Peter’s Principles and Our Evolving Understanding of Exploitation

I heard Dr. Peter Lichtenberg speak the other day about his research on financial vulnerability in older adults, and more specifically, how and why he developed the Lichtenberg Financial Decision-Making Rating Scale. It’s probably the fourth time I’ve heard him talk about this research – and I think it’s finally starting to sink in.

For those of you who don’t know, Dr. Lichtenberg, Ph.D. is the Director of the Institute of Gerontology at Wayne State University. He is a national expert and a true Michigan treasure.

So, at the risk of oversimplifying his work, two takeaways from his research are:

  1. Beyond Cognitive Decline.

Historically research on older adults and vulnerability to exploitation has been overly focused on linking vulnerability to cognitive impairments, and particularly age-related dementing conditions such as Alzheimer’s Diseases. Dr. Lichtenberg’s research indicates that vulnerability is as closely linked to social isolation and lack of empowerment as it is to organic conditions of the brain.

2.  Financial Capacity is an Early Victim of Cognitive Impairment.

In terms of the impact of age-related cognitive impairment and vulnerability to financial exploitation, Dr. Lichtenberg’s research concludes that financial capacity is among the first skills to be compromised in the dementing process. People can become vulnerable to exploitation even before it is clear they are cognitively impaired.

The academic community and the legal community are both evolving to address the same social problem, a problem that is exploding along with the number of persons living into the 80’s and beyond. We’re both learning.  What I love about Dr. Lichtenberg’s research is that it gives us lawyers better tools to educate judges and juries about exploitation – and to push back against the barriers to culpability that have entered into this area of the law from archaic legal concepts that are historically associated with capacity in the context of contracts, wills and trusts.   Vulnerability and incapacity are two very different things, and we need to work to elevate awareness of this distinction.

To read more about Dr. Lichtenberg’s research, click here.

To explore the Lichtenberg Financial Decision-Making Rating Scale, click here.

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Medical Experts Carry Conservatorship Case

medical expert

Nice analysis in this recent unpublished COA opinion. Click here to read In Re Conservatorship of Stephen Michalak.  Congrats to my colleague Valerie Kutz-Otway for her successful advocacy on behalf of her client, Mr. Michalak.

The case suggests an issue that I think we all struggle with at times, the extent to which the determination of capacity is a legal or medical matter. While the correct answer is clearly – it’s a legal determination made by the probate judge – as the analysis suggests, the line is fuzzy at best.  Courts often rely extensively on medical opinions to make their findings, and the use of medical experts is becoming more and more important in our practices.  This opinion only bolsters the proposition that medical opinions carry a lot of weight – especially, where, as in this case, they remain uncontroverted by offsetting medical proofs.

It is worth note that in this case that the COA does not order that the conservatorship be terminated, but only remands the matter and instructs the trial judge to consider a less restrictive arrangement, which could be a limited conservatorship or, although not suggested by the COA, perhaps the execution of a new power of attorney by Mr. Michalak appointing someone other than the petitioner-child.

This case relies heavily on the Bittner decision, discussed in a prior post (click here to read about Bittner) and displays some of the same dynamics – probate judges seeing problems with vulnerable adults and moving to put the matter under their watch so as avoid further mischief – an understandable and somewhat noble sentiment.  But the COA here, as in Bittner, pushes back against this inclination; reminding us once again that the balance of dignity and independence against safety and convenience remains the tricky sticky wicket at the heart of our common efforts.  For more on my thoughts on “the balance” click here.

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Bittner’s Bite

So we have a new published opinion on a probate court case – something unusual these days.  In Re Conservatorship of Shirley Bittner was published September 8, 2015.  Click here to read the case.

In Bittner, the probate court imposed a conservatorship over the vulnerable adult, and did so over what the Court of Appeals calls her “strenuous objections.”

The subject of the petition was Shirley Bittner.  The petition was brought by her daughter Suzanne.  Shirley was a 74 year-old widow.

Suzanne had been granted power of attorney over Shirley by Shirley, and had been made co-trustee of Shirley’s trust; that is until Shirley concluded that Suzanne had misused those powers for her own benefit.  At that time Shirley petitioned the Court to recover the property she believed had been misappropriated by Suzanne.  Suzanne countered with a Petition to have a third party (public fiduciary) appointed as Shirley’s conservator.  Meanwhile Shirley appointed a second daughter, Stacey, as her agent under a new power of attorney.

The probate court took evidence and appointed Stacey (the new agent under power of attorney) as conservator.

Appointment of a conservator is a two-prong test.

