse is to identify the client’s “protective tribe”: the people who have their best interests in mind and who will swing into action to safeguard them when necessary, said Jean-Luc Bourdon, CPA/PFS, founder of Lucent Wealth Planning in Santa Barbara, Calif. This “tribe,” he said, could include a CPA, an attorney, relatives, friends, and neighbors. Since scammers often make their requests seem urgent, older people should be advised to contact their CPA or a member of their protective tribe before making a financial decision, Bourdon said.
CPAs can also play an important role when a client is reluctant to refuse a family member’s request for money, Bourdon said. He said he asks clients to “deflect the blame” onto him by telling the person making the request that their CPA has recommended against it.
Encouraging communication is also important. When adult children ask for financial help, they “may be unaware of the financial impact that it may have on their parents,” Bourdon said. He advises parents and children to discuss the potential consequences of requests for money, including the possibility that the parent may eventually be forced to move in with their children if their funds run out.
CPAs and the rest of a client’s protective tribe can watch for subtle changes in their behavior, Bourdon said. Clients showing signs of diminished capacity can consider measures such as financial or medical powers of attorney that allow a family member or an adviser to make decisions on their behalf.
— Anita Dennis is a New Jersey-based freelance writer. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.