Financial Elder Abuse in the 21st Century

One of the most rampant problems facing seniors today is elder abuse, both physical and financial.  Financial elder abuse is particularly insidious because the abuse usually comes at the hands of people trusted most by the victim - family members, friends, and caretakers - and it is difficult to detect.   

The fact is, a week rarely passes in which I don't hear stories of actual or suspected financial elder abuse.  Unfortunately, recovering funds once they have been taken is often a tricky proposition; more often than not, the money has already been spent or has simply disappeared.   Even if the responsible individual is convicted of criminal elder abuse and serves jail time, stolen money may still be unrecoverable.   

As a result, it's easy to see the old adage "an ounce of prevention is worth a pound of cure" is particularly true here.    Safeguards can easily be put in place in advance to protect elders from financial abuse.   These safeguards typically involve the surrender of some degree of financial control by the elderly individual, and therefore tend to be unpopular.    Nevertheless, safeguards should be carefully considered by all individuals who wish to protect themselves and their loved ones against financial elder abuse.

For those who have elderly loved ones, the following is a short list of some of the warning signs to look for to help protect your loved ones against possible financial elder abuse:

• The elderly person becomes isolated, never seems to be available by phone, is only available by phone if other individuals are also on the call, has a new "best friend", or is hesitant to meet with others without his or her caregiver.  
• Bills are not being paid.
• Property is missing or unexplained withdrawals or transfers from bank accounts occur.
• The elderly person often wants cash, even though he or she never shops alone.   
• The elderly person suffers from mental decline and is suddenly in a romantic relationship with a much younger person.
• The elderly person changes banks or attorneys.
• The elderly person makes changes to his or her estate plan at the request or insistence of a caretaker, friend, or family member.
• A caretaker, friend, or family member shows an excessive interest in the elderly person's financial affairs.
• The elderly individual is financially supporting other individuals.

While these are some warning signs to look for, the list is by no means comprehensive.  It is also not a checklist of items that, in and of themselves, indicate elder abuse.  In fact, an elderly individual may have legitimate reasons for doing any of these things.  However, these are some of the most common warning signs of financial elder abuse.  

If you see any of these things taking place in a loved one's life, you should contact Adult Protective Services (APS).  For a referral to the APS office in your area, call 1-800-510-2020.   Many counties have specialized teams that deal with financial elder abuse so you should ask the APS worker if such a team exists in your area.

If the abuse is occurring in a licensed long-term care facility, such as a nursing home, call the local long-term care ombudsman.  To locate an ombudsman, call 1-800-231-4024.  Your report will be confidential, and you can remain anonymous.

You may also call the California Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse complaint hotline at 1-800-722-0432, and the local police department and county district attorney’s office.

For legal assistance related to actual or suspected financial elder abuse, give us a call at 916-714-4499 to schedule a free initial consultation.   

Enforcing the UCC-1

Over the past few years, I have seen an increasing number of problems encountered by clients in their attempts to collect debts, particularly against secured collateral.
 
These problems typically arise from the sale of a business in which the seller finances a part of the purchase price and attempts to create a security interest against some of the business’s assets by filing a UCC-1 financing statement with the Secretary of State.  

UCC-1 filings are valuable tools in seller financing situations.    However, they are not fool-proof.   The UCC-1 is used to perfect a security interest in collateralized assets and establishes priority of repayment in case the debtor defaults or declares bankruptcy.  When a UCC-1 is used, it is very important that the assets used as collateral be clearly and specifically identified. 

While courts are generally liberal in construing a UCC-1 to create a security interest, and will generally overlook technical errors, it is imprudent to blindly rely on luck and the good graces of the judicial system.

Let’s look at a hypothetical situation to see how this works.  Sam Sellit decides to sell his restaurant, Sam’s Super Subs, to Betty Byett (who will use the assets to open Betty’s Better Burgers, of course).    Betty doesn’t have enough cash for the full purchase price, and her credit isn’t great.   So, Sam agrees to finance $50,000 of the purchase price.   Sam is smart, so he takes a security interest in the restaurant equipment and files a UCC-1 financing statement with the Secretary of State. 

