Who’s Calling the Estate Planning Shots? Recognizing Client Incapacity and Undue Influence

Elder abuse has been labeled “the crime of the 21st century,” and for good reason. According to the National Council on Aging, estimates of elder financial abuse and fraud costs to older Americans range from nearly $3 billion to more than $36 billion per year. What’s more, over 90% of reported elder abuse is committed by a family member.

Estate planners and financial professionals play a key role in the effort to identify elder financial abuse and to protect the rights of their clients. But it can be hard to spot, says Joseph K. “Joey” Naberhaus, a trust and estate litigator in Dean Mead’s Viera office. “Elder abuse can present particular challenges for estate planning and financial professionals,” notes Naberhaus. “With the increase of this aging population, the financial industry and estate planning field can help to spot red flags and lessen abuse by staying updated on compliance issues, as well as working with an individual’s other advisors.”

To recognize and remedy abuse, professionals need to examine two specific factors:

  • Is the client capable of making sound financial decisions?
  • If yes, is he or she being coerced into making decisions by someone who stands to benefit?

This isn’t always easy, especially when trying to assist a client and counsel on the estate planning decisions and changes he or she is requesting. Fortunately, Florida courts have provided useful guidance for evaluating both the mental state of, and outside influences on, people who are writing their wills, known as testators.

Determining Capacity

Florida law sets out in clear terms who is permitted to make a will:

“Any person who is of sound mind and who is either 18 or more years of age or an emancipated minor may make a will.” (732.501, Florida Statutes)

But determining “sound mind” isn’t always clear. The courts have stepped in to clarify, and their direction helps estate planners assess the mental states of their clients and their ability to make reasonable decisions. In In re Estate of Witt, Florida’s Second District Court of Appeal provided a set of questions for determining incapacity:

  • Did the testator comprehend the nature and extent of his/her property?
  • Could the testator identify the natural objects of his/her bounty?
  • Did the testator understand the purpose and effect of the will?

Identifying Undue Influence

The second issue to look for is undue influence. “The biggest hurdle for identifying undue influence,” says Naberhaus, “is that it often occurs in secret, with very little direct evidence of abuse. In fact, the only way to prove it is with circumstantial evidence.”

In In re Estate of Carpenter, the Florida Supreme Court provided seven questions to help spot undue influence:

  • Is the beneficiary present at the execution of the will?
  • Is the beneficiary present on those occasions when the testator expresses a desire to make a will?
  • Did the beneficiary recommend an attorney to draw the will?
  • Does the beneficiary know the contents of the will prior to execution?
  • Did the beneficiary give instructions on preparation of the will to the attorney drawing the will?
  • Did the beneficiary secure witnesses to the will?
  • Is the beneficiary safekeeping the will subsequent to execution?

These questions provide a nonexclusive checklist for evaluating the extent to which a beneficiary may be manipulating a testator. “A single ‘yes’ doesn’t indicate undue influence by itself,” explains Naberhaus, “but the greater the number of affirmative answers, the greater the likelihood that someone is trying to control the testator’s decisions.”

Investigating Client Motivations

With any new client, it’s a good idea for estate planners and financial advisers to conduct a thorough interview at the first meeting to understand the client’s needs and objectives. With elderly clients, however, it’s critical. A private conversation offers the opportunity to investigate motives and look for undue influence and diminished mental abilities before any planning is done. A family member or friend who resists allowing an estate planner or financial planner to speak privately with a client is a serious red flag.

“The interview should focus on the client’s capacity to make important decisions,” explains Naberhaus. “Do they know the date, what their assets are, who their family and friends are? Do they understand the effect of the proposed changes or gift? Are they taking medications that are used to treat cognitive impairment?” This interview doesn’t need to be a formal process, but instead can be part of an informal “getting to know you” conversation.

The private discussion also enables the interviewer to explore possible exploitation using the Carpenter factors listed above. It should take place in a private setting away from anyone who may be trying to manipulate the client. The interviewer should assure the client of his/her role – lawyer, banker, accountant – and probe to determine if the client is being pressured in any way. Professionals who say it’s none of their business are not helping matters.

Most importantly, explore the reasons for estate modifications or gifts to ensure that the thought process is rational. That doesn’t mean that all the changes must be fair; being too generous or being mean and vindictive in an estate plan doesn’t by itself indicate undue influence or diminished capacity. But it is important that a lucid thought process is prompting the requested adjustments. “Uncovering the motivations and thought processes behind changes is key to identifying the best course of action to help the client, especially when changes are very sudden and very significant.”

Gathering Additional Information

If the information gathered from the interview is inconclusive regarding the client’s mental state or motivation, physicians and other healthcare providers also are trained to recognize potential exploitation and often can provide guidance. However, speaking with the client’s healthcare providers requires obtaining the client’s permission, which – depending on the circumstances – may not be possible or advisable.

Another option is to refer the client to a psychologist or psychiatrist for evaluation – but remember that this is a double-edged sword. While a favorable report can bolster the position that the client has capacity, a vague or inconclusive analysis can cast doubt on the client’s ability to make decisions. Further, the referral itself can suggest that there are questions about the client’s capacity, which can become an issue later.

Assisting Incapacitated or Exploited Clients

If it appears that a client is in fact being manipulated or lacks capacity to make decisions, the professional has several options. Contacting a family member or attorney-in-fact can be a good, inexpensive option if the person can be trusted. However, a duty of confidentiality may prevent the revealing of client confidences to a third party, and more importantly, the person selected could be involved in the influence or abuse.

Guardianship is another option that often can best protect the interests of the client when there are no estate planning or ancillary documents in place, the fiduciary named in existing documents is a bad actor, or the client is refusing assistance and acting irrationally. Guardianship is an expensive, last-resort option, but in some cases, it may be the right one.

Finally, a Florida law passed in 2018 allows the filing of an injunction for protection against exploitation of a vulnerable adult, a crucial tool that permits the court to make decisions that protect vulnerable adults and their assets. These injunctions may be filed by a person or organization acting on behalf of the vulnerable adult, with his/her consent or that of the guardian.

Takeaways for Advisers

Elder financial abuse is a true problem with a significant cost for older Americans and their families. Estate planners and financial professionals can play a vital role in stopping that abuse. The guidance provided by Florida courts gives professionals an arsenal of questions they can ask that ultimately can balance client goals while protecting this vulnerable population. Clients should carefully choose skilled professionals and consider their referrals to others they know well and trust.

Featured Professionals