Keeping the scavengers at bay: protecting your assets
My wife and I watched a “60 Minutes” segment on how life insurance companies sometimes keep the cash or face value of a life insurance policy if, when the insured dies, the proper paperwork isn't filed. Some life insurance companies may keep the benefit money even though they know the insured has died. They do not attempt to track down the beneficiaries, who may not know the policy exists.
There was a movie about Bernie Madoff, the Wall Street broker who fleeced his customers out of millions of dollars. One of the major points made in the movie was about the trust his clients had in him and how he conned them into investing in his Ponzi scheme.
This kind of problem is widespread and regularly makes headlines. For example:
The Detroit News, 4-25-16: “Beware of long-term care policy changes.”
Detroit Free Press, 3-5-16: “What's wrong with stealing from grandma?”
The Grand Rapids Press, 3-5-16: “Michigan heiress swindled out of $16 million.”
In the late 1990s, Prudential was prosecuted for sales fraud because its agents were “churning” life insurance policies — persuading customers to needlessly exchange policies for more expensive ones.
These examples represent the big frauds that make headlines either because of the amount of money involved or the name recognition of the victims.
This is a particularly big problem for business owners because of the nature of how they retire.
Big business employees and government employees depend on their pension plans to fund their retirement. The money often is only accessible in monthly increments.
A small business owner uses his IRAs and proceeds from the sale of the business to fund retirement. That money is available for financial predators.
Sometimes I compare an elderly person with large sums of available money to a sick lion on the Serengeti in East Africa — surrounded by hyenas, jackals and ever-circling vultures. Sometimes the scavengers become impatient and begin to devour the dying king of beasts while still alive.
That's really ugly, isn't it? And you may be thinking, “What's wrong with the author, to think such awful things?”
The answer lies in what I have seen, both in my personal life and business life. I have observed people suffering from strokes, advanced age, Alzheimer’s disease and other cognitively challenging disabilities lose significant portions of their assets to the people they should have been able to trust the most. I have had to tell those people that someone they trusted has defrauded them.
Here are the reasons given to me when I have confronted the predators. “She has Alzheimer's; she won't miss it.” “My spouse will leave me if I don't get the house we want.” “She told me I could have it” (but she had a stroke and could not speak). “It is something I have always wanted.” “He won't miss it because he's too sick to know we took it.” “The beneficiaries won't appreciate the asset and I will.” “I need the money and they don't.”
I could fill pages with this stuff. The hardest thing I had to do was to tell my mother the task she entrusted to a family member had been violated. The look in her eyes was heartbreaking.
Many elderly people either don't know they are cognitively impaired or are embarrassed to admit it. If you have parents or grandparents who have sold a business and suffer cognitive compromise due to age, stroke, Alzheimer’s, etc., you need to keep close tabs on what is happening. Hopefully, there is a responsible, honest and caring person who will ward off the scavengers.
It is not always about money. There are objects that have great value to a family, either emotional or real or both. Some of those items may be sold by the culprit because they have great value as antiques. Some may be retained for their own use. Either way, the owner has been denied the right of passing those assets on to the person they designate.
Attorneys and accountants are critical to the function of protecting people unable to protect themselves. Contracts, trusts, wills, accounting records and so forth are needed. Attorneys are often the key to success, or they can be the dissembler. A poorly done contract, will or trust can unravel an entire plan. If you see something that does not look right to you, don't give up until you feel comfortable. Get explanations in writing of anything you question. Get a good honest reputable attorney. Grand Rapids is blessed with many of them.
On the other side, if you find yourself in a dispute, be prepared for a long, expensive and often futile attempt to make things right. What another person has done that looks blatantly unethical will be defended vehemently by your protagonist’s attorney. In court, anything can happen. Remember: O.J. Simpson was found innocent.
A widow of a deceased client told me she wanted to resolve some family financial issues so she could enjoy Christmas again. That elderly or impaired seniors are victimized by the very people they should find safe is obscene. The financial damage is significant, but the emotional damage is devastating.
I recently quit taking a Parkinson's disease medication because it caused mental confusion and hallucinations. Hearing my mother’s voice calling me was unnerving, considering mom died in 1986. Looking back on that experience, I can tell you that losing cognitive function is terrifying and leaves you defenseless.
Find good legal and accounting firms. Have a trustworthy individual manage the situation. Be prepared for unpleasant confrontations. Maintain comprehensive records, particularly having to do with financial records. Keep a real close tab on the legal fees. Tens of thousands of dollars in fees can be generated in a short period of time with little or no chance for recovery.
If you’re the good guy and things work out, be sure to thank your legal counsel. If you and your attorney are the bad guys, I wish for you to have your next meeting in a very warm place — and I don't mean Miami.
Paul Hense is the retired president of local accounting firm Hense & Associates and past chairman of the Small Business Association of Michigan.