By Chaz Fahrner, CFP®, EA, MSBA
In 2008, the first baby boomer was eligible to retire early at age 62. Today, 10,000 boomers a day are retiring. In the last few decades, there has been a shift from defined benefit retirement plans to defined contribution plans. This change has put the responsibility of managing money in the hands of our aging parents. As you might have guessed, there is unfortunately a massive increase in reports of elder fraud. From 2013 to 2017, the number of elder fraud cases jumped by 400%, according to a report by the Consumer Financial Protection Bureau. This growing concern has forced children of elderly parents to take a role in their parent’s financial decisions. The following tips may help you and your parent create safeguards for the growing complexity and risk of financial fraud.
Creating Safeguards Early
As your parents age, they are more prone to financial missteps, abuse or fraud. This can happen if they lose mental clarity, have trouble communicating because of hearing loss, or become incapacitated due to illness. It is important to be proactive and develop safeguards prior to impairment. This may be a difficult conversation, but most likely easier than if your parent is confused or unable to communicate effectively. We recommend having your parents talk to an estate attorney about creating a revocable trust, a durable power of attorney and health care directives. Transparency is important, and we recommend that all immediate family members are involved in the conversation. Working with a professional, like a trusted attorney or financial advisor, may help guide the conversation and create a checklist of recommended tasks to be accomplished. The key is to have the conversation as early as possible in order to give your family time to plan.
Consolidating
Consolidating financial accounts reduces complexity for your parents and family members because it is easier to monitor and catch any unusual account activity. The goal is to combine identical types of accounts under as few institutions as possible. This will allow you to have clarity and knowledge of what your parents own, where it is located and most importantly, how it’s invested. Other benefits to consolidating investment accounts may include one investment approach with complete oversight and simplification when required minimum distributions start for retirement accounts.
Staying Connected
Having a relationship with your parents’ financial professionals adds another layer of protection against financial fraud. We believe it is our job to not only establish an ongoing relationship with our clients, but also their children. We want our clients to confide in us if they are experiencing anything uncomfortable financially. We remind clients that we should be the first person they contact regarding any financial matters, regardless if it is good or bad. This trust allows us to have a strong pulse on our clients spending habits, so if there is anything out of the ordinary, we can reach out to the client’s children. Developing a relationship with your parents’ financial professionals, lends itself to a good working relationship which allows the family to work together if there are any signs of financial exploitation.
Regular Conversations
Having regular conversations with your parents to show you care for them and will listen to their concerns is vitally important. It is essential that they trust you because financial fraud and abuse is commonly committed by individuals close to the victim, like caregivers or family members. If parents don’t feel that they are supported by their loved ones, they may hide the abuse. Those experiencing the abuse are sometimes even aware of the exploitation but do not want to confront the abusers because they rely on them for mental or physical support. One way to keep a close eye on your parent’s finances without having to call them every day is to utilize account aggregator software. The software we use allows our clients and their children to link their investment, banking and credit card accounts. All parties involved can view transactions from an online portal to catch anything unusual.
Several years ago, I received an email from a client requesting that a large sum of money be deposited to a random bank account. For all money requests, our firm requires a conversation and verbal confirmation on the phone with our clients. I reached out to the client and quickly discovered this was a fraudulent email. We caught the fraud before it became a problem, but it made me realize how simply and easily fraudsters can gain access to someone’s money if proper protocols are not in place. This clarified how important it is to support and encourage our parents to create a plan early, consolidate for simplicity, stay in touch with professionals and have someone they trust checking in on them and monitoring the accounts. By using these tips, financial abuse and fraud can be prevented.