Journal of Financial Planning: April 2024
NOTE: Please be aware that the audio version, created with Amazon Polly, may contain mispronunciations.
Mardell D. Presler, J.D., prides herself as an attorney who works to avoid probate. Either with a will or trust, it’s all about estate planning that’s beyond traditional estate planning docs. When Mardell isn’t in the office, you’ll catch her with a backpack exploring the world. Or you’ll find her biking the trails of Golden Valley or Lake Minnetonka.
What appears to be a client’s oopsie could actually be the beginning of cognitive decline. My dad drilled holes on the bottom of outdoor waste bins so that rain would drain out. It was genius! However, when Dad drilled a hole in the bottom of his boat so that water would drain out, that was a sign that he might be starting to experience cognitive decline. Thankfully, it doesn’t happen overnight, and financial planners have time to take steps to protect their loved ones and clients when they still have moments of lucidity.
Action Steps
As financial planners, sometimes you are the first to notice a decline. There are steps that can be taken today to protect clients’ autonomy, privacy, and welfare.
- Meet on different days or times to catch clients when they’re having a lucid moment.
- Maintain annual reviews and specifically pay attention to their cognitive thinking.
- Include a clause in your retainer agreement that authorizes you to reach out to other advisers and caregivers, and collect names and contact info of each adviser and caregiver.
- Update beneficiary designations, and then make the updates to confirm that it actually happens.
- Set up duplicate statements to be sent to your office to review if an unwanted withdrawal or beneficiary designation occurs.
- Obtain copies of estate planning documents for the client’s vault.
- Freeze credit so that no one can open a credit card nor sign a lease using the client’s Social Security number: www.usa.gov/credit-freeze.
- Reduce junk mail to minimize confusion and reduce scams sent by mail and email; the Postal Service’s website (www.USPS.com) provides tw target="_blank"o websites that assist with this: www.dmachoice.org/register.php and www.optoutprescreen.com.
- Informed Delivery is a USPS service that emails scans of your mail to your inbox so that mail can’t be hidden by an untrustworthy caregiver.
- Set up bills to be paid through the client’s bank’s eBill service, especially utilities and insurance policies; but set a limit not to pay a bill over an expected amount to mitigate against financial exploitation.
- Consider setting up a Social Security payee representative, either a trusted caregiver or a professional representative.
Guest User and Authorized Signer
Consider encouraging clients to list a guest user or an authorized signer on bank accounts. A guest user only has access to view an account, whereas signers are given authority to write checks on behalf of the client—this might still be effective after a death when POAs end.
Also, consider listing an authorized user (AU) on the client’s mortgage so if there are any issues with the mortgage payments, a caregiver can contact the servicer for assistance. My mission is to avoid probate, so I asked a wise mortgage officer how we can keep the house out of probate for modest estates where a trust wouldn’t be suitable. He recommended setting up an AU. The logistics of having a caregiver contact the bank in order to access the loan would require a court order, guardianship, or the bank’s proprietary power of attorney, since most banks refuse to accept statutory POAs. However, most if not all servicers allow you to add an AU at any time. The AU won’t be personally liable for the repayment of the debt; the only one(s) liable are the individuals on the loan (those who signed the note). If the AU is also the PR and the client has passed away, only then will they have a fiduciary duty. So, an AU would be someone who simply has access to loan information without going through probate, but they’re not liable on that loan.
Hold a Family Meet ‘n Greet
The purpose is for the client to introduce you to the people the client relies on to be caregivers in an informal way so that the client is comfortable and feels safe. This is not the time to strong-arm the client into giving up their autonomy nor privacy. Instead, it is time to educate the caregivers on the assistance available to them. For one, clients may not realize that LTC and/or healthcare policies might provide caregiver training, such as learning how to lift people correctly to minimize injuries. These policies might also cover expenses to make home modifications that make the home safe for the client, allowing the client to continue to reside in their home. Furthermore, many long-term care facilities offer trial periods as a way to give clients the opportunity to change their minds and go back home. Finally, encourage caregivers to set up a schedule for someone to check up on the client on a daily basis.
Professional Fiduciary
Too often I hear clients say they don’t have anyone to name in their estate planning documents. I’ve literally had clients tell me that their kids are knuckleheads. Anyone can serve as a client’s guardian/conservator, personal representative, trustee, power of attorney, or healthcare directive. But if the clients’ financial planner is serving in this role, that could create compliance issues. A solution is to name a different planner or reach out to a professional fiduciary. These are attorneys who are compensated either by private pay or a non-profit, such as Lutheran Social Services (which has offices across the nation). However, regardless of the need, the professional fiduciary would meet with the client to gather financial statements, real estate deeds or vehicles titles, estate planning documents, medical documents such as a DNR or physician order for life-sustaining treatment (POLST), a list of caregivers and their contact information, and passcodes to digital assets and online accounts.
