Taking the Keys

DO YOU REMEMBER the headline, “Brooke Astor’s Son Guilty in Scheme to Defraud Her”? He swindled his famous mother out of millions, once by pocketing a $2 million commission on the sale of an Impressionist painting he purloined from her New York City apartment. She lived to age 105 but suffered from dementia.

F. Scott Fitzgerald purportedly said, “The rich are different than you and me.” But maybe not when it comes to elder fraud. One expert estimated that six out of every 10 cases of elder fraud are committed by a relative. One of the best ways to protect yourself is through careful planning.

Some people are good at creating backup plans: extra food in the freezer, alternate routes for driving, not taking the last flight of the day. Other good backup plans include a will, a health care proxy, and a springing power of attorney that takes effect only if you’re incapacitated.

The plans our attorneys draw up won’t cover everything, however. There are other things we naturally don’t want to think about, like what happens if I can’t drive anymore. Some of our abilities decay slowly rather than all at once, making it hard to notice the deterioration in ourselves. Aging brings on a gaggle of these slow-motion changes.

We all die eventually, but many of us lose our physical or mental capabilities first. There will be no flashing light that says “now is the time” to hand over the car keys to a son or daughter.

When do we stop driving, cooking, doing the taxes, paying bills and managing our investments? What’s the signal to let go? Is it a car accident? Is it paying the taxes late or falling behind on the mortgage payments?

Health economist Lauren Hersch Nicholas wrote a brilliant piece of research linking a diagnosis of dementia with credit scores. Credit scores declined years before a dementia diagnosis because people lost track of their finances.

My advice: Have a conversation with your family before your skills decline. Tell them, “If I start acting this way—late with bills, unusual donations, a fraud victim—then we should move into an outsourcing mode.”

Let your family understand your thinking while you’re cogent. Many of us will still fight for the keys, but at least the kids will know it’s worth the effort to take them away if they remember what we earlier said we wanted.

It’s not just when we transfer responsibilities like these, but to whom. Decide now who you want to manage things for you. Your will and health care proxy are essential. But remember, when they take effect, you can’t change your mind. You’re no longer part of the conversation.

When we’re of sound mind and body, as they say on TV, think things through. Work with an experienced attorney, talk with your spouse and then your children, and draw up a carefully formulated plan.

Your portfolio may be on autopilot in your mind, but there’s still rebalancing, moving cash from your brokerage account to checking, and other portfolio maintenance. Does your spouse know how to do it? Does your spouse know the passwords?

Since many HumbleDollar readers manage their own investments, ask yourself who will manage your carefully crafted plan. Are you better off finding an advisor today whom you’ve personally screened? Identifying the right advisor with the right model and fees would help your family, plus you might learn something from interviewing these professionals.

Make sure your family understands your investment philosophy. All the hard work and research into positioning your investments will end if they don’t know why you invest the way you do. You may need to hire an hourly advisor to keep watch on your portfolio and meet with family members at least annually.

It’s common to entrust different people with different tasks. A brother who is a doctor may be your health care proxy, while your son the CPA helps with your finances. Your nephew might shuttle you to doctors.

Such a division of duties might make sense to you. Does it make sense to them? Maybe they have other plans for their time. Be sure to ask them and to understand their expectations.

What if you have no family? Who can you hire? Are there nonprofits that help older people that can handle some things for you? Check them out now.

How do you help your family to monitor your fitness? A new dent in the car is an obvious warning. So is the $20,000 check you wrote to the Prince of Nairobi—unless no one else sees the checks you’re writing. 

Ensure your spouse keeps an eye on things. Also, name a trusted contact for each account, so that your bank, fund company or advisor has a family member or friend to call if something is off-kilter.

Sharing financial information with the kids challenges many baby boomers. How do you share enough so they can be helpful without giving up your privacy and control? Will revealing our wealth change the family dynamic and create new problems or expectations? Will “the reveal” change a child—who’s counting on an inheritance—when it’s clear that won’t come to pass?

This is why so many people hate to share their financial secrets. Still, the people I’ve spoken with say that sharing information with all the children is the best way to prevent fraud. One child may write the checks, but set up things so that all the kids can monitor. Trust but verify within the family.

I’m not prepared to say there’s a clear-cut time when we give up the car keys or the checkbook. I raise the questions here, but there is no one right answer. These conversations might be difficult. But if you don’t have them now, they could grow far more complex and expensive if family members later have to bring in accountants and lawyers.

Elder fraud happens every day and in every wealth bracket. Want to protect yourself? Planning is your best defense.

Matt Halperin, CFA, is the founder of Act2 Financial , an app that helps seniors avoid financial fraud. For 30 years, he worked as a portfolio manager and risk manager at large U.S. money managers. Matt currently serves on the investment committee of two endowments.  He has a BA and MBA from the University of Chicago, and resides outside of Boston. Matt's previous article was Where It Nets Out.

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