SUPPOSE YOU HAVE A PARENT or grandparent who's living alone. She hires someone to replace the roof on her aging house and gives him half the money up front. And that's the last she sees of her roofer. No matter how close your relationship, can you be sure she'd let you know what happened?
Elder fraud is on the rise, but it remains a vastly underreported crime. "Older people are often reluctant to complain about being duped," says Tom Blomberg, dean of Florida State University's College of Criminology. "They may fear appearing foolish or worry that well-meaning relatives will pressure them to move to a retirement community, depriving them of their independence."
Even so, by 2020, more than 20 million Americans 65 and older will fall victim to some form of financial fraud, notes Blomberg. While no age group is immune, "older people often have considerable savings, and in some cases may be less well equipped to detect suspicious behavior," says Kimberly Blanton, who writes the personal finance blog Squared Away for the Center for Retirement Research at Boston College.
Remind family members that legitimate businesses will happily wait while you check their references.
Here are some of the most common elder fraud scams, along with strategies you can use to help protect your loved ones.
6 Classic Cons—and How to Help Prevent Them
1. Pros Who Aren't Legit: Con artists often advertise "foolproof" investments, or claim special expertise in working with retirees or older clients. Recent widows may be especially vulnerable if their husbands routinely handled the family finances, says Cindy Hounsell, president of the nonprofit Women's Institute for a Secure Retirement, based in Washington, D.C.
One California thief advertised inexpensive will-preparation services. After gaining clients' trust, he talked them into investing with him by promising 12% annual returns. Checks from investors went straight to his personal offshore account, and he made off with $11 million before he was finally caught.
What you can do: Be wary of anyone promising high returns with no risk. Remind family members that legitimate professionals will happily wait while you check references. If they're unsure about a company, it's also wise to ask for a second opinion from a financial advisor or another person you trust.
2. Fake home and car repairs: After storms, scam artists often go door to door, warning homeowners that their properties have been damaged and offering to make repairs at a big discount, says Blomberg. Then they may only pretend to do the work and demand payment. Similarly, auto mechanics can charge for parts not installed and work not performed, he adds.
What you can do: Help older relatives keep their properties and cars in good repair and urge them not to hire anyone who can't provide clear identification and references.
3. Telephone and Internet fraud: These scam artists may be thousands of miles away, and they often play on people's trusting nature and desire to help others. A caller may implore you to send a donation for a worthy-sounding cause. And yet another congratulates you for winning a $1 million prize—and says all you need to do to claim it is provide your Social Security number to confirm your identity and pay a special collection fee.
What you can do: Set a firm policy not to give personal information over the phone and remind older relatives to do the same, suggests Debra Greenberg, a director in the Personal Retirement Solutions Group at Bank of America Merrill Lynch. "And if you want to make a pledge to a charity, ask to receive something in writing first," Greenberg says. Ignore Internet offers with obscure origins and prizes that come out of the blue and require a fee to collect.
4. Not-so-free lunches: Whether they're living independently or in a facility, older Americans are often targeted by unscrupulous salespeople offering a free lunch or dinner in return for listening to a sales pitch. As often as not, that pitch turns out to be a very hard sell. They can find themselves being pulled into a dubious purchase before the "free" meal is over.
What you can do: Make sure that family members know not to sign a contract, make an agreement or pay out any money unless a trusted friend or family member is involved, says Blomberg. "Do not be trusting, but rather skeptical," he says.
Red Flags: Maybe a certificate of deposit is redeemed early, despite penalties. Are checks bouncing? Is there suspicious ATM activity? All could be clues that something isn't right.
5. Overly friendly "friends": Good friends are priceless, but con artists posing as friends can cost you dearly, says Daryl Gordon, vice president for U.S. Trust, Bank of America Private Wealth Management. Someone who lives nearby may offer to assist with chores and errands, or even to serve as a home health aide—and soon begin "helping" with financial transactions, gaining access to accounts. Or the person might play on your sympathies, claiming to need a loan to prevent eviction, for example.
What you can do: These cases can be among the most difficult to prevent, with lonely victims forming an emotional attachment to the perpetrator. Try to get your retired parents or grandparents to talk openly with you about their finances, suggests Gordon, especially if you know there are cognitive issues, and offer to review checking accounts for signs of trouble. "If you see a lot of checks made out to cash, or to someone you don't know, consider that a red flag," she says.
Other red flags: Suspect signatures on checks, financial or legal documents, or sudden, unexplained changes to powers of attorney, wills or trusts. Maybe a certificate of deposit is redeemed early, despite penalties, or there could be unusual wire transfers. Are checks bouncing or bills going unpaid? Is there suspicious ATM activity—such as withdrawals that took place when the account holder was bedridden? All could be clues that something isn't right.
One way for family members to get an early warning about such potential red flags is through the Merrill Lynch Client Contact Authorization Form, notes Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. "It authorizes an advisor to reach out to a family member or trusted family friend, if they spot unusual financial activity," she says.
6. Family fraud: Perhaps the most distressing form of fraud involves other family members. Problems may start innocently, when a son or daughter gains control of a retired parent's accounts to help pay bills, Gordon says. After a while, the line between the finances of the parent and the child may become blurred and the temptation to dip into the funds becomes irresistible. When the parent dies, other siblings could find that their expected inheritance has vanished.
What you can do: Even if one sibling takes on the job of helping with a parent's finances, try to build transparency into the process from the beginning, with other family members staying involved through regular, open conversations. Or divide the duties.
"If two people have to agree before any decision can be made, then there are checks and balances," Gordon explains. You might also consider asking your financial advisor to set up a multigenerational family meeting to discuss financial concerns.
Another useful precaution may be to have parents assign power of attorney to a trusted lawyer. If the parents become unable to handle their own affairs, this can add legal formality to the process and may help prevent abuse.
In all of these cases, the best offense is usually a good defense. Criminals usually look for the path of least resistance, so if you make it clear you won't be fooled, chances are they'll move on.
3 Questions to Ask Your Advisor
- Would a custodial IRA help protect my mother's retirement assets from mistakes, or from people who want to take advantage of her?
- How can a financial advisor help spot signs of trouble?
- What can I do to avoid disputes with my siblings about how we help our parents with their finances?