Protecting the Elderly from Financial Exploitation: The Dilemma and Solution, Part I
According to the Alzheimer’s Association, there are approximately five million Americans who have some type of dementia. Close to 50 percent of all people over the age of 85 have Alzheimer’s disease or another kind of dementia. Diminished capacity is more prevalent as one ages. According to the 2010 U.S. Census, there are 40.3 million people that are age 65 or older. It is projected that by 2050, this age group will comprise 20 percent of the total U.S. population. In 2011, there was some type of disability reported by 65 percent of men and 38 percent of women in this age group.1 There are (and will be) a large number of individuals with varying degrees of diminished capacity susceptible to exploitation who do not qualify for protection under the Florida guardianship law.
The Risk and Common Perpetrators of Exploitation
The Met Life Study of Elder Financial Abuse, “Crimes of Occasion, Desperation and Predation Against America’s Elders,” published in 2011, followed up previous studies released by Met Life in 2008 and 2009. The Met Life study found that elderly individuals have become largely socially isolated. Extended, multi-generational families are no longer common in our society. Adult children no longer feel responsible for caring for elderly parents. Because more than 25 percent of noninstitutionalized elders live alone, there are fewer persons in the elder’s life who can detect suspected financial abuse and perpetrators can more readily prey on the elderly individual.
According to the Met Life study, the annual financial loss by victims of elder financial abuse is approximately $2.9 billion. Women were nearly twice as likely as men to be victims of elder financial abuse. Most victims lived alone and were between the ages of 80 and 89. These individuals required help with health care or other activities of daily living.
The 2011 Met Life study classified the perpetrators as follows:
• Fifty-one percent of the cases involved elder financial abuse by strangers, such as home repair scams, telemarketing, robbery, and burglary;
• Thirty-four percent of the elder financial abuse involved family, friends, neighbors, and in-home caregivers, including agents acting under powers of attorney. Nationally, 30 percent of adults with disabilities utilize such personal assistance with their daily lives;
• Twelve percent of the financial abuse involved insurance advisors, bankers, attorneys, nursing home administrators, and the like.2
Courts Do Not Protect Persons with Diminished Capacity from Exploitation by Undue Influence
Florida does not protect persons with diminished capacity from exploitation by the undue influence of others. Those individuals have been left on their own to create an estate plan that protects their interests during the twilight of their lives.
In Florida National Bank of Palm Beach County v. Genova, 460 So. 2d 895 (Fla. 1984), the Florida Supreme Court refused to permit a third party (a corporate co-trustee) to challenge the revocation of a trust by the settlor with diminished capacity even though the revocation resulted from undue influence. The court held that so long as the individual has capacity, the courts will not protect the vulnerable adult:
The courts have no place in trying to save persons such as Mrs. Genova, the otherwise competent settlor of a revocable trust, from what may or may not be her own imprudence with her own assets. When she created this trust, she provided a means to save herself from her own incompetence, and the courts can and should zealously protect her from her own mental incapacity. However, when she created this trust, she also reserved the absolute right to revoke if she were not incompetent. In order for this to remain a desirable feature of a trust instrument, the right to revoke should also be absolute.3
In Genova, the settlor, Ann Clearly, married Mark Genova. Ann was 76 years old; Mark was 32. They were divorced a year later. In the divorce proceedings, the trial court voided a transfer of assets to Mark because of undue influence he exerted over her. During the divorce proceeding, Ann created a trust that named Florida National Bank as a co-trustee with Ann.
Less than three months after the divorce became final, Mark and Ann married again. Five days after the marriage, Ann wrote to Florida National Bank requesting that the trust be revoked. The request was made on the letterhead of Mark’s business — the Alibi Bar. One day later, Ann executed a power of attorney, prepared by Mark’s attorney that directed Florida National Bank to transfer the trust assets to her individual account. The power of attorney was delivered to the bank the next day by Mark’s attorney. Florida National Bank filed an action for instructions from the court with respect to these requests because of the concern that the same was a result of the undue influence of Mark.
The trial court found the attempts to revoke the trust invalid because of the undue influence of Mark. The Genova dissenting opinion regarded the revocation as an act of Mark, not Ann: “The trial judge found that the settlor had been unduly influenced causing her to revoke her trust. Her act, therefore, was not the exercise of her right to revoke, but rather was the will of another foisted on her. Under these circumstances the revocation should be voided.”4
Yet, the Genova majority rejected undue influence as a basis to void the revocation: “The issue presented here is whether the principle of undue influence is applicable when revoking a revocable trust. We hold that it is not; therefore, we approve the decision of the Fourth District Court of Appeal.”5
The approved Fourth DCA opinion is instructive as to the public policy of the Florida courts to defer to the actions of vulnerable, but otherwise competent, adults while they are alive:
Our focus is upon the present appellant/settlor in her lifetime; and not upon the prospective beneficiaries who may benefit in the event of her death. There being no substantial, competent evidence to establish her incapacity at the time of her revocation, she was free to terminate what she alone had undertaken, the subject matter of which belonged exclusively to her.
