Who’s on first? Protecting California’s elderly from financial abuse

Common sense requires that the Prohibited Transfers statutory scheme be repealed in its entirety and that California’s common law rules governing questioned transfers be codified

Daniel D. Murphy
2009 January

The Law Revision Commission is currently engaged in a substantive review of the 1993 Prohibited Transfers statutes, located at Probate Code section 21350, et seq. California originally enacted these statutes in response to multiple media reports about an Orange County attorney who was alleged to be actively relieving his clients (all residents of a large retirement community) of their assets by various fraudulent acts.

Notwithstanding California’s laudable legislative effort in 1993 to address financial abuse of the elderly, this statutory solution has failed to protect the elderly. The reason? The statute’s blanket exemption provided to family members of the victim.

For reasons that remain unclear, it now appears that legislators are contemplating adding additional exceptions into this statutory scheme enacted to protect the elderly. Perhaps another look at the issue is in order.

The problem as presented in 1993

In the early 1990s, the Los Angeles Times printed a series of articles about the misconduct of Orange County attorney James Gunderson. Gunderson represented thousands of seniors living at the Leisure World retirement center in Southern California. Gunderson engaged in a variety of questionable, if not illegal, acts. Some of his conduct (which was set forth in the February 4, 1993 Assembly Committee on the Judiciary report on Assembly Bill 21) is described as follows:

• Drafting wills that named himself as the major, or even exclusive beneficiary of large estates, to the exclusion of the elder’s family members;

• Drafting trust documents where he was named the exclusive trustee of large, discretionary trusts;

• As a trustee, authorizing payment of large amounts of money to his law partners for “legal services;”

• As a trustee, spending money in a manner contrary to the instructions of the settler, and in a manner that benefited the businesses or charities in which he had a significant or controlling interest;

• Having himself named as a conservator for a client, and subsequently authorizing payment of large sums of money to his law partners for “legal  services;” and,

• Having himself named as conservator for a client, and as conservator, subsequently drafting wills naming himself as the primary or exclusive beneficiary.

In response, California enacted the Prohibited Transfers statutory scheme in 1993. These statutes prohibit transfers to persons who were engaged in confidential relationships with seniors. Without clear explanation, California enacted the Prohibited Transfers statutes with an express exception for the elder’s family members and spouses.

What is “domestic financial abuse” of the elderly and how does it arise?

The term “domestic financial abuse” is used to distinguish this type of conduct from commercial schemes to part the elderly from their assets (such as predatory lending, annuity scams, etc.). Domestic financial abuse claims commonly revolve around one or more questioned transfers of assets obtained from the elder. These transfers usually take place in secret at a time when the elder’s health is declining and/or the elder is near the end of his or her life.

Therefore, the timing of these questionable transfers raises concerns as to whether the elder was able to understand both the transfer and the implications of the transfer. For example, the elder may not comprehend how the questionable transfer would affect the elder’s estate plan, which was probably created earlier when the elder’s understanding and capacity were not at issue.

Moreover, these questionable transfers are usually gift transfers, meaning that the elder made the transfers without consideration for value. These gifts similarly raise reasonable inquiry as to whether the gift was the product of the elder’s wishes or, as is commonly found, that the gift by the elder was made, at least in part, to ensure the continued assistance of the recipient.

While each elder financial abuse case is unique, the facts in these types of cases commonly reveal that the elder made the questionable transfer for a particular purpose. Common reasons for an elder to make such transfers include avoiding being stranded, either financially or emotionally, by the abuser-recipient. Another reason elders make such transfers is to guarantee the abuser-recipient’s loyalty. Oftentimes, abusers threaten the elder with abandonment, either explicitly or implicitly, as a method of getting the elder to sign documents related to the questionable transfer.

Recent California Supreme Court Review of the Prohibited Transfers statutes

In Bernard v Foley (2006) 39 Cal.4th 794, the California Supreme Court reaffirmed a trial court ruling that held that the defendants, who cared for the elder at the end of her life and during which time the elder executed amendments to her estate plan making the defendants her beneficiaries, were caregivers under the Prohibited Transfers statute. As a result, the elder’s transfer to the defendant caregivers failed. Justice Werdegar, writing for the majority of the Court, affirmed the trial court’s finding that the defendants failed to satisfactorily rebut the statutory presumption that the defendants obtained the transfer by undue influence and fraud.

However, several members of the Court expressed concern that the Prohibited Transfers statute could conceivably hamper the elder’s old friends or acquaintances from assisting the elder because any transfers made to these people would be barred by the statute.

In response to this concern, the California Law Revision Commission has undertaken an extensive review of the Prohibited Transfers statutory scheme.

How the Prohibited Transfers statute fails to protect the elderly

While elder advocates applaud the Bernard v Foley decision, supra, significant problems with the Prohibited Transfers statute remain. The main problem is that an entire class of persons (people related to the elder by blood or marriage) is exempt. This is a significant concern because statistics reveal that people related to the elder by blood or marriage are the most common predators in elder financial abuse disputes. Because the current Prohibited Transfers statute specifically exempts this class of people, a significant number of questionable transfers to family members or spouses do not fall within the purview of the statute. (See, Prob. Code, §21350, et seq.)