1. Is the person unable to make their own decisions (are they sufficiently impaired to invoke the Court’s jurisdiction to take away their rights)?; and

2. If the Court does not act, will this person’s resources be mismanaged?

Both prongs must be met to impose a conservatorship over an adult.

The Court of Appeals reviewed the decision of the trial court and reversed.

As to the first prong, the Court of Appeals found that the evidence was marginal.  Shirley clearly had some impairments, but it was not so clear that those impairments rose to the level necessary to impose a conservatorship over her.

As to the second prong, the Court of Appeals found no evidence that anything was being mismanaged, at least now that Stacey was acting has power of attorney.

The case is important, as it fires a shot across the bow of the trial courts that are routinely imposing conservatorships over older adults.  And importantly, by analogy, the case will serve the same purpose with respect to the imposition of guardianships.

But nothing is simple in terms of this area of the law.  As to the law, there is no question that the Court of Appeals is right on.  No doubt courts are way too quick to impose guardianships and conservatorships without sufficient legal basis.  That said, it is also true that there is a great deal of mischief in the world of vulnerable adults.  Once one child is taking advantage of mom, one wonders whether the next child is likely to do so and/or whether in time mom will be persuaded to create yet another power of attorney appointing the daughter who allegedly misappropriated assets, or yet another child who may or may not be acting in mom’s best interests.  Mom is vulnerable – that’s the point.  So, left unchecked, these cases can go on and on.  Where there is money and family dysfunction, there is a high likelihood of further issues.  I would suggests that there is something to be said for probate judges who have seen enough of these cases to want to simply grab control, create a conservatorship, and thereby put themselves in the position of monitoring what goes on in the future; and by doing so, shut the door to future mischief.

Accordingly, I appreciate the Court of Appeals upholding the rules.  I greatly respect my many colleagues who recognize that taking away the rights of an adult should only be done as a last resort.  But I worry about law that makes trial judges less willing to step in and grab control when it is clear that the mayhem has begun.

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Good Guys Win Financial Exploitation Case

Frances and Elizabeth Stafford were sisters in the Bay City area. When Elizabeth died, her trust continued for the benefit of Frances. Frances was a vulnerable adult, physically and cognitively impaired. Her trusted financial advisor of many years was Trustee over Elizabeth’s Trust.

We were hired by the beneficiaries when, after Frances died, evidence of misappropriation came to light. We first acted to remove the Trustee and appoint a CPA as successor Trustee, who conducted a forensic review of the accounts and came to the conclusion that the prior Trustee had misappropriated over $500,000 for his personal benefit.

The case was assigned to Judge Sheeran in Bay County Circuit Court (although originally a probate file, due to various procedural issues and the retirement of Judge Tighe, Judge Sheeran took the case).

The case was interesting in several respects, including the assertion by the defendant Trustee of his 5th amendment right not to make self-incriminating statements.

On February 4, 2015, the Court conducted a hearing on our motion for summary disposition. In addition to seeking recovery of the misappropriated $500,000, we requested treble damages pursuant to MCL 600.2919a. This was granted and the final verdict was for $1,539,634.71, plus interest.

Thanks to Judge Sheeran for his handling of this matter. Thanks to the successor Trustee, Michael Zimmerman, C.P.A. of Yeo and Yeo. Thanks to our fantastic litigation team, including, but not limited to: Nancy Theis, Joe Weiler, Drummond Black, Dan Hilker, Phil Harter, Julianne MacDonald, Rita Athanasion and Romani Schrems.

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The King Lear Complex

King Lear is a fictional king of ancient times.  William Shakespeare wrote one of his darkest plays about this character.

The King was a good man.  He was getting up in years.  He had three daughters (same as me).

He decided that he wanted to retire.  The plan was to split his kingdom into three equal shares, and for him to travel from one castle to another (staying with his daughters).  He would keep a handful of his favorite knights with him.

When he explained his plan to his daughters, his youngest and best child reacted with astonishment and disgust.  This annoyed the King who abruptly cut her out of his plan and divided the kingdom between the two other children.

Predictably, the two greedy daughters soon tired of the King and his rowdy knights, and he was put out in the forest with nothing.  His pride was crushed.  Ultimately the good daughter came back and saved the kingdom, but died in the process, which in turn caused the King to die of heartbreak. (Sorry if I ruined the ending.)

In my practice I see King Lear wannabes all the time.  Older clients who think it might be a good idea to re-title all their assets into the names of their children.  They have all sorts of reasons for believing this makes sense.  I tell them about King Lear and some of the lessons his story offers for today’s elders.  These include:

Children who would endorse such a plan may not be the kind of kids you can trust.

