Financial Planning - November 2012

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a family member, close friend, trusted professional or home health aide. In many cases, the abuse is discovered only after the victim’s death. Even if fraud is discovered sooner, the cost and difficulty of a challenge can often dissuade those hurt from pursuing it.

In the case of the CPA who effec-
tively deprived her own mother of
financial security, the daughter was able
to successfully defend herself against a
legal challenge to her actions. She cited
the purported tax benefits provided by
the plan, which she claimed her father
had devised. The reality is that a bypass
trust for the benefit of the wife, children
and all descendants would have pro-
vided the same generation-skipping
tax-planning benefits while safeguard-
ing the wife. But the court was not per-
suaded. Meanwhile, the widow spent
which the CPA knew two of the three
did not have. They would also have had
to work together, something he knew
they would be unable to do because of
family friction he’d helped to foment.

ADDRESSING ABUSE

The most practical and cost-effective way to address financial abuse is to prevent it from occurring. When it does happen, the quicker and swifter the response, the better the odds of some retribution. Even so, the cost — in terms of dollars, time and emotional trauma — will likely be quite substantial.

Abuse comes in many forms and
from many sources. To protect clients,
advisors need to think in broad terms
about the exposure any client could
face. Mitigating the risks of financial
abuse can be relatively simple, but too
Any advisor who dissuades a client
from getting the perspectives of other
members of the planning team should
be viewed as suspect. If the recom-
mendations are reasonable, the recom-
mending advisor should be pleased to
have them reinforced by other profes-
sionals on the planning team.

To protect clients, advisors need to think in broad terms about the
exposure any client could face.

down her IRA, with commensurate income tax costs, trying to fight her own child. She was devastated financially and emotionally.

The CPA who hoodwinked his clients into the charitable lead trust plan almost succeeded, but the scheme was discovered in time and the clients wrote new wills with an independent attorney. Had the clients died, this abuse would have been very difficult to overturn. How could it be proved that the charitable trust was not the couple’s intent?

The CPA’s position would likely have been that it was the charities, not him, who benefited. He might have contended that the plan was created to save estate tax. While that might be true, the plan itself dissipated the estate.

To challenge this result, the couple’s three children would have had to come up with money to pay for the lawsuit,

often is left till it is too late, because clients simply don’t view themselves as at risk.

One of the most important steps is to coordinate a planning team. Common to almost every form of financial abuse is the fact that acts are committed surreptitiously. If you are in communication with your client’s CPA, lawyer, insurance consultant and other advisors, you are more likely to be able to identify risk points, especially another advisor who hasn’t been honorable.

Often, clients will disclose certain assets to one advisor and not another. It is often these orphan assets that fall prey to abuse. Educate clients that if any of their advisors recommend a significant planning step — say, purchasing a life insurance policy whose premium is 50% of the client’s annual earnings — other advisors should be consulted.

to better planning overall.

Another tactic: Hold regular reviews. If a new will was signed you were not aware of, find out why. Identifying abuse early might permit simple correction.

Transparency is the best prevention for many forms of abuse. In the examples in which CPAs orchestrated abuse, planners and other advisors were intentionally left out of all discussions. If any advisor tries to minimize your involvement, blow the whistle. If the estate planning attorney objects to your participating in the planning process, perhaps out of concern that it will reduce his or her position, insist on involvement. Similarly, planners should include the client’s CPA and attorney in at least an annual review meeting.