What Advisors Can Do About Inheritance Exploitation

After a live-in caretaker was hired to care for his mother full-time, the woman's step-son and other family members were allegedly denied access to their loved one, locked out of the family home and written out of estate planning documents that had originally named them as heirs.

By the time the step-son sued for breach of fiduciary duty and financial elder abuse, the caretaker had already pocketed some $5 million, according to a lawsuit filed in the Superior Court of California in Alameda.

Although the case against the caretaker was privately settled in mediation last month, the attorney for the plainiffs, Michael Hackard, warned that cases of inheritance exploitation like this one are on the rise.

“Inheritance exploitation rears its ugly head under various circumstances,” Hackard told Financial Advisor. “Whether it’s a drug-addicted family member or a dishonest caretaker, the results are the same. Heirs are being cheated out of their share of family wealth or they are paying hundreds of thousands of dollars in legal fees to hold on to it.”

The number of boomers in their 60s with living parents has risen since 1998 to about 10 million, according to an Urban Institute analysis of University of Michigan data. The Alzheimer’s Association estimates that 5.7 million Americans are living with Alzheimer’s.

“Caretakers can go rogue and family members can become predators,” said Hackard, author of "Alzheimer’s, Widowed Stepmothers & Estate Crimes: Cause, Action, and Response in Cases of Fractured Inheritance, Lost Inheritance, and Disinheritance."

But financial advisors can play a special role in protecting their elderly clients from this emerging trend.

Where there is reasonable belief of financial exploitation, Finra Rule 2165 facilitates placing a temporary hold on fund or securities disbursements from the accounts of specified customers.

“Financial advisors are armed with Finra's trusted contact rule, which is a good start,” Hackard said. “Advisors also have the ability to put a temporary hold on the disbursement of funds. That can be very powerful in assisting seniors experiencing cognitive decline.”

Here are three common scenarios in which inheritance exploitation can occur and how financial advisors can position themselves to help:

1. A rogue caregiver or abusive family member takes an elderly parent hostage. Hackard advises calling the trusted contact person on file to discuss drawing up a temporary restraining order against the offending party to prevent any further disbursement of funds. “By law, the advisor has to make a reasonable effort to contact the trusted contact that’s listed on their client’s paperwork when they feel a senior is at risk,” said Hackard.

Finra Rule 4512 requires making reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account.

2. An addicted adult child or con artist home health aide obtains power of attorney. Hackard recommends that financial advisors involve other family members who can monitor their elderly client’s accounts.

“Without making the person who is monitoring a signatory, financial advisors are in a position to gain permission from their aging client to provide access to viewing of their accounts,” said Hackard.

3. An elderly client has no trusted family members and retirement assets are being exploited. Build a record with the police. “Get involved with local organizations that are monitoring elder abuse,” said Hackard. “Industries other than law enforcement that may hold workshops and lectures, which financial advisors can attend, include banks, private investigators, veteran's organizations and estate litigators.”

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What Advisors Can Do About Inheritance Exploitation