Financial Elder Abuse: Perception vs. Reality

 

Someday, you or your parents could be at risk.

 

Provided by Michael R Snow

 

You may know victims of financial elder abuse. According to a new Wells Fargo Elder Needs Survey, almost half of Americans do.1

 

As you read or hear stories about seniors being financially exploited, you may think: not me, I would never fall prey to that in my old age. Your parents? Same thing. They are too smart and too vigilant to be taken for a ride by a con artist or an unprincipled relative or caretaker.

 

This perception is only natural. When we are young, we never picture ourselves, or our parents, in decline. We are told 60 is the new 40, and 80 is the new 50. Perhaps so, but as some of the Wells Fargo survey data bears out, we may be overconfident in our ability to evade financial scams as we age.

 

Nearly 800 Americans aged 60 and older were asked if they believed senior citizens were vulnerable to financial abuse. Ninety-eight percent of the respondents said yes, but 81% were confident that it would never happen to them. Just 10% thought they were susceptible to such exploitation, and only 24% even worried about the possibility.1

 

The surveyors also contacted nearly 800 Americans aged 45-59 with elderly parents, and 75% of these Gen Xers and baby boomers felt their moms and dads would never succumb to such fraud.1

 

In short: financial elder abuse might happen to other people someday, but not to us.

 

This assumption may be flawed – after all, half the people Wells Fargo contacted said that they knew elders who had been financially exploited. Any perception that strangers are committing most of these crimes may be equally unfounded. The Jewish Council for the Aging states that 66% of financial elder abuse is carried out by family members, friends, or trusted third parties.1

 

What actions can be taken to try and shield your parents from such abuse? As a first step, you and your parents can meet with an estate planning attorney to put a signed financial power of attorney in place (if one is absent). Should your mom or dad lose the capacity to make financial decisions on their own, this document can authorize you (or another family member) to make worthy decisions on their behalf.1

 

There are also software programs, such as EverSafe, that are designed to pinpoint odd financial transactions for a household or business. Such activity is flagged, and a financial advocate for the person or business is then signaled.1

 

 

You can also meet the bank or investment professional who works with your parent(s) and request that you become a trusted contact on their account. You can do this by filling out a form.2

 

You may already be named as a trusted contact. Since February, the Financial Industry Regulatory Authority (FINRA) has required investment firms to ask their clients to provide the name and information of such persons, though clients do not have to comply with the request.2

 

The financial services industry is taking further steps in this regard. In May, President Trump signed the Senior Safe Act into law. This legislation, introduced by Sen. Susan Collins of Maine, guides banks and investment firms to train their financial professionals to spot and report what appears to be shady financial activity. To encourage such reporting, it gives them a degree of immunity from liability and breaches of privacy laws.3

 

The bottom line: act now to guard against the risk of elder financial abuse. It happens too often, and though it may seem improbable today, that may not be the case tomorrow – for your parents or you.

 

*Michael R Snow may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results.  This information should not be construed as tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser. 125 N. Market ST., Suite #1603, Wichita, KS 67202

 

Citations.

1 – marketwatch.com/story/youre-in-denial-if-you-think-you-or-your-elderly-parents-wont-be-scammed-2018-06-25 [6/25/18]

2 – cnbc.com/2018/05/15/advisors-are-asking-their-clients-for-a-trusted-contact-choose-wisely.html [5/15/18]

3 – wealthmanagement.com/high-net-worth/new-senior-safe-act-encourages-reporting-financial-abuse [5/29/18]

 

Should You Leave Your IRA to a Child?

 

What you should know about naming a minor as an IRA beneficiary.

 

Provided by Michael Snow

  

Can a child inherit an IRA? The answer is yes, though they cannot legally own the IRA and its invested assets. Until the child turns 18 (or 21, in some states), the inherited IRA is a custodial account, managed by an adult on behalf of the minor beneficiary.1,2

  

IRA owners who name minors as beneficiaries have good intentions. Their idea is to “stretch” a large Roth or traditional IRA. Distributions from the inherited IRA can be scheduled over the (long) expected lifetime of the young beneficiary, with the possibility that compounding will partly or fully offset them.2

 

Those good intentions may be disregarded, however. When minor IRA beneficiaries become legal adults, they have the right to do whatever they want with those IRA assets. If they want to drain the whole IRA to buy a Porsche or fund an ill-conceived start-up, they can.2

 

How can you have a say in what happens to the IRA assets? You could create a trust to serve as the IRA beneficiary, as an intermediate step before your heir takes possession of those assets as a young adult.

 

In other words, you name a trust as the beneficiary of your IRA, and your child or grandchild as a beneficiary of the trust. When you have that trust in place, you have more control over what happens with the inherited IRA assets.2

 

The trust can dictate the how, what, and when of the income distribution. Perhaps you specify that your heir gets $10,000 annually from the trust beginning at age 30. Or, maybe you include language that mandates that your heir take distributions over their life expectancy. You can even stipulate what the money should be spent on and how it should be spent.2

 

A trust is not for everyone. The IRA needs to be large to warrant creating one, as the process of trust creation can cost several thousand dollars. No current-year tax break comes your way from implementing a trust, either.2

 

In lieu of setting up a trust, you could simply name an IRA custodian. In this case, the term “custodian” refers not to a giant investment company, but a person you know and have faith in who you authorize to make investing and distribution decisions for the IRA. One such person could be named as the custodian; another, as a successor custodian.2

 

What if you designate a minor as the beneficiary of your IRA, but fail to put a custodian in place? If there is no named custodian, or if your named custodian is unable to serve in that role, then a trip to court is in order. A parent of the child, or another party who wants guardianship over the IRA assets, will have to go to court and ask to be appointed as the IRA custodian.2

 

You should also recognize that the Tax Cuts & Jobs Act reshaped the “kiddie tax.” This is the federal tax on a minor’s net unearned income. Required minimum distributions (RMDs) from inherited IRAs are subject to this tax. A minor’s net unearned income is now taxed at the same rate as trust income rather than at the parents’ marginal tax rate.3,4

 

This is a big change. Income tax brackets for a trust or a child under age 19 are now set much lower than the brackets for single or joint filers or heads of household. A 10% rate applies for the first $2,550 of taxable income, but a 24% rate plus $255 of tax applies at $2,551; a 35% rate plus $1,839 of tax, at $9,151; a 37% rate plus $3,011.50 of tax, at $12,501 and up.3,5

 

While this is a negative for middle-class families seeking to leave an IRA to a child, it may be a positive for wealthy families: the new kiddie tax rules may reduce the child’s tax liability when compared with the old rules.4

 

One last note: if you want to leave your IRA to a minor, check to see if the brokerage holding your IRA allows a child or a grandchild as an IRA beneficiary. Some brokerages do, while others do not.1

 

Michael Snow may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

 

Michael Snow offers Investment Advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser.

 

Citations.

1 – investopedia.com/articles/retirement/09/minor-as-ira-beneficiary.asp [6/19/18]

2 – kiplinger.com/article/retirement/T021-C000-S004-pass-an-ira-to-young-grandkids-with-care.html [5/17]

3 – forbes.com/sites/ashleaebeling/2018/05/08/the-kiddie-tax-grows-up/ [5/8/18]

4 – tinyurl.com/y7bonwzx [5/31/18]

5 – forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/ [3/7/18]