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Protecting the Elderly from Financial Exploitation: The Dilemma and Solution, Part II

Elder Law

There are remedies available to the person with diminished capacity who has been financially exploited. The problem is to convince the person to bring or consent to an action against the perpetrator and to prove that a transfer of an asset to a perpetrator was not a gift to, or compensation for, services rendered by the perpetrator or that an estate planning document is invalid. The ability of third parties to assert claims for pre-death/incapacity exploitation without the cooperation and consent of the person are limited or nonexistent.

Role of Department of Children and Family Services
The Florida Legislature adopted the Florida Adult Protective Services Act to provide for the detection and correction of abuse, neglect, and exploitation of a “vulnerable adult” through both social services and criminal investigations.1 The act established a program of protective services for all vulnerable adults in need of them, and it imposes mandatory reporting and requires immediate protective service investigations.2 The act authorizes the Department of Children and Family Services to contact law enforcement for assistance if an investigation is being prevented by a caregiver. The act requires the department to notify law enforcement if there is a reason to believe that abuse, neglect, or exploitation has occurred.3

The act provides the department with complete access to all medical, social, and financial records of the vulnerable adult, authorizes and requires the department to provide protective services or protective supervision to the vulnerable adult, and provides for emergency and nonemergency intervention.4

The term “vulnerable adult” is defined broadly to mean “a person 18 years of age or older whose ability to perform the normal activities of daily living or to provide for his or her own care or protection is impaired due to a mental, emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging.5

Nevertheless, the department cannot provide protective services or supervision (even emergency protective services) to a vulnerable adult who does not consent to such services or supervision.6 The department cannot even access the medical, social, and financial records of the vulnerable adult, if he or she specifically prohibits such access.7 Only if the vulnerable adult has consented to protective services can the protective services be continued without consent, but only when there was an emergency removal.8 Such emergency services cannot continue more than a 60-day period.9 The emergency protective services authorized in F.S. §415.1051(2) is further limited to abuse or neglect (not exploitation) of the “vulnerable adult” relating to death or serious injury.

“Capacity,” as defined by the act, is no different than legal capacity. “‘Capacity to consent’ means a vulnerable adult has sufficient understanding to make and communicate responsible decisions regarding the vulnerable adult’s person or property, including whether or not to accept protective services offered by the department.”10 Conversely, the act defines the “lack of capacity to consent” as “a mental impairment that causes a vulnerable adult to lack sufficient understanding or capacity to make or communicate responsible decisions concerning person or property, including whether or not to accept protective services.”11

Although the act defines “vulnerable adult” broadly to include persons with diminished capacity who are subject to undue influence, the department is powerless to protect such a person from exploitation through the use of undue influence without that person’s consent. The department’s role becomes one of investigation, reporting, consultation, and the preservation of evidence for future court proceedings.

Limited Criminal Prosecutions for Financial Exploitation
The Florida Adult Service Act requires the department to orally notify law enforcement of alleged abuse, neglect, or exploitation of the vulnerable adult. Within five working days, after the oral notification, the department must submit a written preliminary report to law enforcement.12 If it conducts its own investigation, law enforcement must submit its findings to the state attorney and the department within five working days after concluding the investigation.13 The state attorney must determine whether a prosecution is justified under the circumstances and report its findings to the department.14

Criminal prosecutions for financial exploitation are governed by F.S. §825.103(1). Ch. 825 uses the term “elderly person,” not “vulnerable adult,” but the definitions are basically the same. “Elderly person” is defined as “a person 60 years of age or older who is suffering from the infirmities of aging as manifested by advanced age or organic brain damage, or other physical, mental, or emotional dysfunctioning, to the extent that the ability of the person to provide adequately for the person’s own care or protection is impaired.”15

The definition of “elderly person,” like that of the “vulnerable adult,” would include a person with diminished capacity who is subject to undue influence. Nevertheless, proving the criminal exploitation of an elderly person is difficult and many times the evidence is confusing at best.

F.S. §825.103(1) establishes two separate crimes for financial exploitation. F.S. §825.103(b) requires the state to prove that the asset of the elderly person was obtained when the perpetrator knew or should have known that the elderly person lacked the capacity to consent to the transaction. The statute defines “lack of capacity” no differently than the legal standard of capacity:

“Lacks capacity to consent” means an impairment by reason of mental illness, developmental disability, organic brain disorder, physical illness or disability, chronic use of drugs, chronic intoxication, short-term memory loss, or other cause, that causes an elderly person or disabled adult to lack sufficient understanding or capacity to make or communicate reasonable decisions concerning the elderly person’s or disabled adult’s person or property.16

This definition is consistent with case law involving theft from a victim with diminished capacity. Theft is not shown when an owner gives property to another unless there was “evidence that the defendant knew the victim lacked the mental capacity to consent to the taking of his or her property.”17 If the elderly person has legal capacity, no crime can be committed under F.S. §825.103(1)(b).