In conclusion, we believe this court would be overstepping its bounds by becoming, in essence, the settlor’s guardian — notwithstanding the absence of her incapacity — in its application of the principle of undue influence to the revocation of a trust of which she alone is the sole settlor and beneficiary. The undue influence is allegedly being asserted by her lawful husband towards whom no petition for dissolution has been directed. Let us assume there was never a trust and the husband unduly influenced his present wife to give him $100,000. Could the court in that instance undertake to void the gift if one of the wife’s relatives sued to do so, notwithstanding the absence of any dissolution proceedings or action by the wife to rescind the gift? When does the court stop being a judicial forum and turn into an Orwellian Big Brother? Our judgment tells us that there is a limit to the issuance of judicial fiat based on the belief that the court is saving the wife from what she may do in the future with her own money vis-a-vis her lawful husband.6
Genova was applied to prevent a challenge to the revocation of a trust based on undue influence even after the death of the settlor.7
This laissez-faire policy has been carried over into the guardianship context.
In Re Maynes-Turner, 746 So. 2d 564 (Fla. 3d DCA 1999), involved a guardianship proceeding in which Ms. Maynes-Turner was declared incompetent and her children appointed as her guardian. Ms. Maynes-Turner filed a suggestion of capacity and the trial court partially restored her rights. The examining physician testified that while Ms. Maynes-Turner may hold the necessary ability for the restoration of her rights, her judgment may be suspect. He opined: “Cognitively she does reasonably well. She would seem to possess the necessary knowledge that would be required for restoration, however, I do not know that she could make effective decisions and might pose significant risks for herself on the basis of those decisions that she would make.”8
The Third DCA restored the full capacity of Ms. Maynes-Turner holding that the deprivation of her “precious individual rights” outweighed any protection from unwise future decisions:
The examining doctor reported objective findings consistent with full competency. He indicated that Ms. Turner was aware and knowledgeable during his examination. Additionally, the record reflects that Ms. Turner was aware of the proceedings and knew the state of her affairs. However, the doctor and the trial court both expressed paternalistic feelings about the possibility that she might make future harmful decisions. “In our present day paternalistic society we must take care that in our zeal for protecting those who cannot protect themselves we do not unnecessarily deprive them of some rather precious individual rights.”9
In McJunkin v. McJunkin, 896 So. 2d 962 (Fla. 2d DCA 2005), the Second DCA joined In Re Maynes-Turner to hold that paternalistic concerns are insufficient to deprive a person of his or her civil and legal rights.10
A person with diminished capacity can enter into any transaction, create or revoke trusts, or make gifts to anyone. As long as a person has capacity, the court will not interfere with his or her decisions, even if imprudently made or unduly influenced by others.
Capacity Versus Diminished Capacity
The line between diminished capacity and incapacity is rarely factually clear. The capacity to transact business is different than the capacity to create a trust or will or to make an intervivos gift. A person may have the capacity to enter into one transaction, but lack the capacity to enter into another. There is no bright line and every situation will have its own set of unique facts.