Financial Exploitation
As an attorney who litigates contested cases, when I hear “cognitive decline,” I automatically think financial exploitation. The vast majority of scammers are a client’s child who is their caregiver. There are tons of examples of case law that address undue influence, where my definition of the law is “people doing shenanigans, and the court trying to clean up the mess.” So, I consciously gauge family dynamics. I don’t simply ask, “Who do you trust?” Instead, I ask the innocuous question when a client is talking about their children: “How often do they get together?” I’m really asking how the kids get along with each other, paying attention to the ones who might not be responsible nor trustworthy. I’ve gotten responses such as “they hate each other!” Later on in the consultation, when they aren’t on guard of what I’m asking, I also ask, “which child gives you gray hair?” I’m really asking which one is having issues: financial struggles, substance abuse, spendthrifts, compulsive behaviors, etc. These two inquiries indicate to me who should not be nominated as the client’s power of attorney, healthcare directive, personal representative, or trustee.
When financial exploitation is suspected, there are more drastic steps to consider. Clients can demand an accounting of their assets; for example, in Minnesota, MN § 523.21 states that the principal at any time can request the attorney-in-fact to render an accounting of those transactions. Anyone can file a complaint with the Consumer Financial Protection Bureau (CFPB) at www.consumerfinance.gov/complaint. In extreme cases, anyone can file a report with Adult Protective Services (APS). However, once a report has been made to APS, a client’s autonomy will be taken away due to strict guidelines states must follow, e.g., a court-appointed attorney might be entrusted to consider a guardianship/conservatorship. In regard to contacting CFPB or APS, I recommend you speak with your compliance officer to ensure you aren’t violating any laws or regulations. In one case I litigated, an insurance agent had the client’s child listed as a contact. After the agent reached out to the child about missed payments, it was the child who discovered financial exploitation by the caregiver, and it was the child who reported the caregiver to the police, APS, and CFPB. This underscores the value of having the client’s authorization to speak with all of the caregivers, not just the one overseeing the financial affairs.
Guardianship and Conservatorship
If the cognitive decline is too severe, a guardianship and/or conservatorship might be necessary for a client’s welfare. Simply put, guardians have the authority to make decisions about the personal care of an individual while conservators have the authority to handle a person’s financial affairs. Both carry the weight of court orders, whereas POAs and healthcare directives (HCD) can at times be rejected. To initiate a guardian and/or conservator hearing, a caregiver would have to file a petition with probate court, along with a physician’s statement, and serve notice of the hearing to all interested persons. It’s really that simple.
There are tons of shenanigans when probate gets involved since courts do not scrutinize who’s petitioning for guardianship/conservatorship. Too often I see cases where a guardian or conservator was appointed after a 10-minute hearing, even though not all interested parties were in attendance. Maybe you’re familiar with Britney Spears, who fought for 14 years to end a conservatorship from her dad, who by many accounts came across as money hungry. I can’t speak on that, but my experience is that guardianships and conservatorships do open the door to financial exploitation. The hard part comes when the petition is contested, which in my experience is because the scammer wants to maintain control over the assets.
One way the courts have given clients a chance to express their wishes is by giving their healthcare agents and attorneys-in-fact priority in being appointed as a guardian/conservator. For example, Minnesota statute codifies priority for the healthcare directive agent to be appointed as a client’s guardian (MN § 524.5-309(a)(2)) and conservator (MN § 524.5-413(a)(1)), while MN § 524.5-413(a)(2) gives priority to the attorney-in-fact to be appointed as a client’s conservator.
Therefore, to combat financial exploitation, it is best to execute a healthcare directive and power of attorney by listing someone who truly is trustworthy. But you must ask those questions to gauge family dynamics. Also, considering many financial institutions reject statutory POAs, I highly recommend having clients complete proprietary POAs for each institution, submit them for acceptance, and renew them with a date that’s no older than five years (which could be as short as one year depending on the institution).
Collaborate with an Attorney
Collaborate with an estate planning and/or elder law attorney who is not focused solely on documents and clients’ wishes but who instead provides guidance to put clients’ affairs in order in a way that won’t be a burden on their loved ones. My clients embrace the opportunity to go above and beyond “assets and liabilities” and also compile contacts and action steps to take if incapacitated or after death in what I call my estate organizer. I don’t see attorneys doing this, but there are companies that offer this service. These companies and myself were prompted to do this after experiencing a close one’s passing who didn’t have their affairs thoroughly in order and only had the traditional estate planning documents.
When you hear “elder law,” think medical assistance programs (which are called different things in different states) and Medicaid. In the past, some couples were encouraged to divorce to protect their assets from being counted in assessing benefits, but that’s no longer the case. Depending on income and assets, consider having a client meet with an elder law attorney to apply for government benefits that cover healthcare costs.
Also, an elder law attorney can help the client remain in their home by drafting a personal care agreement. In essence, these are contracts between the client and a caregiver to do tasks that the client is no longer able to do, such as housecleaning, yard work, etc. Minnesota’s Department of Human Services’ manual provides guidelines so the agreement could be honored during the benefit period. If the client isn’t receiving government benefits, these agreements can provide equity among the children and hopefully mitigate family strife if one child is doing the majority of caregiving.
These action steps are here for you to help your client protect their autonomy, privacy, and welfare as well as potentially mitigate the risk of being financially exploited. You know your client best, so consider which steps are appropriate. This isn’t an exhaustive list, so I would love to hear from you about any step(s) you take that I overlooked (www.linkedin.com/in/mardellpresler). Together we can help our clients to be in a better place than we found them!