Several years later, Betty – whose burgers weren’t better – defaults on her payments.   Sam seeks to recover the equipment under his security agreement.   Unfortunately, when Betty realized her business was finished, she sold all of the equipment at an auction and spent the proceeds. 

Sam’s UCC-1 filing states that he has a security interest in “all of the equipment on the premises.”  Because the items were not specifically identified, Sam will not be able to recover the items from any third-party purchasers who were unaware that these specific items were covered by Betty’s security agreement. 

How should Sam have written his UCC-1 to avoid this problem?   If Sam had used specific descriptions of each asset of significant value, including each asset’s serial or other identifying number, it would have been clear which ice machine, grills, and fryers were covered by his UCC-1.   Accordingly, Sam would be able to enforce his UCC-1 against third-party purchasers with relatively little difficulty.  

While this level of specificity is not required by law, it is good business practice.   It requires a little more effort on the front-side, but can save a lot of headache – and money – down the road.

Caveat Venditor.

New Estate Tax Laws

It has been a while since my post regarding 2010's estate tax uncertainty. Without a doubt, few people - if any - accurately predicted what Congress would do. Not surprisingly, the uncertainty will continue, at least through 2012, when Congress will - hopefully - once again revisit the issue.

In the meantime, here are a few of the highlights from the new legislation:

• Default estate tax exclusion for decedents who passed away in 2010 is $5M.
  
• For decedents who passed away in 2010, an option is available to choose "carryover basis" (with step-up of $1.3M) instead of estate tax. Such an option could be useful when a decedent's estate exceeds $5M in value and liquid assets are unavailable to pay estate tax that may be due. However, in the vast majority of situations, taking the default $5M exclusion and the full "step-up" in basis will be the best option.
  
• Portability! The most useful and exciting change to the estate tax laws, in my opinion, is the new "portability" of estate tax exclusion amounts. This allows a married couple two opportunities to access both spouses' exclusion amount. For example, if Spouse A passes away leaving a $3.5M estate, and Spouse B subsequently passes away, leaving a $6.5M estate, neither estate will be subject to estate tax. Why? Because Spouse A has a $5M exclusion. Because Spouse A's estate only used $3.5M of the exclusion, $1.5M was "left over" and will be applied to Spouse B's estate, giving Spouse B an exclusion of $6.5M.
  
• A close runner-up to Portability, as an exciting new change, is the move from a $1M tax-free gifting cap to a $5M tax-free gifting cap (applicable only in 2011 and 2012). This increased gifting cap provides an excellent opportunity for families to reallocate assets to various estate planning vehicles, such as Irrevocable Life Insurance Trusts, Family Limited Partnerships, Grantor Retained Annuity Trusts, and Grantor Retained Unitrusts.

While the 2010 Tax Act brings good news for most moderate and high net worth individuals, the good news is tempered by the fact that Congress, once again, has given us temporary rules. Unless Congress acts again before 2013, the Estate Tax laws will revert to the laws applicable in 2000, with a $1M exclusion and a $1M tax-free gifting cap.

So what does all of this mean?

First and foremost, there are excellent tax planning opportunities during the next two years, that may disappear on January 1, 2013, so taking steps to plan now is highly advisable. The ability to transfer up to $5M tax-free to a tax planning vehicle should not be lightly passed up, as this opportunity may very well be "for a limited time only", and may revert to the $1M limit in 2013.

Second, it is advisable that all Estate Planning documents (particularly Revocable Trusts and Wills) be carefully reviewed to ensure that they continue to meet a client's wishes. Many Wills and Trusts are drafted with so-called "formula clauses". These provide for gifts to heirs based on a specified formula, which is often tied to the Federal Estate Tax laws. Because of the ongoing changes to Federal Estate Tax laws, gifts to heirs could also be changing, unbeknownst to the client!

For these reasons, I strongly encourage everyone who has (or should have) an Estate Plan in place to consult with their Estate Attorney, CPA, and Investment Advisor to ensure that their estate plans are still consistent with their wishes and effectively take advantage of the variety of available tax planning opportunities.