ReKeithen Miller

Elders with diminished capacity are especially vulnerable to fraud. Here's how to protect them.

Financial abuse of the elderly isn’t always outright fraud or theft committed by a con artist, although that’s shockingly common. Often, the culprit is a family member, a friend or a neighbor.

Besides outright fraud, abuse may take the form of taking advantage of victims’ diminished capacity to pressure or influence them to act against their best interests.

Abuse isn’t always the result of a carefully plotted scheme. Family members’ emotions can run high, and fights can result in collateral financial damage to an individual unequipped to defend his or her own wishes.

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Take steps against financial exploitation long before mental capacity becomes an issue. The best defense against it is preparation.

When you or your loved one is still capable, you should set up a durable financial power of attorney. The POA, along with other documents such as a health care directive, empowers a trusted individual or individuals to make decisions on another’s behalf.

Appointing someone to this position gives him or her a great deal of power, so it is essential to be careful about whom you choose.

If your loved one is no longer capable of executing such documents, it may make sense to consider guardianship or conservatorship. (In some states, the terms guardianship and conservatorship are used interchangeably.)

A legal guardian is authorized to make personal decisions, such as choices about housing and medical care, on behalf of an individual who no longer has the capacity. A conservator is appointed to make financial decisions. Both are court-appointed positions, so the process can be complicated and will take time.

Mental capacity can be task-specific. Some people who are not capable of handling major transactions may still be very capable of handling routine financial matters like paying bills.

Individuals who are highly functional when medicated but who don’t take their prescriptions may lose their ability to make sound decisions. Some older adults with vision or hearing loss may be able to make sound decisions in person with the proper accommodations but may not be able to reliably do so over the phone.

Those who are most vulnerable to financial exploitation usually retain some degree of financial independence but rely on someone else for their other needs. This opens the door for a third party to exploit the relationship.

Is your loved one a victim of financial exploitation? The Justice Department to watch for these red flags:

		Sudden changes in bank accounts or practices, including an unexplained withdrawal of large sums of money when the customer is accompanied by an unfamiliar person

		The addition of new names on an elder’s bank signature card

		Unauthorized withdrawal of the elder’s funds using the elder’s ATM card

		Abrupt changes in a will or other financial documents

		Unexplained disappearance of funds or valuable possessions

		Substandard care being provided or bills left unpaid, despite the availability of adequate financial resources

		Discovery of an elder’s signature being forged for financial transactions or for the titles of his or her other possessions

		Sudden appearance of previously uninvolved relatives claiming their rights to an elder’s property or possessions

		Unexplained sudden transfer of assets to a family member or someone outside the family

		An elder’s report of financial exploitation

You should also stay alert for undue influence, where a person uses a position of power to influence someone else to do something he or she would not have done otherwise.

While anyone can be a victim of undue influence, someone with diminished capacity is especially vulnerable. For instance, an adult child who does not get along with his siblings may try to persuade his mother that his siblings mistreat her and that she should trust him with her finances exclusively.

People in their 70s and 80s are often targeted for free-lunch seminar pitches. While treating someone to a free lunch does not automatically signal bad motives, anyone invited to such events should be especially wary of hard-sell approaches.

When you consider working with a professional, for yourself or on your loved one’s behalf, never assume that someone with professional certifications is inherently trustworthy.

Not all certifications have a rigorous evaluation process or require the professional to maintain certain standards. Make sure that anyone providing advice to your loved one observes a fiduciary standard — meaning he or she puts the interests of the client first.

You should also be on the lookout for affinity fraud. It is common for fraudsters to use a shared affiliation, such as religious beliefs, to build unwarranted trust with their targets. A financial professional who attends your loved one’s church or lives in her neighborhood deserves just as much scrutiny as a complete stranger.

Finally, if your elderly loved one has been financially victimized, report it to the proper authorities in your state or city.

ReKeithen Miller, Certified Financial Planner (CFP®), Enrolled Agent (EA), is a client service and portfolio manager with Palisades Hudson Financial Group, in its Atlanta office. 

 is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with more than $1.2 billion under management. It offers financial planning, wealth management, financial management and tax services. Branch offices are in Atlanta; Georgia; Austin, Texas; Portland, Oregon; and Stamford, Connecticut.

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Senior citizens with diminished physical or mental capacity are especially susceptible to financial fraud and abuse. You can be proactive and prevent theses from occurring by taking a few precautions. Furthermore, there are warning signs to watch out for to keep your loved ones safe.

Help Elders Avoid Financial Fraud and Abuse

Self-employed people—from Uber drivers to high-powered consultants—need to save for retirement, and a tax-advantaged retirement plan is the best way. Designed for the self-employed, the Simplified Employee Pension (SEP-IRA) and the Solo 401(k) are relatively easy to set up. Both plans offer tax-deductible contributions, enabling you to cut your taxes and get tax-deferred growth.  

