Why You Should Designate Trusted Contacts

With technology becoming more prevalent in our daily lives and as people live longer, we are seeing an unfortunate increase in financial scams. The coronavirus pandemic has made things even worse with cybercrime on the rise and personal attentions focused on many other things.

As wealth managers, we play a unique role in a client’s life, and this includes having early opportunities to protect clients who may be vulnerable to financial abuse. Such a vulnerability could arise for a number of reasons, including diminishing capacity, grief, illness or other trauma.

One way to enable your advisors to protect you in the future is to identify the people in your life whom you trust most regarding your personal or financial matters. While the thought of someday becoming vulnerable may seem discomforting, there are important reasons why designating trusted contacts today may be a wise idea for you.

Why worry about financial exploitation?

Financial exploitation, as defined by the National Adult Protective Services Association (NAPSA), occurs when a person misuses or takes the assets of a vulnerable person for their own personal benefit. Assets may be taken by deception, false pretenses, coercion, harassment, duress or threats. This frequently occurs without the explicit knowledge or consent of a victim, depriving that person of vital financial resources for personal needs.

Common forms of financial fraud or abuse include:

  • Forgeries and falsified records
  • Unauthorized property transactions and mortgages
  • Payment for work not completed
  • Lottery scams
  • Cybercrime
  • Unauthorized investments
  • Inappropriate insurance purchases or life settlements

Anyone can be a victim of financial exploitation. It is not limited to those who are not technologically savvy or who are less involved in the management of their finances. Perpetrators tend to target people who are vulnerable, such as someone feeling major grief over the loss of a loved one, facing a serious illness or dealing with addiction. However, older adults are prime targets, particularly if experiencing diminishing capacity.

Grandparent scams, in which an imposter will pose as one’s grandchild and explain that they are in trouble and need money, have caused people over age 70 or older to suffer the highest average losses. Losses to this scam totaled $328 million in 2017, according to the AARP. And reports to the Federal Trade Commission (FTC) of romance scams, which prey on lonely seniors looking for love, have grown from 8,500 in 2015 to more than 21,000 in 2018. Reported losses to phony love interests have more than quadrupled in recent years — from $33 million in 2015 to $143 million in 2018. This is astonishing and disheartening to say the least. Sadly, such scams have escalated amid the coronavirus pandemic.

Elder financial abuse is widespread and underreported, making these statistics even more difficult to digest.

What is diminishing capacity?

Diminishing capacity represents signs and symptoms that could eventually amount to dementia, which is a severe loss of cognitive, memory, physical and reasoning skills that compromises a person’s ability to carry out normal daily activities. Symptoms of dementia include frequent forgetfulness, declining social skills and impaired thinking abilities that gradually destroy a person’s daily functioning.

Alzheimer’s disease is the most common cause of dementia. According to a 2019 Alzheimer’s Association report, one in three seniors dies with dementia. Every 65 seconds, someone in the U.S. develops Alzheimer’s, which kills more than breast cancer and prostate cancer combined. There are other types of dementia, as well as other health reasons why someone could have diminishing capacity.

With diminishing capacity comes an increased chance of becoming a victim of financial exploitation, which can have devastating results. Almost one in 10 financial exploitation victims will turn to Medicaid as a direct result of their money being stolen, says NAPSA.

Who are the perpetrators? They may be people you know. Shockingly, the majority of scammers are family members. People who need help with daily living activities are more vulnerable to being exploited by those who serve them. The perpetrators may also be people you don’t know, including identity thieves and fraudsters, such as imposters posing as representatives of the Social Security Administration.

Designating a trusted contact can help

How can we curb this problem? When it comes to your finances, being prepared may reduce your risk of fraud or financial exploitation. Designating trusted contacts provides your wealth manager or your financial institution with the resources they need to timely and effectively address a situation of suspected financial exploitation or increased vulnerability. Designating trusted contacts is meant to protect you. This is true even if you already have a power of attorney or joint account holder named on your accounts.

A trusted contact would be called upon to assist with taking proactive measures to either prevent fraud or further exploitation or abuse. The role of your trusted contacts is to share with your wealth manager or financial institution, if asked, specific details regarding your well-being, including your mental or physical health status or whereabouts, and who your executor, trustee, power of attorney or legal guardian are. They can also identify activities or signs that indicate potential financial exploitation, such as:

  • Uncharacteristic or repeated cash withdrawals or transfers
  • Large transactions without regard to taxes or penalties
  • Association with new, unknown friends or relatives
  • Uncharacteristic nervousness or anxiety during phone calls or visits
  • Lacking knowledge about their financial status
  • Unusual excitement about a windfall
  • Difficulty speaking to them without interference from others
  • Sudden changes to financial documents

When selecting your trusted contacts, consider choosing people who do not have the ability to transact business or receive information about your financial accounts or your medical status. A professional, such as a long-time attorney, tax preparer or physician might be a good choice if you have a good history with that professional. You may also carefully select close friends or family members, particularly when they are not named as beneficiaries of your estate.

You may be wondering what type of authority you would be granting a trusted contact by choosing them to work with your wealth manager or your financial institution. Don’t worry because trusted contacts would not be granted the ability to execute any transactions in your accounts, or even view your accounts. They would not have any power of attorney over your affairs. The role of your trusted contacts is limited, yet critical, to preventing or stopping a suspicious situation.

When identifying trusted contacts, please keep in mind that you can change who you designate or even revoke designations entirely at any time. The process of designating, amending or revoking your trusted contacts should be by written request and can be confirmed with your wealth manager or your financial institution.

Plan ahead to protect yourself

We highly encourage you to take the preventative measure of designating a trusted contact, preferably more than one person. Naming these trusted individuals is a simple yet effective way to ensure that you, your loved ones and your assets are protected against the many growing scams that we continue to see these days. Let’s be smarter than the perpetrators and prepared to deal with such unforeseeable events. Reach out to your wealth manager today to discuss this important step in safeguarding your financial well-being.