F.S. §825.103(1)(a) does not require the finding of incapacity. However, the state has a high burden to prove financial exploitation pursuant to this provision. The state must prove the perpetrator “knowingly, by deception or intimidation” obtained the assets of the elderly person. Intimidation is defined as the threat of physical injury or the deprivation of food, clothing, money, and other necessities.18 Deception is defined as the misrepresentation or concealment of a material fact relating to services, disposition, or use of property intended for the benefit of the elderly person.19

In Bernau v. State, 891 So. 2d 1129 (Fla. 2d DCA 2005), parents with diminished capacity endorsed a check in the amount of $847,000, representing the proceeds from the sale of their home, to their son, David. This transaction occurred in September 2000. In March 2001, both parents were declared totally incapacitated. The parents’ guardian recovered about $380,000 from David on behalf of the guardianship estate. David was charged and convicted of exploitation under F.S. §825.103(a).

The Second DCA noted that the state failed to offer any evidence that the parents were incompetent at the time of the transaction. There was no evidence that David “lied to his parents or intimidated them in order to obtain the funds.” Although the parents exercised “extremely poor judgment” in making the gift, this did not constitute “circumstantial evidence proving the elements of the crime.” Although David was convicted of stealing money from his parents a few years earlier and the gift of the funds to him was “highly suspicious,” the court “reluctantly reversed” the conviction. There was simply insufficient evidence to prove that David received the funds from “deception or intimidation.” The court held, “We are not called upon to judge the morality of David Bernau’s conduct. The elements of this crime were established by the legislature, and the [s]tate was unable to prove them.”20

In Guarscio v. State, 64 So. 3d 146 (Fla. 2d DCA 2011), the court was faced with a similar scenario. The grandmother, Helen Woichowski, raised her granddaughter, Dana Guarscio. Dana and her son moved to Florida; Helen soon followed and purchased a home in Sarasota. The home was refinanced several times between 2003 to 2005 to pay for Dana’s wedding, business, divorce, car, trips, and gifts. Helen suffered a stroke in November 2005. Dana was convicted of financial exploitation based on the multiple refinancings and use of the money obtained therefrom.

The Second DCA reversed the exploitation conviction. The court examined the statutory definitions of deception and intimidation and found no evidence that Dana obtained her grandmother’s money from intimidation or deceit. The refinancings were “not a good idea,” but the court held that any inference therefrom was “a far cry from proof that they were accomplished by [Dana’s] deception or intimidation.”

If the elderly person has the capacity to understand a transaction or to make a gift, a successful prosecution for financial exploitation may prove difficult. Intimidation and deception may be factors in proving undue influence in a civil case, but these factors are necessary elements to prove criminal exploitation and pose a significant proof problem versus the Carpenter active procurement criteria to establish undue influence in a civil action.21

Limited Civil Remedies for Financial Exploitation
F.S. §415.1111 creates a civil action in favor of the vulnerable adult against a perpetrator for actual and punitive damages caused by the abuse, neglect, or exploitation of the vulnerable adult. The action can be brought by the vulnerable adult, his guardian, or personal representative. A person or organization acting on behalf of the vulnerable adult can also bring the action but only with the consent of the vulnerable adult.

Therefore, if the vulnerable adult has capacity, the only way an action can be brought against the perpetrator is if the vulnerable adult brings the action or consents to such action.22 I f the vulnerable adult is under the undue influence of another, it is questionable as to whether the vulnerable adult would bring an action or consent to an action against the undue influencer/perpetrator.

The Florida Power of Attorney Act may create standing in third parties to challenge actions of an agent under a power of attorney. F.S.§709.2116(1) provides: “A court may construe or enforce a power of attorney, review the agents conduct, terminate the agent’s authority, remove the agent and grant other appropriate relief.”

F.S.§709.2116(2) lists the persons and entities who may petition the court pursuant to this provision. Those listed include the principal, agent, successor agent, guardian, conservator, trustee, or other fiduciary of the principal and the person authorized to make health care decisions for the principal (but only if the health care of the principal is affected by the actions of the agent). Also included are “a governmental agency having the regulatory authority to protect the wealth of the principal; and any other interested person if the person demonstrates to the court’s satisfaction that the person is interested in the welfare of the prinacipal and has a good faith belief that the court’s intervention is necessary.”

The statutory list of persons and entities that may bring an action with respect to the use of a power of attorney are very broad, but can an action be brought when the principal has capacity? The focus of Ch. 709 and the recent amendments relate mostly to the durable power of attorney. There is no case law interpreting the standing of these “interested persons” to file an action, if the principal has capacity. The white paper prepared in support of the adoption of the revised Florida Power of Attorney Act does not address this standing issue.