• Legal Capacity — Every person is presumed to have capacity to act.11 A person has the capacity to enter into a transaction so long as that person has sufficient intelligence to understand the nature and effect of the transaction.12 Mere mental weakness does not amount to the inability of the person to comprehend the transaction. The mind must be so affected as to render the person incapable of understanding the nature and effect of the transaction.13
The capacity to execute a will or trust or to make a gift is the ability to mentally understand, in a general way, the 1) nature and extent of property to dispose of; 2) the person’s relationship to those who naturally claim substantial benefits of the will, trust, or gift; and 3) a general understanding of the practical effect of the will, trust, or gift.14
The capacity to execute a pre-need guardian designation is the ability to understand the nature of the decision being made and its implications.15
• Guardianship Capacity — The determination of legal capacity is transaction specific. The test is whether the person has the capacity to enter into the specific transaction. The Florida guardianship law employs a functional test as to the general capabilities of the person. The court must determine the nature and scope of a person’s “incapacities” and the specific rights that the person is incapable of exercising.16 F.S. §744.3215 describes the rights of a person that cannot be removed, rights that can be removed but not delegated, and rights that can be removed and delegated to a guardian.17 A guardian cannot be appointed to exercise delegable rights, if there are reasonable alternatives to a guardianship.18 This guardianship scheme is designed to provide assistance to a person that “least interferes with the legal capacity of [the] person to act in her or his own behalf.”19
Is guardianship capacity (or incapacity) any different than legal capacity? The Florida guardianship law does not define the term capacity. The statute defines “incapacitated person” as a person who has been judicially determined to lack the capacity to manage property or meet his or her essential health and safety requirements.20 The term “manage property” is further defined as those actions necessary to obtain, administer, and dispose of real, personal, intangible, and business property, as well as benefits and income.21 The capacity (or lack thereof) to obtain, administer, and dispose of property is legal capacity. The capacity of a person to exercise the other listed rights under §744.3215 to contract or make gifts is no less than legal capacity. Although the Florida guardianship law examines a person’s functionality as to his or her ability to exercise a number of rights, the standard to find a person “incapacitated” is no different than the standard of legal capacity and not a lesser standard, such as impaired judgment:
Section 744.102(10), Florida Statutes (2003), defines an “incapacitated person” as “a person who has been judicially determined to lack the capacity to manage at least some of the property…of such person.” Florida Statutes do not define “capacity.” They do however provide a clue as to what it is not. Before being amended in 1989, chapter 744, Florida Statutes, contained language to describe an “incompetent” person as one “likely to dissipate or lose his property.” §744.331(1), Fla. Stat. (1987). After the statute was amended, “incompetent” became “incapacitated” and the reference to losing or dissipating property disappeared. See Ch. 89-96, §§1-112, at 173-224, Laws of Fla . It is evident that under the current version of the statute, before depriving an individual of “all their civil and legal rights,” the individual must be incapable of exercising his rights at all, whether wisely or otherwise. See §744.1012.22
The provisions of the Florida guardianship law reinforce this legal standard. A court must find that the person “is totally without capacity to care for herself or himself or his or her property” before any individual rights are taken away pursuant to an order determining incapacity.23 Although the examining committee must make a functional assessment of the alleged incapacitated person, each report must describe the matters to which the person “lacks the capacity to exercise rights…and the factual basis for the determination that the person lacks that capacity.”24 Finally, as set forth above, F.S. §744.102(12) defines an “incapacitated person” as “a person who has been judicially determined to lack the capacity….” The incapacity must be established by clear and convincing evidence.25 If a majority of the examining committee members determine that the person does not “lack the capacity” to exercise his or her legal rights, then the incapacity issue never reaches the court. The court must dismiss the incapacity petition.26
• Diminished Capacity — Black’s Law Dictionary defines “diminished capacity” as “an impaired mental condition short of insanity.” The definition is very broad.
The Model Rules of Professional Conduct provide limited guidance to attorneys representing clients with diminished capacity. MRPC Rule 1.14 titled “Client with Diminished Capacity” does not define the term, but requires the attorney to maintain a normal attorney-client relationship as far as reasonably possible with a client with diminished capacity. The model rule authorizes the attorney to take reasonable measures to protect the client with diminished capacity, who “cannot adequately act in the client’s own interest.” The rule and comments to the rule illustrate the varying degrees of capacity, short of incapacity. The comments to Model Rule 1.14 acknowledge that a client with diminished capacity “often has the ability to understand, deliberate upon, and reach conclusions about matters affecting the client’s own well-being” and “can be quite capable of handling routine financial matters while needing special legal protection concerning major transactions.” Comment six suggests that in determining the extent of the client’s diminished capacity, the lawyer should consider and balance such factors as the client’s 1) ability to articulate reasoning leading to a decision; 2) variability of state of mind; 3) ability to appreciate consequences of a decision; together with the 4) substantial fairness of a decision; and 5) consistency of the decision with the known long-term commitment and values of the client.
In 2005, the American Bar Association (ABA) published Assessment of Older Adults with Diminished Capacity. The handbook discusses the history and focus of Model Rule 1.14 as well as provides an in-depth discussion of legal and clinical capacity.27
The first three factors listed in comment six to Model Rule 1.14 assess the cognitive functioning of the person. The last two factors are substantive and analyze the content and nature of the transaction. The ABA suggests that the more “risky” the substantive decision, the greater level of cognitive functioning that should be required for the specific transaction. In the undue influence context, if an estate plan is “blatantly unfair” to the person’s family, then the greater level of capacity should be required for the transaction. Likewise, if the risk of the decision is low, “then capacity concerns wane proportionately.”28
Although the ABA handbook and Model Rule 1.14 address and offer guidance in the representation of adults with diminished capacity, they provide little input for the protection of the client from undue influence. The ABA handbook briefly discusses undue influence, but only in assessing a specific transaction and the client’s capacity to enter into the transaction.29 The Florida ethical rules offer even less guidance.30 It is the adults with diminished capacity who are most susceptible to undue influence, but most difficult to represent because of their diminished capacity. There is a real gap in protecting these persons from themselves and others.
