The best way to protect a parent from scammers
I recently attended a reunion dinner with my college friends who, sadly, I haven’t seen for almost 30 years. We talked about new friends and old friends, careers and our children, who are now graduating from college and starting their careers.
The conversation then turned to our parents. Many are sadly deceased, and others are not as quick-witted as they were when they visited us in college many years ago. A common theme emerged. As our children enter adulthood, our parents need more time for many reasons, one being that older people are often the victims of scams, often on the internet or over the phone. We guide our children to avoid unfortunate financial decisions the same way our parents helped us when we were young.
Today, the negative effects of aging, combined with the trickery of scammers via phone, text and email, have us worrying about our parents’ financial security. Ironically, my classmates and I all have similar stories, and I’ve encountered others in my legal career.
- “Someone called my mom and told her that my son (her grandson) was arrested on spring break in Colorado. Cash bail should be sent by FedEx to Las Vegas. The person said that my son had asked his grandmother not to call his parents.
- “A person posing as an IRS agent called my mother and told her that my recently deceased father owed $20,000 in back taxes, interest and penalties. The person said that she was responsible since they filed joint statements and she would be arrested unless the payment was wired by the end of the day.
- “My dad received a call from someone posing as a DEA agent telling him that his social security number and credit card were used to rent a car that was then abandoned at the Mexican border. He was told he had to verify his personal information to be exonerated.
Not so long ago, our parents would have had the presence of mind to recognize them for the scams that they are. You would never send cash bail to Las Vegas via FedEx, especially if your grandson wasn’t even in that city. The Internal Revenue Service always corresponds by mail and never calls taxpayers. You never need to provide your social security number when renting a car; law enforcement would not need your credit card information during an investigation; and you should never give personal financial information to an unknown caller.
Banks and financial advisors who suspect fraud are often faced with a dilemma when an elderly customer requests a large cash withdrawal or transfer. These institutions must maintain the confidentiality of their clients’ account information unless specific instructions are given to share account information with a family member. This often comes in the form of authorization under an enduring power of attorney or other means. A parent can add a child as a roommate to their account in most states, which should give the financial institution more comfort in sharing information. But co-ownership can have unintended legal effects that can go against a parent’s wishes.
A family dilemma
It is as difficult for us to take control of a parent’s financial life as it is to lose independence and financial freedom. We do not want to accept the weaknesses of our parents. They have always prided themselves on being independent, made sound financial decisions, and survived the many financial challenges of raising their family.
If you live near your parents and your siblings live farther away, you may be in the best position to help them if you notice changes that could make them a potential victim. You want to avoid uncomfortable conversations with a parent and your siblings. You are concerned that other family members will question the decisions you make on a relative’s behalf and you want to be transparent.
Understanding Power of Attorney
A Durable Power of Attorney (DPOA) is a legal document that allows an attorney, perhaps a child, to act on behalf of another, perhaps a parent, immediately after signing the document. A DPOA can be ineffective in protecting a parent from a scammer. Since the parents remain in sole control of their accounts, they are always assumed to have mental capacity, and the bank employee may not have enough information to recognize a potential scam. A DPOA will, however, give a financial institution more freedom to proactively communicate with a child about their parent’s accounts if fraud is suspected.
Keep in mind, however, that there is no guarantee that the banker or financial adviser will share their concerns with an attorney and are under no legal obligation to do so.
Is guardianship a solution?
Your state’s guardianship, guardianship, or curatorship code is one way to resolve this dilemma. The establishment of adult financial guardianship or guardianship is a legal process in which a court appoints a person or financial institution to manage assets and assume all financial obligations on behalf of a person incapable of doing so. due to a loss of mental capacity due to age. or cognitive dysfunction. A financial guardianship is created by a court order, usually in conjunction with a person guardianship that gives another the legal authority to make decisions that protect the personal well-being of the individual. The guardian of the person does not have to be the same as the curator (or guardian of property).
Guardianships of both types require a state court judge to determine that a person, the person under guardianship, is in need of protection. Judges regularly require an independent psychological evaluation and often appoint a lawyer to represent the interests of the proposed curator.
Recently a judge told me that appointing a guardian for an adult is one of the most difficult decisions he has to make, since personal liberty is a fundamental tenet of our country and is suppressed when a legal guardian is appointed. Mental degeneration due to old age affects people in different ways. Sometimes a person can make sound medical decisions, drive safely, and participate thoughtfully in social situations, but be very insecure, overconfident, or inconsistent in financial matters. In these cases, a judge may find it less intrusive to limit a guardianship to financial matters only.
The imposition of guardianship can be costly and involves direct judicial intervention in family life. In addition to paying legal fees and expenses to seek the appointment, the guardian must file annual accounts with the court explaining how the conservator’s funds were used. Second, the person applying for guardianship must demonstrate that this action is necessary. Such evidence is often found after a fraud has taken place. Finally, a guardianship will not eliminate the need for probate upon the death of the curator.
A family solution: a revocable trust
A revocable trust can be an effective alternative to a joint parent’s account title, relying solely on financial power of attorney or guardianship. A parent can inexpensively create a revocable trust, sometimes called an inter vivos trust. The parent can be a co-trustee with a child and a bank or trust company, or only with the institution’s trustee.
The trust agreement establishes the relationship between the trustees and the beneficiaries. It may include additional language requiring that all co-trustees receive written notice of revocation and that all remaining beneficiaries receive annual account statements. The parent accounts are then renamed and held by the trust in an account which may be maintained and invested by the institutional trustee or other designated person.
A parent can collect income and pay all bills, taxes and expenses directly and give gifts to others as long as he or she is willing and able to do so. When no longer able to do so, the remaining trustee operates the trust account for the benefit of the parent, with all transactions recorded in a statement that the co-trustee or residual beneficiary would receive.
The beneficiary or co-trustee, or the institutional trustee, may see changes in spending patterns, unusual withdrawals, or other activities, including excessive loans or gifts to other family members, which could be of concern. The trustee or co-trustee would then be in place to proactively manage the trust for the benefit of the parent at all times, versus the delay caused by a reactive petition to a court for a guardianship order. On the death of the parent, the assets would be transferred to other beneficiaries without the need for probate.
Communication technology has provided many societal benefits, but also carries risks, which is why we need to educate children about potential threats to their safety and well-being from the Internet and elsewhere. Phone and internet scammers know that our elderly population is also vulnerable and they have plenty of considerable savings. So they are targeted.
The question is not whether a person’s parents will be contacted by a scammer; the question is when and if they will be able to recognize the threat.
Consult with an attorney experienced in estate and elder care planning to discuss with you and your family proactive steps that can be taken to minimize this risk. The best solution for your family may be to plan with a DPOA or a transfer without probate, such as a revocable living trust, to protect your parents and their assets.
Vice President/Counsel, Argent Trust Company
Jim Ferraro is vice president and trustee in the office of Argent Trust Company in Shreveport, Louisiana. Ferraro is a 2003 graduate of the University of Missouri at the Kansas City School of Law, past chairman of the family and law section of the Kansas City Metropolitan Bar Association, and is a member of the Shreveport Tax and Estate Planning Council.