In Wisconsin, financial exploitation is the largest category of elder abuse after self-neglect.¹ Although accurate estimates of losses are difficult to determine, some reports place the figures in the billions, possibly tens of billions, of dollars nationwide.² As with all types of abuse and crimes, prevention and intervention are key to protecting potential targets and limiting their losses.

Lawyers frequently are in a position to recognize, prevent, and address financial exploitation of their clients. Clients share with their lawyers financial and personal information that the clients might not share with even their closest relatives or friends. Furthermore, lawyers provide advice and document preparation related to appointing fiduciaries and disposing of clients’ estates, whether by lifetime gifts or at death. Such planning opens a client’s matters to third parties, which may then expose a client to financial exploitation if the third party is unscrupulous.

Lawyers will serve their clients well by advising about potential vulnerabilities and presenting practical and legal options for prevention and intervention. This article looks at certain vulnerabilities, along with options and resources to address them, especially through drafting and statutory provisions for financial powers of attorney.

General Protection of Client Information and Access to Assets

In the context of estate planning, lawyers learn about their clients’ family members, personal concerns, assets, and patterns of making gifts or providing support to others. In some cases, the information pertains to difficult circumstances about clients’ loved ones, such as financial woes, substance abuse problems, or criminal activity. For some clients, the combination of personal and financial circumstances is rife for financial exploitation, and the advising lawyer should provide appropriate counsel. For example, a client may need to be reminded to safeguard bank accounts, passwords, cash, credit cards, and valuables, if an opportunistic, even predatory, individual is part of the client’s life. Furthermore, when a client proposes making significant gifts or loans, the lawyer may need to inquire and advise about coercion, undue influence, or family discord, as well as provide advice about any tax or Medicaid implications of making gifts.

Early detection is key to successfully address financial exploitation by someone involved in a client’s life. The client should monitor account activity, perhaps with trustworthy professional assistance, such as a daily money manager, a bookkeeper, or a fiduciary. If an issue arises, then the client, along with professional advisors, can intervene by shutting off access to accounts or changing passwords.

In extreme cases, early intervention may involve legal action to prevent a bad actor from causing significant financial loss. For example, a client may need to evict a family member who is living with and stealing from the client. In other cases, the client may need to obtain an individual-at-risk restraining order to end threatened or actual financial exploitation by someone involved in the client’s life.

Mandatory Duties of an Agent Under a Financial POA

A financial power of attorney (POA) is a powerful tool, and lawyers should advise and draft carefully for the proper balance of delegated power and protection for the client. At the outset, the client should be counseled to pick an agent who is 100 percent trustworthy. Clients should not simply choose their oldest child, the geographically closest relative, or a friend who wants to help, unless that individual is also completely trustworthy and would otherwise make a good agent. Assuming the POA is durable,³ the agent may be acting with little or no third-party supervision if the client becomes incapacitated and cannot monitor the agent’s actions.

In advising clients about POAs, the lawyer should consider the agent’s mandatory and default duties under the statutes and the powers granted, especially powers requiring a specific grant of authority. Mandatory duties are the building blocks of the principal-agent relationship.⁴ Under Wisconsin’s Uniform Power of Attorney for Finances and Property Act (the Act),⁵ the mandatory duties an agent owes to the principal – those that may not be altered by the POA – include the duty to act according to the principal’s reasonable expectations (or if unknown, in the principal’s best interest), the duty to act in good faith, and the duty to act only within the scope of the POA.⁶

Probably the most fundamental of the mandatory duties is the duty to act according to the principal’s expectations or in the principal’s best interest. Under the Act, the minimum level of fiduciary duty of the agent is higher than it was under Wis. Stat. section 243.07, which the Act repealed.  Wisconsin Statutes section 244.14(1) requires the agent “to act in accordance with the principal’s reasonable expectations … and if those expectations are not known, in the principal’s best interest” notwithstanding any provisions to the contrary in the power of attorney. Former Wis. Stat. section 243.07, by contrast, did not qualify permissions given in the document (that is, provisions to the contrary of the principal’s best interest) with consideration of “reasonable expectations” or the “best interest” of the principal.⁷ Rather, the former statute made the “intent of the parties” dispositive.⁸ Therefore, now an agent acting under a POA is held to acting in accordance with the principal’s reasonable expectations or best interest regardless of express grants of authority in the POA to the contrary.

