Protecting The Elderly

People often find themselves looking after someone else’s money or property under an enduring power of attorney (EPA) but they are unsure what they are supposed to do. A recent High Court decision1 demonstrates the risks of ignoring the strict duties which are imposed. Although this is an actual case the names have been changed for privacy reasons.

Arnold was getting on a bit. His wife had died, one of his two sons had died also and Arnold was no longer able to live alone. Arnold had signed an EPA appointing his surviving son, Bert, as his property attorney. The High Court judge who heard this case explained what happened next:

After the death of his wife an elderly man goes to live with his son and daughter-in-law. All his assets in the world come to a little under $330,000. When he goes into a rest home 30 months later, he has just $11,500. When he dies, another three years later, just $1,400. The son has spent his father’s money. With, he says, his father’s blessing. But the administrator of the father’s estate says the expenditure is tainted with undue influence and must be repaid.

The judge decided that Bert had abused his position of trust. He had misused his authority under the EPA and taken advantage of his ability to control Arnold’s finances when Arnold was elderly and living with Bert. Bert had used this situation to his financial advantage.

This case came to court because Arnold’s other son had died leaving a son of his own. This grandson asked for an independent trustee to be appointed for the estate in place of Bert. The grandson’s concern was that, because his grandfather’s estate had nearly all disappeared, he would not be receiving the half share of the estate which was to come to him under his grandfather’s will. A claim was filed in the High Court on behalf of the new administrator of Arnold’s estate.

Bert’s reply was that his father wanted him to use the money in this way. Arnold was grateful for Bert’s care and wanted him to have the money. The judge decided that Bert had exerted undue influence and had abused the trust placed in him. Bert was ordered to reimburse his father’s estate.

Strict duties for EPA attorneys

This case is a good illustration of what can go wrong when people, who are looking after property or funds for someone else, assume that they can simply use the money as they think fit.

The law imposes strict duties on people who are managing money or property for someone else. These are called ‘fiduciary duties’, that is, duties of trust and good faith.

People in these situations – EPA attorneys, trustees and executors – must act selflessly and not in their own interests. People who are acting in a fiduciary role are only allowed to make a profit or be paid for their efforts if this is specifically authorised.

Attorneys appointed under an EPA aren’t obliged to send out annual accounts – or even to keep any financial records at all – unless the EPA sets out some specific requirements. Nevertheless attorneys should think carefully about what financial records they keep. It’s often very easy for an unhappy family member to make allegations of misuse of money. Refuting these allegations is difficult without proper records.

The law imposes strict duties on people who are managing money or property for someone else. These are called ‘fiduciary duties’, that is, duties of trust and good faith.

Sadly, where one family member is appointed under an EPA, others in the family may feel left out and suspicions may start to form. This is a particular problem where some family live a distance away, perhaps overseas. It’s easy to assume the person who is on the spot will be able to take advantage of the situation. That is how unfounded accusations can arise.

These types of family disputes can be bitter and unpleasant. It’s important to try to avoid unnecessary suspicions wherever possible. The best answer is to keep other members of the family fully informed if an elderly person relies on you to manage their finances or property.

Exploitation of elderly people

Misuse of EPAs and other positions of trust are examples of a wider problem of elder abuse in our community. As our population ages and people live longer, the possibility of mistreatment of elderly people increases. This is a real concern. Sometimes the abuse may be physical but, more often, we see examples of financial abuse or exploitation.

One of the most common ways elderly people can be manipulated is in relation to their wills. Sadly as people age they may form unfair opinions about their family and others close to them. An elderly person who previously always wanted to treat all of her children equally may suddenly decide to favour one or two over the others.

People are free to make their will as they wish and there’s no obligation to be logical or fair. However, where a will is obviously the result of excessive pressure being applied to an elderly person then the court can declare the will invalid because of ‘undue influence’. Because of these risks, lawyers will usually insist on seeing elderly people alone when they interview them. Family members need to understand that it’s in their best interests that elderly parents are left free to discuss their will with their lawyer in private. Having a family member present ‘to explain things’ may simply mean that the will is later ruled to be invalid.

Similar problems can arise with EPAs. If there has been undue influence then the EPA may not be valid. In recent years Parliament has moved to tighten up the process for signing EPAs. It’s now necessary to have an independent witness in most cases.

Unfortunately imposing extra requirements about witnessing EPAs has simply created increased cost rather than solving the problem. Often, as in the case mentioned at the start of this article, the problem arises later down the track. When parents are no longer able to make decisions for themselves they are very vulnerable to financial exploitation. For family members who are in difficult financial circumstances it can be very tempting to help themselves to some of their parents’ money.

Strict legal duties apply

In law there are quite clear duties imposed on a person who is given authority to act under an EPA (an attorney). He or she must act only in the best interests of the person who gave the power of attorney (the donor).

In the case mentioned at the start of this article the judge explained the duties as follows:

The attorney must act with absolute openness and fairness to the donor, exercise reasonable care (including acting with reasonable prudence in managing the donor’s financial affairs), keep personal and fiduciary property separate, and avoid conflict of interest and duty to the donor.

The judge also went on to comment that, even if there had been no EPA, Bert would have owed similar duties to Arnold simply because Arnold was elderly and vulnerable, and Bert had assumed the responsibility for his care and finances. Bert was in a position of trust because of this and high standards are expected in these circumstances.

The unfortunate thing is that the only way to enforce these obligations is by way of very expensive court proceedings. Arnold’s grandson has incurred thousands of dollars in legal fees and Bert fought the case strongly. At most the grandson can expect to recover about half to two-thirds in costs from Bert. Sadly justice can be slow and expensive.

1 Public Trust v V [2015] NZHC 1928

Posted: Mon 11 Jul 2016

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