Recognising signs of financial abuse

Financial abuse is becoming more common than ever. Sadly, it is usually not discovered until someone has died, and other family members notice large gifts having been made to a sibling, Attorney or sometimes even a paid carer.

To determine whether financial abuse has taken place, the first question is whether the alleged victim of the abuse had capacity to make the transaction in question. The legal test to assess if someone had capacity can be found in the case of Re Beaney. The court decided that the level of capacity required is relative to the particular transaction. If the subject matter and value of a transaction is trivial in relation to a person’s other assets, a low degree of understanding is required.

However, if at the other extreme the effect of the transaction is for a person to dispose of their only asset of value, then the degree of understanding is as high as that required for making a Will.  In these circumstances, the person making the transaction must understand the claims on their estate by all persons they might be expected to benefit and the size of their estate in comparison to the value of the transaction in question. Medical evidence will be crucial in ascertaining whether the person had the requisite capacity.

If a person has capacity, it might still be the case that a lifetime transaction can be challenged on grounds that it was procured by means of undue influence. At the heart of this idea is the notion that the victim was pressured into making the transaction.

Proving actual undue influence is incredibly difficult as it will have usually happened behind closed doors.  Those wishing to challenge the validity of a lifetime transaction are helped however by the fact that the court will treat a transaction as having been procured by means of undue influence if:

1. There is a relationship of trust and confidence between the victim and the perpetrator of the undue influence; and

2. The transaction calls for an explanation.

The evidential burden then shifts to the alleged perpetrator to rebut the presumption and satisfy the court that the transaction was not the result of undue influence.

If the victim has died, the right to have transactions set aside vests in those persons who are handling the administration of the deceased’s estate, but often the perpetrator of the abuse has been appointed by the deceased to administer their estate.  The beneficiaries can therefore either bring a derivative action or a claim to remove that person and appoint some other person to administer the estate.

The remedy for financial abuse is rescission.  This means that the gift is rendered null and void and the parties to the gift must be restored to their original position as far as it is reasonably practicable to do so. This means that the gift must be returned to the victim or their estate by the perpetrator.

There are several red flags to look out for:

Bank accounts and payments

• signatures on cheques or other documents that do not look like the vulnerable person's signature or are signed when the person is unable to write

• any sudden changes in bank accounts, including unexplained withdrawals of large sums of money by a person accompanying the vulnerable person

• the sudden inclusion of additional names, such as a carer or neighbour, on a vulnerable person's bank accounts or benefits payments

• unexplained withdrawals from a cash machine at a time when the account holder could not have accessed the account

Wills and power of attorney

• abrupt changes to or creation of wills that leave most or all of the assets to a new friend or only one relative

• ordinary power of attorney or property and financial affairs LPA being obtained after the vulnerable person has ceased to have mental capacity to manage their own finances and property

Behaviour of relatives or carers

• the sudden appearance of previously uninvolved relatives claiming their rights to a vulnerable person's affairs and possessions

• unusual concern or interest shown by family or others in the assets of the vulnerable person and how money is being spent, particularly on the care package

• unexplained sudden transfers of assets to a family member or someone outside the family

• numerous small sums of cash being 'given' to, or money regularly disappearing after visits from a relative, carer or neighbour

• deliberate isolation of a vulnerable person from their friends and family, resulting in the carer alone having total control

Living conditions, bills and personal possessions

• unpaid bills, such as overdue rent, care home bills or public utilities bills, when someone else is supposed to be paying bills for the vulnerable person

• change in living conditions, such as lack of heating, clothing or food that the vulnerable person should be able to afford

• inability to pay bills or unexplained shortage of money

• the unexplained disappearance of funds or valuables such as art, silverware, jewellery or other personal possessions

Management of finances

• the person allocated to manage financial affairs being evasive or uncooperative

• lack of financial records kept by a care home, care service, deputy, attorney or appointee

• a financial attorney ‘justifying’ the transfer of the donor’s money to themselves, for example as an early payment of their inheritance, to buy expensive items, such as cars, which they say they need to carry out their role, charging for their time without proper authority, or because they say they ‘deserve’ recompense for the sacrifice they are making as an attorney

If you are concerned about financial abuse of a vulnerable family member, please do not hesitate to get in touch with our dedicated Contentious Trusts and Probate Team.