Drafting to Keep an Agent on the Straight and Narrow

The duty to act within the scope of the financial POA is mandatory, but it is the one mandatory duty that is fully within the drafting lawyer’s control. Thus, appropriately expressing the authority granted in the POA is an important tool in preventing abuse. The lawyer may tailor the scope to fit the client’s needs by retaining the default duties and selectively including specific grants of authority.

The default duties that the POA may alter include the following: loyalty; to avoid conflicts of interest; to act with ordinary care, competence, and diligence; to keep records of all transactions made on behalf of the principal; to cooperate with the person authorized to make the principal’s health care decisions; and to attempt to preserve the principal’s estate plan if doing so is in the principal’s best interest.⁹ Lawyers should draft to weaken or excuse these duties only upon careful consideration and discussion with the client and probably only in special circumstances.

Furthermore, powers that require specific grants of authority (sometimes called “dangerous powers”) should be given special consideration. Such authority includes the power to create, amend, revoke, or terminate a revocable trust; the power to make gifts; the power to create or change rights of survivorship; the power to create or change a beneficiary designation on retirement or life insurance accounts; and the power to delegate authority or name a substitute agent.¹⁰ Unless any of the foregoing powers are specifically granted to the agent in the POA, the agent cannot exercise these powers. These powers inevitably require weighing competing factors of granting sufficient authority to carry out the principal’s wishes, but with sufficient safeguards to avoid the opportunity for exploitation.

When drafting a POA, the lawyer should incorporate appropriate safeguards related to an agent’s duties and dangerous powers. Such safeguards may include naming co-agents and requiring them to act jointly (the statutory default is co-agents may act independently).¹¹ Or, if just one agent is acting at a time, the POA should require the agent to regularly report accountings to an alternate agent or another third party. Another option could be to require the written consent of an alternate agent or to require consultation with an estate planning attorney before exercising a dangerous power. If the dangerous power of gifting is included, one strategy could be to only allow making gifts to the principal’s spouse, or, if allowing gifting to children, requiring a majority of children to consent to any such gifts. Finally, when the client is satisfied with the document itself, having the agent sign to accept the appointment and acknowledge the fiduciary duties may be a good first step in letting the client’s expectations be known and may help to ensure that the agent understands the nature of the responsibility.

Of course, provisions in a POA document will not stop a wayward agent from acting badly, so, again, choosing a trustworthy agent is of utmost importance. Even for trustworthy agents, careful drafting of provisions that require the consent of others or significantly limiting a grant of authority can signal that the power should be exercised carefully. Signals or provisions such as these may suggest to agents that they should hire a lawyer to help guide them in their fiduciary duties, even if the document does not say so itself. In doing so, the drafting lawyer may be able to prevent inadvertent breach by even the most honest and reliable of agents.

Legal Remedies for Breach or Abuse

The Act provides several remedies for situations when the principal realizes that the agent is acting contrary to the principal’s wishes or the POA document. These include revoking the POA,¹² requesting an accounting,¹³ and requesting judicial review of the agent’s conduct.¹⁴ Naturally, remedies are more easily pursued when the client has capacity to detect breach or abuse. The most immediate response would be to revoke the agent’s authority.¹⁵ The lawyer must keep in mind that executing a new POA does not revoke a prior POA unless the new document states so.¹⁶

Another remedy is that the principal may request an accounting even if the POA has not been revoked.¹⁷ However, legal standing to request an accounting is narrow: It essentially is limited to the principal and those legally appointed to represent the principal or his or her estate.¹⁸ A governmental agency (such as adult protective services) or a court also may require an accounting in appropriate circumstances.¹⁹ If additional oversight is desirable, the lawyer may draft provisions to require accountings to other third parties, such as other family members of the principal, which may provide an additional mechanism for preventing or detecting financial exploitation by the agent.

