Protecting Elderly Parents with Estate Planning

Copyright: <a href='https://www.123rf.com/profile_highwaystarz'>highwaystarz / 123RF Stock Photo</a>I recently bumped into an old Mass. Maritime buddy of mine. While catching up on “the good ol’ days”, he told me about a truly terrifying family situation involving his elderly mother-in-law. It illustrates the lengths people will go to take advantage of the elderly, and what you can do to protect them.

Viv, as I’ll call her, is a grandmother of seven who still lives in the same house in Dorchester where she raised her children. Viv’s husband passed away a few years back, and thanks in part to his financial planning, Viv has been able to remain fiercely independent. She lives by herself and, for the most part at age 82, is continuing to live life on her terms.

Last Fall, Viv got a frightening phone call. The caller demanded money in the form of a large wire transfer. He told Viv that her adult daughter – my friend’s wife – was being held for ransom. He gave Viv the daughter’s home address and birthday to verify. Don’t get off the phone, said the scammer, wire money to this overseas account right now or we’ll hurt your daughter.

Viv was terrified. She ended up at the local bank branch, set to clean out an account with the intent of wiring the proceeds to an overseas account number she’d been given. A quick-thinking teller intervened when she realized how distressed and out of character Viv was acting. Of course, her daughter was fine. It’s been a few months, but they still haven’t caught whoever was responsible. And the way these things go, they probably won’t.

It sounds like the stuff of urban legend, but this sort of thing happens with alarming frequency. “Virtual kidnapping” is what it’s called, and the FBI says such incidents are on the rise. Criminals have adapted technology at a frightening pace to take advantage of the readily susceptible, and they’re making out like, well, bandits.

In retrospect, Viv and her family were very lucky, because someone saw something unusual and acted. Many families aren’t so fortunate. The scammers target Vivian and others like her because they see the elderly as easy marks. In fact, the financial abuse of elders is an endemic problem, and it’s sadly underreported and under-prosecuted, as well. Only 1 in 25 cases of elder financial exploitation is ever reported, according to the National Center on Elder Abuse (NCEA).

Discussing it after the fact, Viv and the entire family realized they need to do more to insulate her from this and other financial malfeasance, especially as she continues to get older and experiences the cognitive decline that often accompanies aging. To that end, they all agreed that Viv’s children should have a more thorough understanding of Viv’s current financial situation and should have the documentation in place to step in and act on any financial decisions should Viv become more vulnerable as she ages. To achieve that, they needed to bolster Viv’s estate plan, to make sure her interests are well-protected.

Estate planning is often the least understood part of the financial process, but it is an essential one. And while the concept of “estate planning” may seem necessary only for those with significant wealth or complicated family situations, that is not the case. Everyone should have an estate plan, even if it’s a simple one. Estate plans usually serve three purposes. They provide instruction for the distribution of assets; a plan to minimize taxes, if necessary; and they often have provisions for the management of one’s health care and financial affairs in the event of illness or incapacity.

In Viv’s case, her family focused initially on the documents that would help, should she become more vulnerable cognitively, or otherwise impaired. Viv signed a Power of Attorney. A Power of Attorney grants another person the ability to make financial decisions. That person can pay bills and can conduct the grantor’s financial affairs if necessary.

They also updated her Health Care Proxy information. A Health Care Proxy appoints a trusted individual to make health care decisions on the grantor’s behalf if he or she is hospitalized or otherwise incapacitated. Combined, these two documents will make it easier for family members to care for Viv according to her wishes, should she be unable to do so herself.

Next, Viv and her family did a thorough accounting of all the financial institutions with whom she does business. They listed all retirement and pension accounts; gathered account numbers and insurance policies; and assembled a list of trusted associates, including her attorney and financial planner. They made sure to make copies of her updated financial documents too. Now everyone is prepared should they need to step in to take care of any financial affairs on Viv’s behalf.

With Viv’s immediate needs and concerns managed, the family moved on to other aspects of planning her estate. After Viv passes away, which hopefully won’t be for many years yet, her estate will need to be distributed to her heirs – her kids and grandkids (and maybe even some great-grandkids by then).

As mentioned above, estate plans help with the disbursement of one’s estate after death. A will, for example, provides guidance to the Probate Court for the distribution of those assets passing through Probate. Life insurance, annuities, pensions, and IRAs can all be transferred by beneficiary designation, and are outside the domain of a will, so it is important to review those designations. To make sure that assets pass to family members after specific events or according to specific time timetables, many families employ a trust. A trust gives “control from the grave,” as we like to say.

Appropriate estate planning can also assist with minimization of estate tax. The Tax Cuts & Jobs Act doubled the amount of money exempt from the federal estate tax to $11 million, but the exemption from the Commonwealth remains much lower – only $1 million. A properly drafted estate plan can include provisions to help minimize that tax burden.

Together with Viv, her family reviewed and revised certain aspects of her estate plan to ensure the distribution of her assets according to Viv’s wishes.

Having a discussion with an elderly parent about when to manage their financial affairs and how to handle things when they’re incapacitated can be difficult. Conversations about money sometimes are uncomfortable, and elderly parents can become defensive when they perceive a loss of independence, financial or otherwise. But it is an important issue to discuss before parents reach an age or level of decline that compromises their ability to make informed decisions.

Folks, be vigilant and stay alert because you (and your family) deserve more.

Have a great week!

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices is Falmouth, Duxbury, and Mansfield. Jeff can be reached at jeff@old.cutterfinancialgroup.com.

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