Young adults are now “circling their parents expectantly” a 2017 survey of 1000 Australians found. Twenty-six per cent of Gen Ys said they had to, or would need to, rely on an inheritance windfall to purchase the home they wanted, according to the survey commissioned by Slater and Gordon Lawyers. The pattern was most pronounced in NSW, presumably because of its high property prices.
Booming housing prices and longer life expectancies are fuelling “inheritance impatience” and leading to elder financial abuse, so accountants need to be on the alert for these problems.
Strong property prices are making the great Australian dream of home ownership more like a cruel taunt for many young adults, but behind stories of many Gen Ys’ distress about being locked out of the housing market lies a more disturbing social ill.
“Spiralling house prices are fuelling rising levels of elder financial abuse in Australia,” says Dr Graham Hill, chairman of National Legal Aid, the peak body representing legal aid commissions nationally.
Financial pressure on parents
Hill says that legal aid lawyers regularly deal with the fallout from the “enormous pressure” that some children place on elderly parents.
The four most common scenarios they encounter are:
- Adult children pressuring older people into guaranteeing enormous loans, or to use their own home as security, without understanding they will be legally liable for the debt if the borrower defaults.
- Adult children pressuring aged parents to provide funds to make a deposit on a house, using access to grandchildren as a bargaining tool. “Mum, if we can’t get funds to complete our deposit and get a guarantor for our loan, we’ll have to move interstate.”
- Both parent and adult child selling up and buying a house together. The parent later discovers that his or her name is not on the title, leaving them stripped of assets.
- Adult children moving into the parent’s home and refusing to move out. In some cases, vulnerable parents are unable to free themselves of an abusive son or daughter who insists on living rent-free.
The importance of independent advice
This problem will only worsen, warns Hill, unless lenders are required to ensure older Australians have independent legal and financial advice before agreeing to help their children.
In June 2015 CPA Australia launched a toolkit designed to help accountants prevent and detect elder financial abuse (EFA).
Accountants are more likely to come across potential rather than actual abuse, says Stephen Jones CPA, partner of ATM Consultants and a former member of CPA Australia’s EFA task force.
“It often happens unwittingly, because all the people involved don’t understand the implications,” he says.
Jones gives the example of a client who needed a business loan and made his grandmother a director of the company to improve the financial profile of the business.
When the company was going through financial difficulties, she was not aware of the dangers for her, which could include the creditor suing the directors if the company traded while insolvent.
Another common scenario that opens up the opportunity for misuse of elders’ funds is when the older parent hands over their ATM pin number or online banking password to their adult child.
This arrangement can work well when the adult child is trustworthy. However, it’s easy to stray into criminal financial advantage by deception if the adult child starts withdrawing money for their own purposes, says Hill.
How accountants can help prevent elder financial abuse
One of the most important roles accountants can play in preventing elder financial abuse is ensuring appropriate documentation of any parent-child agreements, and making sure their clients are fully informed on the risks and potential implications.
This involves asking the uncomfortable “what if” questions that families don’t like to consider.
In the case of so-called “assets for care” arrangements, where the parent sells their property in exchange for being cared for into old age, accountants can ask, “What if you don’t actually enjoy living with your kids, or they are unable to provide you with the care you need?”
Raising an alert of financial abuse is not an easy step to take, especially when the adult child is well-intentioned.
“If they think you are trying to blame or accuse them of doing something wrong, the conversation won’t go well,” says Jones.
Strategies for conversations around potential elder abuse
The CPA Australia toolkit offers a helpful strategy – make the issue about you and your professional obligations, not about them.
For example, if talking to a client who is a potential victim, accountants could say, “I am obligated by my professional conduct rules to ensure that you are aware of the disadvantages of this transaction.”
Or, if talking to a client who may be perpetrator, the accountant could say, “It may be highly detrimental for me if I were found to be involved in any way, as this may be unlawful.
Here are some options for going about this which are not unlawful.”
Accountants often act for both older parents as well as their adult children, so potential conflicts of interest can arise.
Advising one or both parties to seek independent advice is one way to address this.
With Australians living to unprecedented ages and increasingly expected to fund their own aged care, it has never been more important to help vulnerable older people protect their assets, and to respect their right to favour family over money.
5 red flags signalling heightened risk of elder financial abuse
Be on the alert and ask more questions if your client is:
- vulnerable
- displaying reduced capacity
- has poor physical or mental health, including disabilities
- dependent
- isolated
Ethical considerations for accountants
- Avoid conflicts of interest
- Maintain your client’s confidentiality
- Avoid contributing to the perpetration of unlawful acts
- Ensure your client is well informed; give comprehensive advice
- Ensure your client understands the advice, and has capacity to act
- Be respectful: with older clients, beware of ageism and making an assumption that, because the client is old and perhaps frail, they are not capable of making a valid decision
- Your client’s best interests come first