Judicial relief provides another remedy for addressing a wayward agent.²⁰ Unlike requesting an accounting, the class of those with standing is considerably larger.²¹ Such relief may include revocation of the agent’s authority (and appointment of an alternate if one is so named in the POA), revocation of the POA instrument, an order for the agent to act within the scope of authority, an order construing the POA instrument, or restitution and reimbursement. Other legal action against a wayward agent may include filing for an elder-at-risk restraining order or injunction²² or commencing an action for replevin or to recover personal property. Further discussion and options regarding remedies for breach or abuse by a financial agent are covered in this issue’s companion article, “Restoring Justice for Victims of Financial Elder Abuse,” by Carol Wessels.

Awareness of Scams and Fraud

Scams and frauds are widespread, especially those that target older persons. For example, the AARP website warns readers of more than 50 types of scams.²³ Although clients rarely ask lawyers directly to advise about scams or fraud, the lawyer may provide important awareness, caution, and assistance. Lawyers may serve their clients well by rendering candid advice and providing resources about protecting information and assets. Lawyers can provide resources in person, on their law firm websites, or through client newsletters.

In addition, public and nonprofit agencies, such as the Better Business Bureau, the Wisconsin Department of Agriculture, Trade and Consumer Protection, and the Consumer Financial Protection Bureau, to name a few, publish information to aid in identifying scams and frauds.²⁴ The Wisconsin Department of Justice recently created an elder abuse-specific website for learning about and reporting suspected elder abuse to the attorney general’s Victim Resource Center.²⁵ The website also contains a comprehensive list of Wisconsin resources for elder abuse, including adult protective services agencies, local Aging and Disability Resource Centers, the Wisconsin Board on Aging & Long Term Care, and Legal Action of Wisconsin’s Elder Rights Project, a statewide program providing civil legal aid to elder abuse victims.²⁶

Furthermore, when a client requests legal advice about a particular situation, the lawyer should have suggestions for client response or protection. In some cases, clients may wish to voluntarily limit their own access to their assets. For example, clients who are vulnerable to aggressive sales or loan pitches might decide to place their assets in a revocable or irrevocable trust, for which the client is a beneficiary but not the trustee. In other cases, a client may wish to petition the court to name a conservator to assume control and management of the client’s finances.

An Additional Strategy – Connecting the Dots

Representing clients, especially vulnerable clients, often involves other people, such as family members, financial advisors, or tax accountants. If the lawyer is aware of these individuals and has the client’s permission to communicate with them, they may be strong allies in assisting the client to avoid financial exploitation. For example, a family member could notice when a client’s mental faculties decline, making the client vulnerable to scams. Similarly, if the client’s financial advisor receives an unusual request for a large financial transaction, the advisor can suggest the client review the proposed transaction with the client’s lawyer to confirm that it makes sense in the client’s estate plan, business plan, or tax plan.

Finally, the lawyer can work with trusted family members and professional advisors for other protective actions. Under federal law, clients and financial professionals may take steps to protect the clients’ finances. For example, a client may designate a trusted contact person with financial brokers to report a suspicious transaction.²⁷ Brokers may temporarily freeze disbursements from accounts based on a reasonable belief of financial exploitation.²⁸ Similarly, financial institutions can report suspicious activities to agencies such as law enforcement or financial regulators.²⁹

In addition, Wisconsin law allows a financial institution to take certain actions if a proposed transaction seems amiss.

1. The institution may refuse to accept a financial POA for several specific reasons, some of which are the following: an employee of the institution has a good-faith belief that the agent does not have authority to take the requested action; an employee has actual knowledge that the POA has been terminated; or the transaction would be inconsistent with state and federal law.³⁰

2. The financial institution may report suspected financial exploitation to a law enforcement agency or to an adult-at-risk or elder-at-risk agency if an employee of the institution has a good-faith belief that the principal may be subject to financial abuse or exploitation by the agent or person acting for or with the agent.³¹

3. Any person, including a lawyer, may report to the appropriate agency financial exploitation of an elder adult at risk if he or she has a reasonable belief that such conduct has occurred and can “indicate the facts and circumstances of the situation as part of the report.”³²

Conclusion

Recognizing opportunities for financial exploitation and advising clients accordingly is especially important when working with clients who may be susceptible to exploitation. Careful drafting and choosing trustworthy agents can help the client avoid financial loss. At a minimum, understanding the resources available and connecting clients with a network of support can go a long way toward preventing financial exploitation.