Another plus: you can still reduce your 2014 federal income taxes because either plan allows you to contribute up until your tax-filing deadline, including the six-month extension. If you got an extension and haven’t filed your return yet, you have until Oct. 15 to make 2014 contributions to your plan.

However, while a SEP-IRA can still be established up until Oct. 15, those who wish to make a profit-sharing contribution to a Solo 401(k) must have established the plan by Dec. 31, 2014.

Which plan is best for you? Here are the main features and the pros and cons of each.

 is similar to a traditional IRA. Investment earnings grow taxed-deferred until withdrawal, but self-employed individuals can save and deduct much more than the $5,500 ($6,500 if 50 and over) for contributions to a traditional IRA. SEP-IRA contribution limits are the lesser of 20% of net business income or $52,000 for 2014, $53,000 for 2015.

Banks, insurance companies and brokerage firms offer SEP-IRAs, which often can be opened up on the Web. Make sure the sponsor offers a range of solid investment options. 

One caveat: if you have employees, you must contribute the same percentage of salary for them as you do for yourself. If you can’t afford to or don’t want to do that, a SEP-IRA isn’t the best plan for you.

Since SEP-IRA contributions are deemed to come from the business, not the individual, a participant can also contribute to a Roth IRA in the same year he or she makes a SEP-IRA contribution.

By contributing to both, you can take advantage of tax-free Roth IRA growth and increase the tax diversification of your retirement savings and have more flexibility when you’re taking out money during retirement.  

 is for self-employed individuals without employees, other than a spouse, who may contribute to the plan if he or she is employed by the business. It can be structured as a traditional 401(k) or as a Roth 401(k).

The maximum 2015 contribution is $53,000 or $59,000 for those 50 and older. (The 2014 limits are $52,000/$57,500.) The contribution includes:

• Annual employee deferral — up to 100% of compensation or earned income for a self-employed individual, to a maximum of $18,000 ($24,000 if 50 or older). This lets some people contribute more to a Solo 401(k) than to a SEP-IRA.

• Employer discretionary contribution — up to 25% of compensation as defined by the plan or 20% of earned income for a self-employed individual.

An advantage a 401(k) offers over an IRA is that participants may borrow from a 401(k).

If you choose a Solo Roth 401(k), you won’t get a deduction, but all withdrawals are tax-free if you wait until age 59 ½. The plan lets you save much more than a Roth IRA. Another big plus is that contributions to a Solo Roth 401(k) aren’t subject to income limits, unlike the Roth IRA.

Is the Roth or traditional version better? It depends. If you expect to be in a higher tax bracket in the future, the Roth version may make more sense.

If your current tax rate is low, you may be better off forgoing a deduction now in order to withdraw money tax-free when you’re in a higher bracket in the future,  .

But it doesn’t have to be an either-or proposition. You can have both traditional and Roth 401(k) plans and divide your contributions between them. 

A Solo 401(k) plan can require more administration than an IRA, especially if the plan allows for loans. A plan with more than $250,000 in assets must file a Form 5500-series return annually. Fortunately, the IRS has simplified some versions of the form, which has reduced the administrative burden for most plans.   

Besides the SEP-IRA and Solo 401(k), traditional and Roth IRAs are also an option. In 2015, most individuals can contribute a maximum of $5,500 to their accounts, while those 50 and over can contribute up to $6,500.

For most self-employed people, the SEP-IRA is probably a better choice than a traditional IRA because the contribution limits are much higher. Furthermore, deductions for traditional IRA contributions are limited by income for participants who are covered by a retirement plan at work or if their spouse is covered by a plan at work.

If you’re nervous about tying money up in retirement accounts, it’s good to know you can take withdrawals from a Roth IRA up to the amount of your prior contributions at any time without incurring taxes or penalties. This feature can come in handy in emergencies.

ReKeithen Miller, Certified Financial Planner (CFP), is a portfolio and client service manager with Palisades Hudson Financial Group, in its Atlanta office. 

 is a fee-only financial planning firm and investment adviser based in Scarsdale, NY, with $1.3 billion under management. It offers investment management, estate planning, insurance consulting, retirement planning, cross-border planning, business valuation and appraisal, family-office and business management, tax preparation and executive financial planning. Branch offices are in Atlanta, Fort Lauderdale, FL. and Portland, OR. 

The firm’s recent book, Looking Ahead: Life, Family, Wealth and Business After 55, is a paperback and Kindle e-book available on Amazon at 

. Read Palisades Hudson’s daily column on personal finance, economics and other topics at 

http://palisadeshudson.com/current-commentary

If you haven't filed your 2014 return, you can get a deduction for retirement plan contributions until October.
