Ethical questions come into play when necessary precautions aren't taken in dealing with older clients. Advisors can find themselves carrying out instructions that come from their clients but are not in their clients' best interests. Or, they may feel it best to involve family members whom, in earlier days, the client instructed them to avoid. Sidestepping these dilemmas is a matter of getting the client's written instructions before these occasions arise.
But ethical quandaries present themselves in other forms as well, even after wishes are well documented. Debbie Frazier, an advisor in Chapel Hill, N.C., relates the story of a client who gave a power of attorney to her daughter because she was the geographically closer of her two children. "My client was having memory problems. She'd given power of attorney to her daughter, also living in North Carolina, with whom she'd once had a good relationship. That was no longer the case. The daughter was using an advisor who'd lost $1.6 million of her mother's money. My client now wanted to sue the advisor and needed her daughter's help." Frazier feared that, should the mother become totally incapacitated, the daughter would put the kibosh on her mother's complaint against the advisor.
She recommended that her client give the power of attorney to her son instead of her daughter, so the lawsuit could go forward. Frazier's recommendation was not only ethical, but also appropriate. The daughter had a conflict of interest that easily could have forced unethical behavior on her part, as well as a breach of her fiduciary duty to her mother.
An even more frequent conflict occurs in the area of gifting. Linda Leitz of Pinnacle Financial Concepts in Colorado Springs, Colo., says, "I've seen situations where the adult child wants to continue the maximum annual gifting program his elderly parent put in place prior to incapacity, even as the parent is headed for a nursing home and the ability to pay nursing costs is becoming questionable. In such situations, I've put my disagreement with adult children in writing." Leitz adds, "I've never had to, but if a situation like that was [irreconcilable], I'd withdraw as the planner."
Says Emous, "In one case I had, my client left everything in trust for a current income benefit to her husband with a remainder interest to the husband's granddaughter, a minor. My client, with no children of her own, very specifically excluded the husband's daughter. My client died. From then on, the husband's daughter tied up the estate in court attempting to break the will. She was able to convince the court to give her and her daughter a current income benefit."
Subsequently, the daughter became her father's guardian and had him put into a nursing home so that she could live in the house his wife had left outright to him. Before he was conserved, she had her father sign over to her a quitclaim to the house. Says Emous, "She also convinced her daughter there was no money available to send her to school. The husband finally died, the trust distributed to the granddaughter and-the last I heard-the granddaughter put all of the assets in her mother's name ... the woman my client wanted to disinherit. Now I advise my clients to name an independent bank trustee when I know the client will be vulnerable to a self-serving relative."
While we can't guard against all the ethical infractions of which a client's heirs are capable, we can be ethical in our own approach to elder planning. Bert Whitehead, founder of Cambridge Advisors LLC, a fee-only advisor network, is an experienced advisor and an attorney. It's no surprise, then, that his seven-step method of dealing with ethical dilemmas of this type is legalistic in its approach (see sidebar). Says Whitehead, "I believe these steps are not only legally permissible, but may be a legal obligation to our clients if we are true fiduciaries. It is surely the ethical and professional approach [to the problem]."
As you can see, the predicaments of older clients and their solutions are infinite in variety. Be aware of what can happen and the precautions you should be taking. That spry 60-year-old, your low-maintenance client who's enjoying retirement without a financial care (thanks to you), may be your greatest challenge 20 years from now.
David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is editor of the Virtual Office News monthly newsletter, and co-author of the book Virtual Office Tools for a High-Margin Practice (Bloomberg Press, 2002), both available at www.virtualofficetools.net.