Understandings that are not legally enforceable predictably go south.

What you have accumulated is what you need to provide for your own quality of life as you age.  Give it away at your own peril.

Sometimes the advice takes, and sometimes it doesn’t.  Sometimes I am hired by the good child who was cut out because they stood in the way of their parent’s and their folly.

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Anatomy of a Senior Seminar Scam

When you reach a certain age you begin receiving invitations to “educational seminars.”  Often bright colored postcards in the mail, sometimes formalistic letters, even advertisements in the local paper. Usually they offer a “free meal.” In almost every instance these “educational seminars” are in fact high-pressure scams, designed to sell products that pay high commissions to the sellers, and provide little or no benefit (often a detriment) to the buyer.

The pattern is always the same:

  • You are told that there is a complication in the law, often arising as a result of a recent change in the law.
  • As a result, your assets being exposed to dire risks.
  • You are told that your current advisors are either too stupid to understand the issue or they are part of a conspiracy to keep you in the dark (for their own benefit).
  • The presenter then “educates” you about the risk and offers you the “opportunity” to purchase a product that will protect you.

The Bogey Man

There is always something that you need to be afraid of.  Among the most favored are:

  • The so-called “Death tax” is going to subject your life savings to excessive taxation after your die.
  • Income Taxes. They will tell you “The IRS could be the beneficiary of your IRA.”
  • The laws of intestate succession.  You will be told that if you don’t buy their product “the state will make your will for you.”
  • Nursing home costs and Veterans benefits. You will be told that if you don’t take some protective action, all of your resources could be consumed by care costs.
  • Probate. You will be told that if your assets end up in probate court they will be exposed to exorbitant court costs and legal fees.

All of this “information” will be presented so that true facts are distorted by accompanying falsehoods and incomplete information so as to be way more dramatic than is actually the case.

The Place

These events typically take place at restaurants, hence the label “chicken dinner seminars.”

But don’t be thrown off if the event is hosted at the local senior center or public library.  Many of these facilities have no policy regarding the organizations that request to use their buildings.  Scam artists recognize that these locations may add credibility.

The Set Up

In explaining the “risk,” the presenter will toss out legal terms and offer to define some of them, in order to create the perception that s/he is sophisticated on the topic.

The presenter will insinuate that your attorney or other advisors are unsophisticated or part of a conspiracy to take advantage of you.

Pressure Points

Once the presentation is over, you will be asked if you want to buy in.  If you resist, they will make you feel both ungrateful (for having accepted the free meal) and stupid (for not being able to appreciate the benefits).

The pressure will be intense and directed individually at you.  If you will not sign up immediately, they will ask for personal information so that they can follow up with you in your home.  If you give them personal information, they will use it.  They will come to your door relentlessly.

Target Audience

Only people of certain advanced age are invited.  Some invitations go so far as to say can’t bring your kids or advisors with you.

Once you’re in the room they will begin a process of identifying their targets.  Among the most vulnerable are:

  • Prideful people who don’t want to seem stupid or ungrateful.
  • People overly deferential to persons of authority, especially to males in professional attire.
  • Those with some level of cognitive impairment.

The Products

This whole industry began with the selling of co-called “living trusts” and this continues to be a very popular item.

Annuities are almost always woven in, being the fastest way to a quick commission for someone who is not licensed to sell other financial products.

Irrevocable trusts are offered now as a cure to all sorts of concerns.

Reverse mortgages.

Advice and Conclusion

If you are invited to one of these programs, don’t go. If you go, don’t buy and don’t give out any personal information.  If you think it sounds good, just remember, if in fact what they are selling is the best thing since sliced bread, it will be still be the best thing two weeks from now when you’ve had a chance to bounce it off people you trust.

Estate planning an elder law is complicated. You should get advice and do planning. Mistakes can be costly, but there are no silver bullets, and anyone who says they can sell you one should not be trusted.

Finally, not all educational seminars you may be invited to are bad.  Professionals that you have a history of working with may invite existing clients to programs about the law or investments.  Be wary of presentations put on by people with whom you have had no prior contact, and who use the scare tactics identified above to make the sale.

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Rebutting Presumption of Undue Influence

It’s over – at least for now.  The Mortimore case.

This is a case I have spoken and written about quite a bit for the past year.

Common facts: Older gentleman.  His wife of many years dies.  New woman becomes involved. Alienates family.  He dies.  She produces a will (surprise) leaving everything to her.

