Oct 27, 2009

Financial Abuse Begins at Home: Protecting Yourself AND Your Adult Children

Financial abuse of the elderly usually begins at home, according to a recent report from the MetLife Mature Market Institute. Most of us have trustworthy and well-meaning adult children. But when elder financial abuse does occur, it's a family member or caregiver who commits the crime 55% of the time. And sorry, guys, but the study also reveals this statistic: Sons are 2.5 times more likely to take advantage of a parent than daughters are.

The national uptick in elder financial abuse is doubtless related to the economic downturn. Other factors include the growing population of older people, and internet technology that can make a person's financial information more vulnerable to predators.

From the estate planning angle, one of the best ways to protect yourself from this crime is to create a checks and balances system; i.e., appoint more than one individual to key positions. For example, appoint two or more co-agents under your Durable Power of Attorney, and two or more trustees to co-manage your affairs if you become disabled. You might also want to appoint a third-party trustee like a bank trust department, or a trusted C.P.A. or attorney, to serve along with family members.

On the other hand, you may want your kids to take your money. For example, certain estate planning strategies for securing your maximum rightful Medicaid benefits or other governmental benefits entail your legitimately transferring assets to adult children. In such cases, you should spell out your desires in no uncertain terms in your legal documents, including your trust and Durable Power of Attorney. And you should do so while there can be no question that you are mentally competent. Taking these steps will help ensure that your children are never accused of criminal wrongdoing or breaching their fiduciary duty.

To learn more about how to prevent financial abuse of the elderly, log on to the National Center for Elder Abuse here.

Oct 20, 2009

Bergdorfs or the Bank?

A friend used to joke that if he died, his teenage son would promptly convert his inheritance into quarters. He'd lug the loot down to the video arcade, where he'd burn through his dad's life savings in a haze of nonstop video gaming. Poof, it would be out the window in short order.

Fifteen years on, I'm happy to say that my friend is alive and well. As for his son, he has matured into a hardworking, fiscally responsible adult -- although not above spending the occasional weekend perfecting his Guitar Hero skills.

Not every parent is as lucky as my friend. We all know people whose adult children never developed a clue about managing money. If an inheritance fell into their hands, they'd blow it at Bergdorf's, not bring it to the bank. Folks like this prefer a Hummer to Harvard. They consider a four-carat diamond more fun than a 401K.

Obviously an heir who doesn't understand the value of a dollar is not a good candidate to receive a large inheritance as an outright sum. If you have such an heir, you'll want to protect her from herself and prevent her from squandering the funds. Fortunately, there are methods to accomplish this. One popular approach is to create a trust that pegs your heir's inheritance to certain benchmarks. For example, you could dole out the inheritance in smaller portions, for example specifying that 25% of the inheritance goes to your grandson when he is 25, and an additional 25% when he is 35, 45 and 55. You could require your daughter to graduate college, or be working full-time for a minimum of five years, or attain the age of 35, to receive her inheritance. I even have one client who decided that the funds would be disbursed to his grandson based on his grandson's income: for every dollar earned, the trust would release a dollar. The point is to encourage your loved ones to become productive members of society, not provide a means for them to dodge responsibility. Recently I read about a novel approach to this issue, one that I would like to see used more widely. The Bank of Montreal, in response to requests from its high-wealth customers, is offering money management classes for people who have or will come into money, whether by marriage or through inheritance. What a great idea! Read more here.

Oct 19, 2009

The Carrot and the Stick

"Ron" and "Margaret," age 73 and 71, were sitting in my office, worried and confused. They confessed they had put off estate planning for years because they just didn't know how to handle their family situation. They had two sons. One of them was fiscally responsible, but the other, who I'll call "Mike," was a lifelong gambler. They had waited to set up a plan in hopes Mike would "grow out of it" but now that Mike was in his mid-40s, change didn't seem likely. If their $600k estate was distributed equally between their sons, they had no doubt Mike would squander his inheritance at the track in no time flat. They wanted to treat their sons equally, but they thought that was foolish and unrealistic. What could they do?

I advised them that by setting up a revocable trust - also known as a living trust - they would be able to stipulate the conditions under which Mike receives his inheritance. With further discussion, they decided to include provisions whereby Mike received an amount each year equal to the amount he earned in wages. If he earned over a certain amount, he would receive a $20,000 bonus. If he wasn't working, he'd get nothing. Essentially, we were setting up a "carrot and stick" approach to protect Mike's inheritance, as well as encourage healthful behavior.

I also recommended against designating Mike's brother as the trustee, since managing his less responsible brother's monies would be a sure-fire recipe for sibling conflict. I instead recommended they use a third-party trustee.

Establishing a living trust allows you to impose any conditions you want on your heirs' inheritance - provided of course that such conditions do not involve anything illegal. For example, many of my clients require their grandchildren to complete college before receiving their inheritance. Some even provide a financial bonus if the grandchild completes his undergraduate education in four years or less, in hopes that this provides an incentive for the child to hit the books.

While you don't want to "control beyond the grave" per se, there's nothing wrong with providing a financial carrot -- and a stick -- that may nudge your loved one in the direction of healthful and responsible behavior!

Oct 1, 2009

"The Public Option"

As a Florida estate planning and elder law attorney, I get to hear my clients' views on health care reform (and a lot of other topics, too!). Most of my clients seem to be satisfied with Medicare --which is in effect, a "public option." And judging from a recent survey by the American Medical Association, most physicians have a favorable opionion of Medicare, too. Doctors report that Medicare actually gives them more latitude, not less, in devising treatment options for their older patients. They find the paperwork burdensome, but on the plus side, Medicare tends to be a more reliable source of payment than private insurers. Read more about the AMA report. If patients and doctors are fairly happy with the public option for older Americans, should it be offered to all age levels? Something to think about as we Americans continue to debate this highly important topic...
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