The Florida Rules of Civil Procedure do not necessarily require the consent of the vulnerable adult to file a proceeding. Fla. R. Civ. P. 1.210(a) states: “Every action may be prosecuted in the name of a real party in interest but a…party expressly authorized by statute may sue in that person’s own name without joining the party for whose benefit the action is brought.”

F.S. §709.2116 and Rule 1.210 seem to permit an interested person or the Department of Children and Families to bring an action against the agent acting under the power of attorney. However, if the real party of interest (the vulnerable adult) objects to such a proceeding and the vulnerable adult’s right to sue and defend lawsuits23 has not been removed, can the statutorily authorized person proceed with the action? Even if the third party could proceed with the action, the vulnerable adult, by undue influence or otherwise, could undermine any proceeding as he or she has the authority to authorize or consent to any action of the agent or execute a release of the agent from liability.24 T he agent would be subject to criminal prosecution under F.S. §825.103(1)(c).

Role of the Attorney
Genova held that it is not the public policy of the state of Florida to protect an adult with diminished capacity from the undue influence of others. Nevertheless, Genova held that under the terms of the trust, Mrs. Genova established the means to protect herself from her own incompetence, which “the courts can and should zealously protect her from her own mental incapacity.” If a settlor can protect himself or herself from incompetence, then a settlor can protect himself or herself from undue influence in the same way.

An irrevocable trust is one option, but most individuals want to control their assets and funds until they are not able to do so. An irrevocable trust also has gift tax implications. A revocable trust may permit an amendment or revocation only with the permission of a third party or co-trustee; however, this may prove too restrictive for most settlors. A settlor may achieve similar protections utilizing a revocable trust that suspends the rights of the settlor under certain conditions. Here again, there is a conflict between the settlor wishing to maintain control of his or her assets until the last possible moment versus the protection of the settlor as his or her mental capacity diminishes.

A revocable trust consists of a settlor, trustee, and a beneficiary. In many trusts, the settlor also acts as the trustee. The settlor oftentimes retains the power to amend or revoke the trust, remove and appoint a trustee, withdraw assets from the trust (income or principal), or direct the distribution of such assets, direct the investments of the trust, and direct the trustee to act whether or not the direction is contrary to the terms of the trust.

Most, if not all trusts, provide some mechanism for the appointment of a successor trustee in the event the settlor, as trustee, cannot manage the affairs of the trust or is otherwise incapacitated. Many times this determination is made by the successor trustee and/or a family member in conjunction with a written medical opinion. Such trusts many times provide guidance to the successor trustee for the distribution of the trust income and principal when the settlor is incapacitated.

However, the trust terms often stop short of removing the powers retained by the settlor to revoke, amend, or make directions as to the trust or trust assets. The inability of a settlor trustee to manage the affairs of the trust does not mean that the settlor lacks the capacity to create, amend, or revoke the trust or direct the successor trustee to act.25 A lthough the successor trustee, family member, and/or doctor believe that the settlor lacks the capacity to exercise a reserved power, unless the trust term provides otherwise, the settlor can at least attempt to exercise the power. If the settlor with diminished capacity exercises a power through the undue influence of others, the exercise of such power will be enforced by the Florida courts. The result of the exercise of such a power, under these circumstances, certainly will lead to expensive litigation, whether in an eventual guardianship proceeding or trust contest.

This result can be avoided by addressing the issues of diminished capacity and undue influence under the terms of the trust. The provisions of a trust can suspend any or all of the reserved powers of the settlor under certain circumstances. For instance, if the successor trustee and/or family member reasonably believe that the judgment of the settlor is impaired due to his or her mental capacity that is confirmed by a written medical opinion, written notice may be provided to the settlor that suspends all reserved trust powers. The right to suspend a reserved power may be as minimal as having the successor trustee make this determination or as stringent as to require an actual adjudication of incapacity. The suspension may pertain only to the settlor’s powers exercisable for lifetime purposes and not powers that impact the trust after the death of the settlor ( i.e., trust distributions, trusteeships, or other post death provisions).

The Florida Trust Code does not prohibit trust suspension provisions. F.S. §736.0602(1) does provide that unless a trust states that it is irrevocable, a settlor may revoke or amend a trust. However, F.S. §736.0105(1) makes it clear that the terms of a trust prevail over any provision of the Florida Trust Code, except as to the 23 specifically listed mandatory provisions. F.S. §736.0602 is not listed as a mandatory provision. Therefore, a trust may provide for the suspension of the reserved powers of the settlor.

