According to a recent Texas Tech University study, the age for peak financial decision making is age 50. Financial decision making ability begins to decline by age 60 and is significantly impacted by age 80. Even more worrisome is that the same studies indicated that people’s perceptions of their own abilities do not decline.
How should this information affect families when constructing their financial and estate plans? Anecdotally, most of my retiree clients who are into their seventies and eighties have not shared, nor intend to share, their financial and estate information with their adult children. They may fail to do so because they fear sharing may result in unreasonable expectations of gifts or inheritance, or simply because that generation generally considers discussion of money and assets a taboo subject.
When retirees aren’t willing to share personal information with those who are closest to them, who’s there to guard against scams? A 2015 New Jersey case is enlightening. In Margaret Lucca v. Wells Fargo Bank, N.A. the bank was sued for failing to report to adult protective services a customer’s wire transfers of hundreds of thousands of dollars to Jamaica that turned out to be an elder abuse scam.
In this case, Margaret, and elderly customer of Wells Fargo, sent numerous wire transfers that turned out to be the result of a fraud, an elder abuse scheme. Bank personnel reported the transactions to an internal fraud department, but that
department failed to report the transactions to law enforcement agencies or to the county adult protective services.
The heirs of the defrauded customer sought to hold the bank responsible for having failed to report these transactions under a New Jersey statute, which permits financial institutions to report suspicious financial transactions. The court held that the statute was enacted to protect financial institutions from claims that they violated a customer’s right of financial privacy if they chose to report such matters.
The statute, the court held, was permissive and protective of the financial institutions, and did not mandate reporting, but rather protected an institution if it did report an incident. Therefore, the financial institution could not be held liable to report under that statute. While the holding in this case seems to be a logical if not obvious reading of the statute, the implications of the case and matters discussed in the opinion may have far greater import to the future of estate planning.
Margaret’s estate plan may have been less than optimal. Instead of owning the accounts outright in her name, had she instead used a funded revocable trust naming Wells Fargo as a trustee (thus in a fiduciary capacity), the institution may well have been liable, as it would have been held to a higher standard of care as opposed to simply a custodian of her money.
More important than being liable, the institution would have likely been responsible in that capacity and would have more closely monitored financial transactions as a trustee. A trustee would notice a wire transfer of such amounts to Jamaica. Even if the initial abuse was missed, it would have more likely been identified and responded to more quickly.
Perhaps another step was warranted as well. As clients age, hiring a care manager as an integral part of the planning process may serve to avert potential elder abuse. Hiring a care manager isn’t common today, but I believe will become more common as baby boomers age and retire.
A care manager may have identified the vulnerability of the client and alerted an institutional trustee, family member or others to take action. Care managers, unlike all the other members who comprise a traditional estate planning team for elderly clients, are mandated reporters. They must report suspected abuse. The same statute that absolved Wells Fargo of liability mandates that care managers and certain other categories of persons must report suspected abuse.
Had Margaret’s team of advisors recommended a care manager, perhaps the elder abuse would not have arisen. There was no oversight or monitoring of the client’s financial activities. We can begin to think of CPAs as more than tax return preparers for example. Had a CPA been involved to write up periodic reports the abuse may also have been identified earlier and addressed.
Appropriate checks and balances are a key to safeguarding aging clients, but in the past have not been viewed as being within the scope of traditional estate planning. The Margaret Lucca case should not be viewed as merely a limitation on the liability of financial institutions, but rather a call to use more robust and comprehensive planning that extends well beyond mere document preparation (e.g. a durable power of attorney), tax planning and the steps that have traditionally been viewed as constituting estate planning.