How an Estate Plan Can Protect Against Financial Exploitation

Hand manipulating businessman attached to stitches

I suspect many of you, like me, have deleted an email from a friend that says he’s on a trip and needs you to wire him money.

According to experts, despite the proliferation of phishing emails and robocalls, financial exploitation by people who know the victim, such as relatives, caregivers, neighbors, or “friends,” is far more common. Unfortunately, financial exploitation is more common than expected. Fortunately, we can help our clients better understand financial abuse and strategies to avoid exploitation.

Several studies have found that the following people are at greater risk of financial abuse:

  • someone who has a cognitive impairment;
  • someone who is in poor physical condition;
  • someone who is isolated; and
  • someone who has a learning disability.

Studies also show that these are common characteristics of people who financially exploit others:

  • someone with substance abuse problems;
  • someone with a mental illness;
  • someone who is financially dependent on the person they are exploiting.

AARP has published these warning signs that an individual may be the subject of financial exploitation:

  • changes in spending patterns, transfers or withdrawals from accounts;
  • isolation from family and friends;
  • financial activity that cannot be explained;
  • inability to pay routine bills and expenses;
  • sudden changes to estate planning documents, beneficiary designations, or adding co-owners to an account.

One of the many ways we support our estate planning clients is by developing a plan to prevent financial abuse. Customers can prepare documents in advance that can be implemented when they become vulnerable to exploitation. Rather than relying on a permanent power of attorney, a funded revocable trust can provide more robust protection for those at risk. A revocable trust-based plan may include safeguards such as co-trustees and require independent party approval of a change or addition of trustee.

It’s also important to build a support system that is available to protect a client in case someone tries to exploit it. We may consult with and work with a client’s financial advisors, accountants and other professionals to develop and implement a plan to prevent or stop such financial abuse. In addition to the estate planning documents, here are some practical steps to consider:

  • Consolidate accounts with a trusted financial advisor. Accounts scattered across different banks can be harder to detect this type of abuse.
  • Have a family member or trusted third party provide copies of bank statements so these accounts can be monitored remotely. A CPA could also be hired to support this role.
  • Consider a credit freeze to prevent a situation where someone could be persuaded to open new credit cards and incur other debt. A credit check can also be a good idea to see what your obligations and accounts are.
  • Create a budget and share this information with advisors and a confidant so that expenses that deviate from the client’s norm can be more easily flagged.

Financial exploitation and abuse are serious risks. The best strategy is to take protective measures in good time.

About the author:

Eldridge Dodson, a trust and real estate attorney, holds a graduate certificate in gerontology from the University of Southern California (USC). Earning certification means that Eldridge has completed courses in USC’s graduate program designed to equip professionals with the knowledge and skills to support and advocate for the aging adult population.

© 2022 Ward and Smith, PA For more information on the issues described above, please contact Eldridge D. Dodson.

This article is not intended to provide, and should not be relied upon, legal advice in any particular circumstance or factual situation. No action should be taken in reliance on the information contained in this article without obtaining the advice of an attorney.

We are your established network of attorneys with offices in Asheville, Greenville, New Bern, Raleigh and Wilmington, NC.

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