There may be situations when the successor trustee and/or family member suspends the reserved powers of the settlor when the settlor can make independent and prudent judgments or can subsequently make such independent and prudent judgments. Under these circumstances and to prevent unintended abuses, the trust can provide that the reserved powers of the settlor can be restored by court order or determination by a family member, physician, or a third party. The trust may provide for the reinstatement of the reserved powers only if the court or physician determine that the settlor can exercise a power independently without the undue influence of others or any other criteria established by the trust.

There may be situations when the successor trustee and/or family member either do not know of the authority to suspend the reserved powers of the settlor or cannot act fast enough to suspend the reserved power and prevent the amendment or revocation of the trust by a settlor with diminished capacity through undue influence or otherwise. The Florida Trust Code and Genova may prevent the successor trustee or family member from challenging such a trust amendment or revocation during the lifetime of the settlor.26 N evertheless, F.S. §736.0207 is not a mandatory trust provision. The settlor can create standing in anyone to challenge any power exercised by the settlor, particularly when the successor trustee or family member believes that the exercise of the power was void because of the undue influence of others. The trust terms can authorize the successor trustee, an acting co-trustee, family member, or third party to file an action to challenge the exercise of the reserved power and require the trust to pay for the prosecution of such an action.

There are numerous persons in Florida who are living with diminished capacity. Most of these elderly adults do not want to be classified as “incapacitated.” They want to maintain all of their rights. Because of distance and the change of our society, many of the elderly are socially isolated from their families. These elderly persons may become dependent on neighbors, friends, and others. They are subject to the influences of these individuals, and the numbers of those with diminished capacity are growing each year.

The courts cannot not protect these individuals from the undue influence of others or their poor judgment. The legislature is reluctant to interfere with the rights of those individuals who have legal capacity, and the legal representation of these individuals can prove difficult.

Estate plans can be created to protect these individuals from themselves and others, but these plans can be difficult to prepare and implement, and should be carefully drafted.

1 Fla. Stat. §415.101.

2 F la. Stat. §415.1034; Fla. Stat. §415.104.

3 Fla. Stat. §415.104(1).

4 Fla. Stat. §415.1045; Fla. Stat. §415.105; Fla. Stat. §415.1051.

5 Fla. Stat. §415.102(27).

6 Fla. Stat. §415.105(1); Fla. Stat. §415.1051(2).

7 Fla. Stat. §415.1045(4).

8 Fla. Stat. §415.105(2); Fla. Stat. §415.1051(2)(f)(b).

9 Fla. Stat. §415.1051(2)(g).

10 Fla. Stat. §415.102(4).

11 Fla. Stat. §415.102(15).

12 Fla. Stat. §415.104(1).

13 Fla. Stat. §415.104(5).

14 Fla. Stat. §415.104(8).

15 Fla. Stat. §825.101(5)

16 Fla. Stat. §825.101(9).

17 Deranger v. State, 652 So. 2d 400, 401 (Fla. 2d DCA 1995).

18 Fla. Stat. §825.101(8).

19 Fla. Stat. §825.101(3).

20 Bernau, 891 So. 2d at 1232.

21 See In re Carpenter’s Estate, 253 So. 2d 697, 702 (Fla. 1971).

22 Pasquale v. Loving, 82 So. 3d 1205, 1208 (Fla. 4th DCA 2012) (only the person and entities named in the statute have standing to bring the action).

23 See Fla. Stat. §744.31215(3)(b).

24 The agent could be subject to criminal prosecution under Fla. Stat. §825.103(1)(c).

25 Fla. Stat. §736.0601.

26 Fla. Stat. §736.0207. This does not prohibit a guardian of an incapacitated settlor from challenging the trust amendment or revocation upon any grounds. See also Fla. Stat. §744.441(11). However, a guardian cannot act until the settlor is adjudicated incapacitated and is authorized by the court to file the trust challenge. Such a potential trust challenge also does not solve the problem of a settlor with diminished capacity who is susceptible to undue influence. A co-trustee or successor trustee is in a better position to take prompt action to challenge a revocation of a funded trust or a trust amendment that may affect the administration of the trust during the settlor’s lifetime. A protective trust provision further provides the settlor with more flexibility to describe the circumstances for which a trust action may be brought. To the contrary, if the trust with suspension or standing provisions is created by undue influence, such a trust may be subject to attack in a subsequent guardianship proceeding and may not be considered as an alternative to the appointment of a guardian. Searle v. Bent, 2013 WL 5225218 (Fla. 2d DCA 2013); Fla. Stat. §744.331(6)(f). Therefore, it is best to create such a trust when the settlor has full capacity as opposed to waiting until diminished capacity is an issue.

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, Jana McConnaughhay, chair, and Stephanie M. Villavicencio, editor.

Elder Law