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Financial abuse is a serious issue that is reportedly on the rise. It is estimated that millions of older adults experience financial abuse each year, and the financial losses associated with this abuse can be devastating. According to the Office for National Statistics (ONS), approximately 1.5 million older adults in England experienced some form of financial abuse in 2020.
Separate statistics from the World Health Organisation (WHO) predict that “between 2015 and 2050, the proportion of the world’s older adults is estimated to almost double from about 12% to 22%. In absolute terms, this is an expected increase from 900 million to 2 billion people over the age of 60.” According to the WHO dementia cases are set to triple by 2050.
This is why STEP, the global professional body of trust and estate practitioners, supported by the Alzheimer’s Society, conducted a research survey last year exploring the implications for its members of an aging population. Its report “Loss of Mental Capacity: A Global perspective” noted that capacity issues and requests for advice on these issues have been increasing and will continue to increase due to the aging population.
The study found that
- Financial abuse is increasing. It is most prevalent when there is uncertainty about whether a person lacks capacity or when a representative is exercising their authority.
- Financial abuse is often linked to a client’s decision-making abilities and may occur when a client’s decision-making ability is in decline.
- The majority of respondents said that they had observed instances of financial abuse.
- The most common concerns identified regarding financial abuse of a vulnerable person were inadequacy of monitoring of the person’s representative; lack of public awareness, education or vigilance; and the inadequacy of systems in place by financial and other institutions to prevent fraud.
- Although Lasting Powers of Attorney (LPAs) are an important tool, there are barriers and issues to be addressed through policy and legislation. Many jurisdictions don’t have LPA legislation. For those that do, respondents felt that their systems required reform.
As indicated in the report, wealth managers and financial advisers are in a position such that they may be able to identify and prevent financial abuse due to the close relationships with their clients and knowledge of their usual financial activity.
It is therefore important for them to have information on how to recognise when abuse may be happening and how to respond.
What is Financial Abuse?
Financial abuse encompasses a wide range of activities that exploit another person's financial resources for personal gain.
Section 42(3) of the Care Act 2014 defines abuse as including financial abuse, and for that purpose financial abuse includes:
1. Having money or other property stolen;
2. Being defrauded;
3. Being put under pressure in relation to money or other property; and
4. Having money or other property misused.
Some examples of financial abuse include:
- Theft;
- Fraud including internet scamming;
- Misappropriation or misuse of property or money, for example improper use of money or assets when dealing on behalf of a vulnerable person informally;
- Coercion in relation to a person’s financial affairs or arrangements, including in connection with wills, property, inheritance or financial transactions;
- Misuse of a Lasting Power of Attorney (“LPA”) for property and financial affairs or misuse of a person’s assets or money by an attorney or deputy;
- Predatory marriage.
Financial abuse often occurs when a person lacks capacity to manage their property and affairs or as a result of undue influence.
Capacity
The definition of capacity is complex because capacity is time and decision specific. For example, a person may have capacity to make certain decisions, such as where they live or with whom they wish to have contact with but they may lack the necessary capacity to make a will. The test set out in the Mental Capacity Act 2005 is that person lacks capacity in relation to a matter if at the material time he or she is unable to make a decision for himself/herself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain. The test for capacity to execute a valid will is different. There are certain conditions we may associate with a lack of capacity (such as dementia) but that in itself is not determinative.
Undue Influence
Undue influence usually involves the exploitation of a relationship between two parties to gain an unfair advantage and is exercised by coercion such that the person in question’s own judgment is overborne. Usually someone takes advantage of a person’s vulnerability to coerce them into making decision they would not otherwise make. For example, somebody coercing an elderly individual into changing their will in order to benefit themselves or exerting undue influence to give away assets or make gifts. It may also involve misuse of a LPA for property and financial affairs or influencing a person to appoint them as their attorney under a LPA.
Financial abuse can be very hard to spot during a person’s lifetime and often only comes to light after the victim’s death. Furthermore, there is usually little direct evidence of undue influence. Undue influence can involve threats, intimidation or manipulation but this is often done behind closed doors.
It is therefore ever more important for advisers, practitioners and trustees and/or executors to be vigilant for signs of financial abuse.
How to spot signs of Financial Abuse
There are a number of signs that may indicate that someone is being financially abused:
- Changes in financial behaviour: for example, making unusual or unexpected financial decisions such as withdrawing large sums of money from their accounts, making large transactions or making investments without an adviser’s involvement when that would be what they would usually do.
