Paul Tarins, RICP®,WMCP®,CSRIC™
Every day, your parents are getting older. Nobody likes to think about that fact, but it’s true. This means that you have to start being cognizant of new hazards they face, including the threat of elder financial abuse.
It’s very sad to think about, but elders are amongst those at the highest risk for being defrauded. Baby boomers and the silent generation are, as they’re growing older, running into more and more situations in which they are the victims of financial fraud. This puts them out for an average of $34,200 (according to the US Consumer Financial Protection Bureau), with those aged 70-79 facing the highest rates of fraud.
Elder financial abuse is insidious, and this particular type of crime has resulted in around $6 billion in real or attempted losses for our nation’s elders.
It’s awful and you hate to even have to consider it, but financial abuse is a big problem for the elderly. It can come from a variety of sources: friends and family, caregivers, even total strangers. Thus, it’s important to be vigilant and to know the signs of elder financial abuse. These include:
- Unusual activity in their bank accounts, such as large or unexplained withdrawals
- Withdrawals from an inactive account
- A newly opened joint account
- New credit card balances
- Bank and credit card statements sent somewhere other than your parents’ home
- Suspicious signatures
- Closing a Certificate of Deposit or savings accounts without worrying about penalties
Of course, recognizing when financial abuse is happening is important, but even better is when you can prevent it from happening in the first place. Here are a few tips you can follow in order to try and protect your aging loved ones from this type of financial crime.
#1: Talk to Them About Money
Reach out to your parents and make sure that you are staying in touch with them regularly. Make sure they are paying their bills and, if applicable, find out who is doing it for them. Your parents may not want to share this information or admit that they need help, so you can ease them into it by asking them for advice or speaking about your own money worries. Once this becomes more comfortable, they may let you help with more as it becomes necessary.
When you’re talking with your parents about money, it’s important that you be open and clear about the what and why of the situation. Make it clear to them that this discussion is rooted in concern for their well being and is not indicative of you not trusting them with their own resources.
Rather, this is about you wanting to make sure that their wishes are respected even if they start requiring more support as they age. You’re not trying to take advantage of them; you’re trying to make sure that nobody takes advantage of them.
#2: Automate Their Bills or Deposits
One way to go about helping them pay their bills is by automating the process. Automating your parents’ payments with direct debits from their account can help keep things organized while lessening the chance that they will become victim to a scam.
Similarly, you can automate transfers into their checking account, as they may have funds coming from various sources, such as social security, pensions, annuities, etc.
Some elders may have qualms about this process, feeling uncertain about the technological aspects, or that an element of their financial freedom is being taken away. Here are a few points to keep in mind.
Consider their comfort level with technology
Depending on your parents’ familiarity and comfort level with the technology involved in automated bill paying, they may have concerns regarding the security of their information. Some information that might help your case: your parents will still be able to review their bills on paper before the time of the billing.
The option to review these transactions before they occur might ease your parent’s mind. And after the transaction has occurred, your parent can look at their bank statements to make sure that everything went smoothly.
There are definite advantages to online payments
Not having to write checks every time a bill needs to be paid saves time, as well as the costs of buying checks and stamps. As far as security goes, modern encryption systems are effective at preventing security breaches—this is safer than leaving their checks in some unattended mailbox.
You don’t have to do it all at once
If your parent is uncertain about automating their bills, you can start on a less grand scale, automating only a few smaller or less vital bills. Going at it gradually might help them ease into the prospect without being an overwhelming change.
#3: Have the Necessary Documents at the Ready
Are your parents’ legal documents in an accessible location? There are a variety of pieces of documentation that you might need access to as you begin to address financial and legal aspects of their lives as they age.
Such documents could include:
- Healthcare Proxy
- A HIPAA Release Form
- Power of Attorney
Make sure your parents are careful when choosing a power of attorney, as this person will be responsible for managing finances once your family member is no longer able to do this. Having more than one is also a good idea, as this is a good way to be able to act together and consult each other.
The decision of who holds the power of attorney is an important one. According to the Consumer Financial Protection Bureau, a power of attorney has four basic duties. These are:
- Act only in the person's best interest
- Manage money and property carefully
- Keep money and property separate
- Keep good records
Unfortunately, not everyone who seeks this position does it with good intentions. A person with this much power over someone else’s finances can do some great personal and financial damage to that person. Thus, making sure that everyone involved is on the up and up is crucial to protecting your parents from financial abuse.
#4: Condense Your Parents’ Finances
By the time a person has reached their golden years, it is not uncommon for them to have a multitude of financial accounts. From retirement-related accounts to regular checking and savings accounts, all the way to socked-away dollar bills, they might have their assets scattered in many directions.
Consolidate your parents’ finances when possible, as many older people have more than one account.
Practice caution when consolidating and moving accounts to make sure that you don’t incur any penalties. For example, many types of accounts will face fees and taxes when money is withdrawn. This can be avoided as long as you are cautious and read the fine print regarding how these assets are to be handled.
Additionally, you need to respect beneficiary designations or you could face legal action. A beneficiary is someone designated to receive a specific asset upon the current owner’s death. A good example would be the designation of one’s spouse as the beneficiary for a life insurance policy. It is important that you be aware and diligent in respecting these legal designations.
#5: Encourage Credit Card Use Over Cash
If your parents sent cash to a scammer, then it would be much more difficult to trace than if they paid with a credit card. If they were to make a purchase with a card, the credit card company can:
- Protect against identity theft
- Allow past transactions to be reviewed
- Reimburse any money that was stolen
Your parent may have concerns about credit cards similar to the ones that they have about automated billing. However, they may be swayed by the ease, security, and simplicity that card use offers that cash doesn’t.
#6: Create a Trust
A trust is a great way to manage and protect your parents’ assets, however, they can still withdraw from this account, making it easy for them to fall prey to scammers. If you set up an irrevocable trust, they will not be able to withdraw money from this account without consulting the trustee, making it much more secure.
Many older people do not like giving up this type of control, but if you speak to them about the importance of their safety, they may be more open to it.
If you can establish a system of checks and balances by utilizing the above tips, your parents will be much more protected from fraud. Take a proactive approach so that you can get ahead of them before it becomes an issue, rather than waiting until your parents become the victim of financial abuse.
The specter of financial abuse is scary, but with care and caution, you can prevent your parents from becoming the victims of any fraudster.
Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.