And if children, stepparents and stepsiblings don’t get along, they shouldn’t be named as co-trustees. Some experts recommend appointing one family member or an independent professional trustee who can calm tensions and make sound decisions.
5. Financial Elder Abuse
Financial abuse of the elderly is on the rise, say advocates for the aged. Sadly, the perpetrators are often family, friends, caretakers and advisors who exploit their relationships with older individuals to line their own pockets. Victims frequently hesitate to report mistreatment because they feel emotional connections with perpetrators.
In 2011, legendary actor Mickey Rooney spoke before the Senate Special Committee on Aging about his own experience with financial elder abuse. Rooney, who was 90 when he testified, had appeared in more than 300 movies during his 80-plus-year career and had accumulated significant wealth. Unfortunately, one of his stepsons and his stepdaughter from his eighth wife stole over $2.8 million, leaving Rooney “scared, disappointed, angry, overwhelmed” and financially strapped, according to Dadakis’s colleagues at Holland & Knight, who represented Rooney.
The lawyers at the firm helped get a restraining order against the stepson, recover millions of dollars stolen from Rooney and appoint a conservator to manage his affairs. The stepson was isolating Rooney, and the situation might not have come to light if it weren’t for another family member. “Another one of Mickey’s stepsons was concerned. He was instrumental in bringing the case to the forefront,” says Dadakis.
Rooney passed away in 2014. His determination to speak out led Holland & Knight to establish the Mickey Rooney Elder Abuse Pro Bono Project to represent needy victims of financial elder abuse.
Where vast wealth is at stake, numerous individuals could be involved in defrauding the elderly. Take the case of French heiress Liliane Bettencourt, whose father founded cosmetics giant L’Oréal in 1907. Bettencourt was the world’s richest woman when she died in September 2017 at the age of 94. Her daughter filed suit in 2007 alleging that a society photographer, 25 years younger than Bettencourt and portrayed in the media as a gigolo, had swindled her out of an estimated $1.4 billion to $1.86 billion in cash, fine art, life insurance, annuities and real estate, according to The New York Times.
The daughter’s complaint led to the filing of criminal charges against the photographer, who was tried and convicted in 2015 of elder abuse and money laundering for taking advantage of Bettencourt, who suffered from dementia. Eight other defendants, including several of her former wealth managers, were also found guilty of defrauding Bettencourt, according to the Times.
Advisors can help protect elderly clients from predators both inside and outside the family by paying attention to cognitive and behavioral changes. Advisors may also want to suggest that families run background checks before hiring caretakers.
(For information on Finra’s new rules aimed at reducing financial exploitation of seniors, rules that go into effect on February 5, 2018, see “Finra Deadline Looming, Advisors Must Combat Theft From Older Clients” in the October 18, 2017, online edition of Financial Advisor magazine).
6. Surprise Heirs
Apparently, the rich can afford more of everything—including romantic partners and children.
“Sen. William Clark was as wealthy as John D. Rockefeller,” says Dadakis. “He had children by his first marriage and then his wife passed away.”
After that, the senator became romantically involved with a 15-year-old that he sent to school abroad. “While she was over in Europe studying, she had baby number one,” says Dadakis. “When baby number two was on the way, they backdated the marriage so that baby number one was legitimate. Then he disclosed this to the children of his first marriage. They were the same age as his wife and weren’t really happy about the situation.”
Perhaps the most well-publicized recent case of a shadow family involved journalist Charles Kuralt, who died in 1997. Kuralt was best-known for hosting the “On the Road” segments on the CBS Evening News. Two years after he died, his 30-year relationship with a woman in Montana surfaced. Kuralt had established a second family with the woman and her children, while his wife stayed in New York City and his daughters from his first marriage lived on the East Coast.
Just before his death, Kuralt wrote a letter to the woman leaving her a 90-acre Montana property they had shared. After the woman sued to obtain possession, the Montana Supreme Court ruled that the letter was valid and the land belonged to her, according to the Associated Press.
Kuralt’s wife of 35 years discovered the clandestine relationship only after his death. She inherited his estate, but when she died in 1999 the estate passed to Kuralt’s daughters. The court subsequently ordered the daughters to pay $350,000 in estate taxes on the Montana property, according to the AP.
In a similar situation, a client asked Oshins to set up a “very secret” trust to support the man’s extramarital child; for this trust, Oshins used a different corporate trustee than the one selected to administer the family’s other trusts. Oshins is fairly confident the man’s wife will never discover the covert trust. “The wife won’t find out unless possibly, at his death, if she looks into where he applied his gift tax exemption on his gift tax return. But probably not. Most people don’t even ask those questions,” he says. The child stands to inherit $2 million from the man’s $100 million estate when he dies.
Oshins advises clients to come clean with their partners and name, then specifically disinherit, any hidden offspring, if clients wish to cut them off. “You’re taking a risk that the child will sue and get a share of the estate unless you mention them.”