- Unexplained withdrawals of funds from their accounts.
- Decreased access to financial information: they may stop sharing their financial information with family or become more reluctant to discuss their finances with their trusted advisers.
- Unexplained and unusual gifts, either due to the size of the gift or the person to whom the gift is made.
- Significant or abrupt changes to their will which are potentially unexplained or unexplainable. For example, a change at odds with previous wishes, disinheriting someone who benefits under a prior will or benefiting someone they do not appear to know well.
- Someone moving into a person’s home and living rent-free or a third party generally becoming integrally involved in the person’s life quickly and without reason. This is particularly so if that leads to increasing isolation from a usual routine or friendships and contact with family.
- Changes in behaviour or health, for example becoming withdrawn, depressed, or anxious, or neglecting their personal care.
As with undue influence, it can be difficult to spot the signs as often it happens behind closed doors and the abusers will obviously try to take steps to conceal their actions and motives. There can also often be a perfectly reasonable explanation in these situations.
It can also be extremely difficult to raise these issues and supporting clients who are at risk of being in these vulnerable situations is not easy. Discussing and dealing with capacity related issue is challenging due to the sensitivity of the issues, client beliefs and attitudes, cultural considerations and family dynamics.
What can be done in the event of financial abuse?
Wills
If someone has made a will as result of undue influence or they did not have the necessary capacity to make will, the will may be subject to a validity challenge. The type of scenario commonly seen in these types of cases is where one child benefits over other children and the decision is not supported by what were understood to be the testator’s wishes prior to death. Another possible warning sign is where the primary care giver, particularly of a vulnerable or elderly individual, benefits greatly from a will. The person challenging the will (usually a disappointed beneficiary who benefits under an earlier will) will need to prove that the testator was unduly influenced into making the disputed will. These claims can be hard to prove due to a lack of evidence.
In some cases an adviser, including an accountant or IFA may have been appointed as an executor of a will which is ultimately disputed. Executors are generally expected to remain neutral subject to some exceptions. The extent they would be able to intervene in a will challenge in those circumstances may be quite limited and advice should be sought in such a situation.
Misappropriated Assets
Where assets have been misappropriated, for example by way of abuse of an LPA, there are several possible steps which to be considered to recover the funds.
- Where there are suspicions about an attorney, assistance can be sought from either the Office of the Public Guardian or the Court of Protection. If there is evidence to support assets having been misappropriated, it is likely that the LPA will be revoked and an independent deputy will be appointed.
- Thought will then need to be given as to the possibility of legal action against the individual in order to actually recover the funds subject to the abuse. The Court of Protection may assist to a certain extent by way of an order to re-pay funds to the donor of the LPA. However, it may also be necessary to pursue civil proceedings in order to recover the funds and/or report the attorney to the police for fraud or theft.
- Possible civil action might be a claim for undue influence or a breach of trust and/or fiduciary duty claim and could extend to making an application for an injunction in order to prevent the former attorney from disposing of, or dealing, with assets.
Preventative Steps
Advisers can play a vital role in preventing financial abuse by ensuring that clients know how to protect themselves. Some of the steps that clients can take to protect themselves include:
- Putting in place LPAs for property and affairs, ideally with the benefit of legal advice. LPAs allow an older adult to appoint someone to make financial decisions on their behalf if they become unable to do so themselves. They continue to be valid after a person loses capacity. Advisers should be on alert however if a client wishes to appoint someone they have not known for long or from whom they were previously estranged.
- Reviewing their will regularly. This will help to ensure that their wishes are recorded and that their estate planning remains consistent with their wishes. Anything unusual is more likely to be picked up.
- Keeping a contemporaneous record of meetings with clients.
- If you have concerns that a client’s capacity, best practice would be to obtain a capacity assessment from a medical professional.
- Seeking appropriate advice if you do have concerns.
Financial abuse can have devastating consequences for older adults. By being aware of the signs of financial abuse, wealth managers and financial advisors, along with other practitioners, can help to ensure that their clients' finances are protected.
First published in FTAdviser on 1st February 2024.
further information
If you have any questions or concerns about the topics raised in this blog, please contact Sophie Mass.
about the author
Sophie Mass is an Associate in the Dispute Resolution team. She primarily advises on wills, trusts and inheritance disputes but also works on a wide range of cases including commercial litigation, insolvency litigation and professional negligence. She regularly advises and acts for clients in bringing and defending claims against estates and trusts.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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