Financial Planning - November 2012

high net worth

BloomBerg News

Anthony Marshall (above), son of famed philanthropist Brooke Astor, was convicted of stealing tens of millions of dollars from her.

Preventing
Client Abuse
As the case against Brooke Astor’s son illus-
trated, even clients with reputable advisors
can be vulnerable to predators.
By Martin M. Shenkman

You may be the strictest adher- ent to a fiduciary standard — but that doesn’t mean your clients aren’t at risk of fraud on other fronts. Financial abuse, often aimed at the elderly and those in declining health, is more widespread than is generally assumed. As illustrated in these recent cases, the consequences can be devastating:

• A couple in their late 70s was persuaded to invest nearly 90% of their net worth in an annuity, a wildly inappropriate high-commission product that had no reasonable place in their plan.

• Under the guise of helping an elderly client whose competency was beginning to wane, a lawyer met with her weekly. At the end of each meeting, he had her write a substantial check, ostensibly to cover the costs of the session. To obscure his trail, each meeting was followed up by a memorandum that included a detailed bill.

• A social worker serving as a care manager gradually became her client’s confidante and inserted herself into all meetings with the client’s advisors.

She ultimately influenced, and in some cases even directed, personal estate planning decisions, while billing for multiple meetings each week.

• A caregiver who assisted an elderly woman for the last 18 months of her life took his charge to a new lawyer, who drafted a will leaving him the entire estate. The nieces and nephews who had been beneficiaries under prior wills ended up receiving nothing. The prospective cost of a legal challenge was beyond what they could afford.

• A daughter was part of her father’s CPA practice for many years. When her father was ailing, she took him to a new estate planning attorney, who drafted a will bequeathing the per capita exemption amount to trusts for each of his grandchildren. Since the daughter has five children and her brother has only one child, this effectively shifted most of the exemption amount to her own family. She also had herself named sole trustee of all of the trusts. This plan also cut her mother out of a large portion of the estate that was to have been available for her later years.

• An elderly couple consulted their CPA for a referral to an estate planning attorney. Their goal was to provide for each other and then for their children equally. But the attorney proposed a charitable lead trust to minimize estate taxes. The referring CPA was named executor and sole trustee. He was vested with total discretion to distribute each year’s annuity amount to whatever charities he chose. The annuity rate was set at 10%, with the effect that little, if anything, would be left for the heirs. Meanwhile, the CPA as trustee would effectively be spending down the entire estate in donations to charities he chose, all while earning fees.

dIFFICUL T RECOVER Y Financial abuse is difficult to challenge, and recovering what was stolen is even harder. The victims are often aging or suffering from a progressive disease. By the time the abuse is discovered, if it ever is, the victim’s cognitive and physical condition may have deteriorated. Frequently, abuse is committed by someone who is in a position of trust: