Protecting the Elderly from Financial Exploitation

Protecting the Elderly from Financial Exploitation

“I am concerned my grandmother is being taken advantage of! My cousin has moved into her house and is accessing her bank accounts what can I do?”

The elderly are one section of our society that have a particular vulnerability to financial exploitation. An elderly person can put into place legal documents such as an Enduring Power of Attorney and a Deed of Enduring Guardianship that will provide for the formal appointment of trusted individuals to perform the role of financial manager and guardian in times when they are unable to or are incapable of attending to these types of matters themselves.

If an attorney/guardian, appointed under a deed, fails to protect the best interest of a vulnerable person or there is no formal appointment documents and the informal arrangements are not working an “interested person” may make an application to the Supreme Court or the Guardianship Tribunal for the appointment of an independent financial manager and / or guardian.

Since 1 July 2009, the NSW Trustee and Guardian has performed the roles previously exercised separately by the Office of the Protective Commissioner (Financial Manager) and the NSW Public Trustee (Guardian)

Usually it is preferable that a relative or friend undertake these roles however in circumstances of gross family conflict an independent person may be preferred.

Financial Managers Need Remuneration Approved By NSW Trustee

A recent case in the NSW Supreme Court has helped define who can undertake the role of financial manager of a person’s assets when a person is incapacitated. It also helped define what constitutes a conflict of interest in the circumstances and what type of remuneration is deemed acceptable in the court’s eyes.

The case involved a young child – EKR – who was in a serious road accident on 27 March 1999. She sued for compensation and damages for injuries that she suffered and was awarded a sum in excess of $2 million. The plaintiff solicitors then applied to the Supreme Court for the appointment of a financial manager called Ability One, who proposed to charge an establishment fee and ongoing fee based on a percentage of the total assets under management.

In the case (GRR – v – EKR (2012) NSWSC 1543) Justice White found a number of aspects of the application to be unsatisfactory. He found that while Ability One was an authorised representative with a financial services licence, the terms of the licence did not cover the anticipated services that would be provided in the role as a financial manager. Furthermore, His Honour identified a conflict of interest and duty.

Documents detailed that Ability One would obtain a “commission” from selling AMP’s financial products. Ability One made an undertaking that any such commission would be rebated to the estate. This proposal was acceptable to the Court

Justice White also found that the only means by which a financial manager can be remunerated apart from the NSW Trustee and Guardian (which has a statutory right to remuneration) would be by order of the court or if the NSW Trustee authorises remuneration for services provided by the financial manager (pursuant to Section 115 of the NSW Trustee and Guardian Act 2009). This finding provides an important safeguard that the court or the NSW Trustee must approve any and all remuneration paid to Financial Managers.

Mark Streeter, principal of Sydney law firm Streeterlaw, said this finding provides an important safeguard for clients, in that the court or the NSW Trustee must approve any and all remuneration paid to financial managers.

He said this case has broad-reaching applications, and will particularly impact cases where an elderly client hands over financial control of his or her assets.

“Many people require substitute decision-makers to assist them to make financial decisions when they are unable to make these decisions themselves,” he said. “More than 58 per cent of applications in the Guardianship Tribunal in the last financial year concerned people who were over 65. Accordingly, age-related conditions such as dementia are often the cause of the ‘disability’ and bring about the need for a substitute decision-maker.

“People often make arrangements with family or trusted friends to take on this role. However, if the amount of money in the person’s estate is large, it may be more beneficial to have a professionally qualified professional manager.

“The facts in the above case troubled the court because the financial manager wanted an establishment fee and then a continuing remuneration equivalent to 1.1 per cent for ongoing management. But the court did not rule out appointing a private financial manager with remuneration; however, it observed that any application must demonstrate that this course of action is in the person’s best interests.”

In the end, Justice White reserved a final determination to permit Ability One the time to adjust the terms of its financial services licence to enable it to carry out the services required in their proposed capacity as a financial services manager.

Should you require advice or assistance with respect to existing or contemplated limited recourse borrowing within your SMSF, assistance with the governing deed of your SMSF, advice with respect to fund trustees obligations or on other aspects of superannuation law, please don’t hesitate to contact us.

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