1 Kristen M. Lewis & Kelli Wolk, Financial Abuse of Elders and Other At-risk Adults, 48th Annual Southern Federal Tax Institute (Oct. 2013).
2 Met Life Study of Elder Financial Abuse, Crimes of Occasion, Desperation and Predation Against America’s Elders 1, 2-4 (June 2011), available at https://www.metlife.com/assets/cao/mmi/publications/studies/2011/mmi-elder-financial-abuse.pdf.
3 Fla. Nat’l Bank, 460 So. 2d at 898.
4 Id. at 898.
5 Id. at 895.
6 Genova v. Florida Nat. Bank of Palm Beach County, 433 So. 2d 1211, 1215 (Fla. 4th DCA 1983).
7 MacIntyre v. Wedell, 12 So. 3d 273 (Fla. 4th DCA 2009). Fla. Stat. §732.207 now permits the filing of such a post-death challenge.
8 Maynes-Turner, 746 So. 2d at 565.
9 In re McDonnell, 266 So. 2d 87, 88 (Fla. 4th DCA 1972).
10 See also Losh v. McKinley, 86 So. 3d 1150 (Fla. 3d DCA 2012).
11 Holmes v. Burchett, 766 So. 2d 387 (Fla. 2d DCA 2000); Hassey v. Williams, 174 So. 9 (Fla. 1937); Gardiner v. Goertner, 149 So. 186, 189 (Fla. 1932).
12 Donnelly v. Mann, 68 So. 2d 587 (Fla. 1953); Long v. Moore, 626 So. 2d 1387 (Fla. 1st DCA 1993).
13 Hassey v. Williams, 174 So. 9 (Fla. 1937).
14 In re Wilmont’s Estate, 66 So. 2d 465 (Fla. 1953); Hodges v. Atl. Nat. Bank of Jacksonville, 184 So. 875 (Fla. 1938); Saliba v. James, 143 Fla. 404 (Fla. 1940);
Fla. Stat. §736.0601.
15 Koshenina v. Buvens, 2014 WL 304889 (Fla. 1st DCA 2014). This legal standard should apply to the execution of a health care surrogate designation. The attending and another physician make the determination as to whether the principal has the capacity to make health care decisions or provide informed consent.
Fla. Stat. §765.201. For this purpose, “incapacity” (capacity is not defined in Ch. 765) is the inability to communicate willful and knowing health care decisions.
Fla. Stat. §765.101(8). “Informed consent” is defined not only as the ability of a person to generally understand a procedure or treatment after sufficient explanation and disclosure, but also to make a health care decision “without coercion or undue influence.” Fla. Stat. §765.101(9).
16 Fla. Stat. §744.331(6); Fla. Stat. §744.3215.
17 Fla. Stat. §744.3215 (1), (2), (3).
18 Fla. Stat. §744.331(6)(b).
19 Fla. Stat. §744.1012.
20 Fla. Stat. §744.102(12).
21 Fla. Stat. §744.102(12)(a).
22 McJunkin v. McJunkin, 896 So. 2d 962, 963 (Fla. 2d DCA 2005) (emphasis added).
23 Fla. Stat. §744.331(6)(c).
24 Fla. Stat. §744.331(3)(f).
25 Fla. Stat. §744.331(5)(c); In re Bryan, 550 So. 2d 447, 448 (Fla. 1989).
26 Fla. Stat. §744.331(3)(g); Fla. Stat. §744.331(4).
27 ABA Commn. on L. and Aging & Am. Psychological Assn., Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers
28 Id. at 18-19.
29 Id. at 16 and 18.
30 R. Regulating Fla. Bar 4-1.14.
R. Craig Harrison is a shareholder in the firm of Lyons, Beaudry & Harrison, P.A., located in Sarasota. He is board certified in wills, trusts, and estates, and is a graduate of the University of Michigan (B.A. 1980) and the University of Detroit (J.D. 1983). He is a member of the Probate and Trust Litigation Committee of The Florida Bar. He is the author of “Homestead — The Post-death Spousal Disclaimer: A Cure for a Constitutionally Prohibitive Devise?” and “Trusts: TBE or Not TBE” in The Florida Bar Journal.
This column is submitted on behalf of the Elder Law Section, John Lardy, chair, and Stephanie M. Villavicencio, editor.