At the trial level, which I did not handle, a will contest takes place.  Trial court rules in favor of the woman (and against the kids).  Trial court says: I don’t know what to make of this, two very different stories. I am upholding the will.

I am retained to handle the appeal.  We raise the issue that the trial court failed to consider the presumption of undue influence that arises when a person (1) has a fiduciary/confidential relationship with the decedent, (2) the opportunity to influence the decedent, and (3) benefits from the document thereby created.

The Court of Appeals not only agrees, but reverses the decision of the trial court and throws out the will.  They say: had the trial court considered the presumption, they would have found the presumption applied, AND that the Appellee failed to rebut the presumption.  Nice Result!!

But, not the go down easy, woman hires counsel to request the Michigan Supreme Court review the Court of Appeals decision.  They agree the presumption applies, but they argue that the Court of Appeals failed to apply the proper standard for rebutting the presumption.

The Michigan Supreme Court accepts the case, briefs are filed, and oral arguments are held.  At the Supreme Court hearing, I am grilled by the Chief Justice who is clearly convinced that the Court of Appeals erred – specifically, that the standard that the Court of Appeals used to rebut the presumption (preponderance of evidence) is too high.  The thinking is that if the standard to rebut the presumption is a preponderance, the result, in effect, is that by establishing the presumption the burden of the entire cases is shifted to the party defending the document.

The truth is that Michigan Court of Appeals cases are all over the board on this.  The last pronouncement by the Michigan Supreme Court on this point was more than 30 years ago in Kar v Hogan, 399 Mich 529, 542; 251 NW2d 77 (1976).

The options are anywhere from a scintilla of evidence to a preponderance, with most cases coming down somewhere in between.

In light of my treatment at oral arguments, I was not hopeful about my prospects.  So, wasn’t I surprised when we received an order from the Michigan Supreme Court vacating the original order accepting the case.  In other words, they changed their minds and decided (after hearing oral arguments) that they never should have taken the case in the first place. That means they left the Court of Appeals decision in place.  Whew….

The Chief Justice wrote on lengthy dissent which offers one perspective on this issue.

The truth is that this is an important issue, and we don’t have clear law.  The problem is that if, as argued by the Chief Justice, the presumption of undue influence is given as much respect as are presumptions in other areas of the law (which is very little respect), the role of the presumption in protecting vulnerable adults will be diminished, and depending on the new standard adopted, perhaps dramatically so.
Request for reconsideration to the Michigan Supreme Court was denied, so, for now, the case is back in the trial court with the will thrown out.  There are other interesting issues in this case, which could lead us back into the appellate courts again, but the Supreme Court walked away from this opportunity to address is important and complicated issue.

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“Elder Abuse” Bills Passed and Pending

Over the last few years Michigan lawmakers have cooperated with some aging advocacy groups to develop a package of laws intended to deter abuse of older adults.

In June, Governor Snyder signed ten of those bills into law.  Eight bills in this package remain pending.

Most of the bills that have been signed into law deal with criminal charges for financial abuse and reporting requirements for physical abuse and neglect.  As such, they have little relevance to most probate attorneys.

An exception among the bills that are now law is Senate Bill 461 (Public Act 173 of 2012).  To read the new law click here:

First, SB 461 modifies the so-called “slayer statute” (MCL 700.2802 – 700.2804).  The slayer statute has long held that a person convicted of murdering someone cannot inherit from the person they murdered.  That statute is now extended to preclude a person convicted of a felony financial exploitation crime from inheriting from the person they exploited; unless, after the conviction, the victim of exploitation creates new estate planning documents (or modifies existing ones) to expressly include the perpetrator of the crime.

SB 461 also expands the role of a guardian ad litem in an adult guardianship matter to require them to provide additional information to the ward and the court.  A new form outlining the rights of a guardianized adult is to be created which the GAL will be required to serve on the ward as part of his/her duties.  These changes will appear in MCL 700.5306.

Finally, SB 461 requires probate courts handling guardianship matters to inquire as to the possible need for a conservator in each case, and for the guardian ad litem and guardian to report the resources of the ward to the court so that it can make this determination.  These provisions now appear in MCL 700.5319.  Where a conservator is appointed, and where the amount of assets “readily convertible into cash” exceeds the amount for a small estate pursuant to MCL 700.3982, the court is required to set bond or explain why it has not done so.  These changes appear in MCL 700.5410

As indicated above, there are more “elder abuse” bills pending.  The most troublesome of those deals with the disclosures required by banks to parties seeking to create joint accounts.  Having litigated the joint account/convenience account issues before, I have concerns about these proposed laws.  Such notice laws, while intended to alert to elders to the risks of establishing joint accounts, will likely only make it harder to set aside the unintended survivorship rights resulting form the creation of these accounts if these bills become law.  These proposed changes are currently found in Senate Bills 456,460, 604 and 605.

