As our parents age, one of the many factors we need to consider as adult children is their finances and if they’re vulnerable to financial exploitation. After all, many cases of financial exploitation have a root cause in impaired decision-making abilities. Poor decision-making is a consequence of cognitive decline among seniors; even very subtle age-related changes in cognition have detrimental effects on judgment. An aging parent’s vulnerability is twofold:
1) the potential loss of financial skills and financial judgment, and
2) the inability to detect and therefore prevent financial exploitation.
In order to protect aging parents from financial exploitation, it is important to identify signs of diminishing capacity, recognize and discuss common scams, and take preventative action when necessary.
Signs of Diminishing Capacity
The following are warning signs of diminishing capacity:
- Memory changes that disrupt daily life: forgetting recently learned information, important dates, or events; asking for the same information over and over; relying on memory aides or family members for things that were previously handled independently.
- Challenges in planning or solving problems: changes in the person’s ability to develop and follow a plan, work with numbers, or keep track of monthly bills.
- Difficulty completing familiar tasks at home, at work, or at leisure: trouble driving to a familiar location, difficulty concentrating, or taking much longer to complete tasks than previously required.
- Confusion with time or place: losing track of dates, seasons, and the passage of time and having trouble understanding something if it is not happening immediately.
- Trouble understanding visual images and spatial relationships: difficulty reading, judging distance, and determining color or contrast.
- New problems with words in speaking or writing: difficulty trying to follow or join a conversation, stopping in the middle of a conversation, and having no idea how to continue.
- Misplacing things and losing the ability to retrace steps: losing things and being unable to find them again.
- Decreased or poor judgment: problems spending money, such as giving large amounts to telemarketers, and paying less attention to grooming or hygiene.
- Withdrawal from work or social activities: trouble keeping up with a favorite hobby or avoiding being social because of changes that the person has experienced.
- Changes in mood or personality: becoming confused, suspicious, depressed, fearful or anxious and being easily upset at home, at work, with friends, or in places outside of a person’s comfort zone.
It’s a sad reality that many scammers recognize that seniors are prime targets for financial scams precisely because of this cognitive decline. In this case, the best offense is defense: helping aging parents learn about the common scams and what red flags to look for in such scenarios can be a helpful safeguard. For example, one of the most recognized scams is the “Nigerian prince” email scam, in which a “member of Nigerian royalty” requests confidential information so he can transfer a huge sum of money out of the country, a portion of which is promised to the victim. It is estimated this scam still rakes in over $700,000 per year. Unfortunately, new scams are increasingly sophisticated, and individuals with diminishing capacity are more susceptible to being victimized.
According to the United States Senate Special Committee on Aging, the following are the top scams targeting seniors:
- IRS Impersonation Scam. The perpetrator impersonates an IRS agent and requests payment to resolve an outstanding tax issue and threatens an arrest warrant or other adverse action if payment is not made.
- Lottery Scam. The perpetrator contacts the victim claiming they have won the lottery. The perpetrator requests a small processing fee (e.g., $200-$500). If the victim pays the small fee, the perpetrator often requests a higher fee (e.g., $10,000) to pay for taxes.
- Grandparent Scam. The perpetrator calls the victim claiming to be a grandchild in trouble and requests the victim wire them money to be used for bail, attorney’s fees, hospital bills, etc. The perpetrator urges the victim not to tell anyone, such as the parent of the “grandchild,” so he or she does not get in trouble.
- Computer Tech Scam. The perpetrator makes unsolicited calls or uses pop-up internet ads to frighten the victim into thinking their computer has a virus. The perpetrator charges lucrative fees to fix the “virus” and often installs a virus of their own to steal personal and financial information to commit identity theft.
- Sweetheart Scam. The perpetrator contacts the victim on an online dating website seeking companionship after the loss of a spouse. The perpetrator plays with the emotions of the victim and convinces the victim to send money for travel expenses, medical emergencies, hospital bills, etc.
The level of intervention needed to prevent financial exploitation is dependent on the aging parent’s capacity. Each step taken to prevent financial exploitation limits an aging parent’s independence. Therefore, it is important to reassure the aging parent he or she is not giving up control, but rather enabling others to help out.
- Reduce dependence and isolation. One of the biggest risk factors of financial exploitation is dependence, which is typically a product of isolation. When an aging parent needs assistance with activities of daily living, such as shopping or preparing meals, the person providing assistance may gain greater access to the elder’s finances, opening the door for exploitation. If a parent is unwilling to move to assisted living, teach him or her how to use technology to meet their daily needs. Apps such as Uber, DoorDash, Pillboxie, and Red Panic Button may enable the aging parent to continue living at home. Apps such as Facetime, Skype, and Tapestry enable the aging parent to stay in touch with family members and friends.
- Education. Discuss common financial exploitation scams with your parents. If a parent is able to identify the scam they are less likely to become a victim. Inform your parent that financial and government institutions never request credit card, banking, Social Security, Medicare, or other personal information over the phone unless the individual initiated the call. Put a note next to the phone reminding your parent not to give out said information.
- Estate and disability planning. Make sure your parents have appropriate legal documents in place to reduce the likelihood of financial exploitation. A Power of Attorney allows an individual to appoint another (the “attorney-in-fact”) to manage his or her financial accounts. An attorney-in-fact is able to access and monitor checking, savings, retirement, and investment accounts. The Power of Attorney should not be seen as a document that takes authority away from the aging parent, but a document that allows the other to help manage assets as needed.
- Financial account management. Encourage your parents to consolidate their accounts. The fewer accounts a parent has to manage, the easier it is for him or her to monitor financial transactions. If a parent is technologically savvy, install mobile apps that allow them to monitor transactions. To the extent possible, set all monthly bills on automatic payment. Consider setting up safeguards with the bank. Set notifications for transactions over a specific dollar amount. Consider establishing a separate account with a lower spending limit. If appointed as attorney-in-fact, ask for monthly statements to monitor transactions.
- Limit exposure to scams. To opt out permanently from receiving prescreened offers of credit and insurance go to www.optoutprescreen.com. To add your parent’s phone number to the federal government’s National Do Not Call Registry visit www.donotcall.gov, or call 1-888-382-1222 from the phone number you want to register. To remove your parent’s address from mail and email marketing for a period of 10 years register online at dmachoice.thedma.org.
- Medical assessment. If an aging parent does not have capacity, it may be necessary for a medical professional to conduct tests and provide a written opinion regarding capacity. If a doctor determines an aging parent is incapacitated provide the doctor’s letter to each financial institution where the parent has an account.
Conversations about diminishing capacity, financial exploitation, and taking preventative measures must be a thoughtful process. Encourage your parent to meet with his or her professional advisors (financial advisor, accountant, and attorney) on a regular basis. The team of advisors can assist in identifying diminishing capacity and broach the difficult subjects.
The above was developed in collaboration with one of JNBA Financial Advisors’ strategic partners, Ryan Prochaska, an associate attorney at Chestnut Cambronne. Ryan’s practice areas include estate planning, asset protection planning, and elder law. We asked Ryan to provide his insights on financial exploitation, why it’s a concern for seniors, and what family members can do to help educate their aging parents about financial scams.
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PLEASE NOTE: JNBA is neither an agent of Administration on Aging (AoA) nor an agent nor an U.S Department of Health and Human Services.
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