Endnotes

¹ Wis. Dep’t of Health Servs., Wisconsin’s Annual Elder Abuse and Neglect Report: 2018.

² Katherine Skiba, Older Americans Hit Hard by Financial Fraud, AARP (Feb. 28, 2019).

³ Durable means that the POA is still effective at incapacity. A POA is durable unless the document expressly provides otherwise. Wis. Stat. § 244.04.

⁴ Linda S. Whitton, Understanding Duties and Conflicts of Interest – A Guide for the Honorable Agent, 117 Penn St. L. Rev. 1037 (2013).

⁵ Wis. Stat. ch. 244.

⁶ Wis. Stat. § 244.14(1)(a)-(c).

⁷ State v. Bryzek, 2016 WI App 48, ¶ 11, 370 Wis. 2d 237, 882 N.W.2d 483 (citing Russ v. Russ, 2007 WI 83, ¶ 36, 302 Wis. 2d 264, 734 N.W.2d 874).

⁸ Id.

⁹ Wis. Stat. § 244.14(2)(a)-(f).

¹⁰ Wis. Stat. § 244.41(1)(a)-(e).

¹¹ Wis. Stat. § 244.11(1).

¹² Wis. Stat. § 244.10(1)(c).

¹³ Wis. Stat. § 244.14(8).

¹⁴ Wis. Stat. § 244.16.

¹⁵ Wis. Stat. § 244.10.

¹⁶ Wis. Stat. § 244.10(6).

¹⁷ Wis. Stat. § 244.14(8).

¹⁸ Individuals with standing are the following: the principal; the principal’s guardian, conservator, or other fiduciary; a governmental agency with regulatory authority over the principal’s welfare; and the principal’s personal representative or successor in interest (after the principal’s death). Wis. Stat. § 244.14(8).

¹⁹ Wis. Stat. § 244.14(8).

²⁰ Wis. Stat. § 244.16.

²¹ Those with standing include the principal or agent; a guardian, conservator, or other fiduciary acting for the principal; a person authorized to make health care decisions for the principal; the principal’s spouse, parent, or descendant; the principal’s domestic partner; an individual who would qualify as a presumptive heir of the principal; a person named as a beneficiary to receive any property, benefit, or contractual right on the principal’s death or as a beneficiary of a trust created by or for the principal that has a financial interest in the principal’s estate; a governmental agency having regulatory authority to protect the welfare of the principal; the principal’s caregiver or another person who demonstrates sufficient interest in the principal’s welfare; and a person asked to accept the power of attorney. Wis. Stat. § 244.16(1)(a)-(j).

²² Wis. Stat. § 813.123.

²³ Scams & Fraud, AARP.

²⁴ See, e.g., Better Business Bureau, BBB Scam Tracker, (allowing users to view information about local business as well as report and track scams); Wis. Dep’t of Agric., Trade & Consumer Protection, Consumer Protection, (providing a hotline for complaints as well as fact sheets and alerts for consumers); AARP, Scams & Fraud, (providing warning signs for scams and an interactive map for looking up and reporting scams); Consumer Financial Protection Bureau, Scams and Frauds, (containing resources on how to identify and protect yourself from scams).

²⁵ Report Elder Abuse.

²⁶ Report Elder Abuse, Resources.

²⁷ FINRA rule 4512.

²⁸ FINRA rule 2165.

²⁹ 12 C.F.R. § 21.11.

³⁰ Wis. Stat. § 244.20(1).

³¹ Wis. Stat. § 244.20(1)(f); Wis. Stat. § 46.90(4)(ar).

³² Wis. Stat. § 46.90(4)(ar).