Three other pending bills, Senate Bills 467, 706 and 777, would make it harder for annuity salespersons to sell inappropriate annuities to senior citizens.  A good thing.

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More Thoughts On Our New Durable Power of Attorney Law

In an earlier post I reported on changes to MCL 700.5501 brought about by Public Act 141 of 2012.  In this post I would like to point out some other intriguing aspects of this law.  A link to the law may be found at in that earlier post of June 12, 2012.

Planners need to be mindful of how these new developments impact planning options by a principal who later becomes incompetent, and the extent to which the documents created may limit the planning tools available to the agent, and the exposure of the agent to liability.

First, and most importantly, section 3(d) provides:

“The attorney-in-fact shall not make a gift of all or any part of the principal’s assets, unless provided for in the durable power of attorney or by judicial order.”

This section addresses one of most difficult issues of FPOA drafting, whether, and to what extent, to authorize an agent to make gifts.  Heretofore the law on this issue was vague. MCL 700.2114 can be extrapolated to mean that an agent may not gift to themselves without express authority, but this new law goes much further, and becomes much more of an obstacle to things like Medicaid planning by an agent.

Commonly, form FPOAs used by too many practitioners will include no expression on gifting, or will include a provision that limits gifting the federal annual exclusion amount.  These documents are likely generated without much discussion or consideration of the important role gifting plays in estate planning, VA benefits planning and Medicaid eligibility planning.  For planners interested in an FPOA that authorizes broad gifting powers, a form of such a document I use is available on the ICLE website forms bank, and as an exhibit in my ICLE book on Medicaid Planning

Where gifting is allowed, it is often best to limit that authority to gifts made in a manner consistent with the principal’s existing estate plan.

That’s not to say that gifting is always a good thing.  For many people, and for many reasons, gifting is not appropriate, and such documents should either remain silent on the issue or expressly preclude gifting by an agent.

Notably, the new law does not address the second leg of this issue, whether an agent can modify a revocable trust created by an incompetent settlor.  One would presume however, that Michigan law would not sanction such actions unless expressly authorized by the document.  Again, see my ICLE form for suggested language.

Another important issue not addressed expressly in the new law is the question: Are transfers from accounts jointly owned between the principal and agent, gifts by the agent?  Presumably if the joint ownership is created by a competent principal, the agent/co-owner’s removal of funds from such an account would not be a violation of the statute because it would not be an act of the agent in their fiduciary capacity.  That is not to say that such action, if taken, and where the agent did not contribute to the account, and/or where the joint ownership was established for convenience purposes, would not be actionable.

Section 2(e of the new law does say however that:

“Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact.”

Also important is section 2(g) of the new law, it provides:

“In the durable power of attorney, the principal may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty except for actions committed by the attorney-in-fact in bad faith or with reckless indifference.”

This section authorizes exculpation of the agent, but with a “bad faith” floor.  The Medicaid planning power of attorney included in my ICLE materials referenced above, provides such exculpation provisions, which planners may want to consider.

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Revised MCL 700.5501 Mandates Acceptance and Other Formalities

The passage of Public Act 141 of 2012 is significant to estate planners in that it requires that an agent appointed under a standard power of attorney for finances (FPOA) to sign an acceptance before acting, and for such documents to be witnessed by two people and notarized.

For planners who have not historically included an acceptance with their financial power of attorneys, they need to start.  For those who have, they need to alter their acceptances to conform to the statutorily required form.  An example of this form can be found at:

Michigan law has long required acceptances for medical power of attorneys/patient advocate designations and this law does not change that.

The law should not impact the validity of existing FPOA’s that have nonconforming acceptances or no acceptances.  Specifically, MCL 700.5501(7) provides that the new requirements are not applicable to documents created before October 1, 2012. Of course, problems may arise in the future with institutions that refuse to accept documents without acceptances.  Accordingly, best practice may be to provide clients using existing FPOA’s with new acceptances, or otherwise make these acceptances available.

There are exceptions for power of attorneys used in business dealings and other unique situations, also described in MCL 700.5501(7).

The new law will be found in EPIC at 700.5501.  It is immediately effective.

To review the legislation, go to:

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