In contrast to the protections afforded to victims under California’s common law, the Prohibited Transfers statute fails to acknowledge the existence of questionable transfers to blood relatives or people married to the elder. To many who are familiar with the epidemic elder financial abuse and fraud claims clogging our courts, it is common to find family members committing financial abuse upon their own family members. Furthermore, it is common for predatory strangers who commit elder financial abuse to end up married to the victim.

An existing legislative finding states that the elderly are a disadvantaged class of persons that deserve special protection. (See, Welf. & Inst. Code, §15600 (h)-(j).) However, the Prohibited Transfers statute does not protect the elderly victim from family members perpetrating financial abuse. In order to recover the elder’s property, the elderly victim must plead and prove his or her case without the benefit of the Prohibited Transfers statute.

To better understand how the Prohibited Transfers statute is flawed, we will need to look carefully at the existing California common law addressing confidential relations.

California’s common law addresses questionable transfers made by the elderly

The common law view is that any transfer an elder makes to a person engaged in a special relationship with the elder is voidable. California courts have found that the “special relationship” can be confidential or fiduciary in nature.

Once there is a sufficient prima facie evidentiary showing made, a rebuttable presumption is created that the recipient obtained the transfer by fraud and undue influence. The burden of proof then shifts to the transfer recipient to prove by clear and convincing evidence that the transfer was fair and that the elder understood what he or she was doing. This procedure ensures that the questionable transfer was not the product of fraud or undue influence.

This rebuttable presumption only arises where: (1) A confidential relationship exists between the elder and the recipient of the transfer; (2) the recipient was actively involved in obtaining the transfer; and (3) the questioned transfer results in undue benefit to the recipient.

However, if there is a fiduciary relationship between the elder and the recipient, such as between an attorney and a client, the transfer is presumed to be by fraud and undue influence if it can be shown that (1) the fiduciary actively participated and (2) there was any undue benefit. (See, Estate of Auen 30 Cal.4th 300.)

In one early case, the court found that a confidential relationship existed and that the recipient was active in procuring the execution of the instrument by which he benefitted greatly. The court determined that the recipient’s activity in procuring the instrument was an important factor to consider in determining whether the transaction was free of undue influence and that the burden of showing that was no undue influence shifted to the recipient. (See, Herbert v Lankershim (1937) 9 Cal.2d 409 [71 P.2d 220.])

Invalidating transactions made to persons in confidential relationships with elders is necessary

The common law method of presuming that the questionable transfer is invalid is especially important in financial abuse cases. This is because proving the elder’s intent (or lack of it) is complicated by his or her age and health status. Even if the senior survives until trial, elderly people can make poor witnesses because of age-related problems with memory and communication.

Presumptively invalidating transfers to persons engaged in a confidential relationship with the elder achieves the state of California public policy objective of providing “A . . . security of those who entrust themselves or their property to the administration of others.” (See, Evid. Code, §605.)

California’s common law protects elders from financial abuse by family members

Over the past century, the California Supreme Court has consistently upheld the public policy objective of providing security to those who entrust themselves or their property to the administration of others. Our common law rules and the prohibitions governing questioned transactions are equally applicable to family members.

As early as 1936, the California Supreme Court found that there was a presumption of undue influence arising from a transaction where a family member in a superior position gains an advantage over another.

In Johnson v. Clark (1936) 7 Cal.2d 579, the Court held that any transfers or gifts to a person engaged in a confidential relationship to the transferor are held to be presumptively fraudulent. It is appropriate that the burden of proof shifts to the recipient to prove that the transfer was fair.

Interestingly, the common law does not include an exemption to family members as is the case under the Prohibited Transfers statute. Thus, California’s common law view is that no one in a position of trust to the elder, even someone who is related to the elder, should be able to profit at the elder’s expense by virtue of their relationship of trust to the elder.

Statistics show that family members dominate the field of financial elder abuse

Statistics reveal an alarming picture. Recently released data from Alameda County appear to show that elderly victims’ family members make up the largest percentage of financial abuse perpetrators.

In the Fall of 2007, the Alameda County Counsel’s office issued a report on the cases reviewed during the years 2006 and 2007 by the Alameda County Financial Abuse Specialist Team (FAST). In addition to the County Counsel’s office, team participants included Adult Protective Services, the Alameda County Public Guardian’s office, the Alameda County District Attorney’s Office, the Alameda County Sheriff’s Office and local police departments.

Of the 31 financial abuse cases reviewed, 28 were valid claims and half of these cases (14 out of 28) identified the elder’s family members as the perpetrators. The significant role that family members currently play in financial abuse of their elderly relatives in Alameda County is corroborated by a 1998 Report prepared for the Administration of Children and Families and the Administration on Aging at the U.S. Department of Health and Human Services. (See, the National Incidence of Elder Abuse Study – Final Report, September 1998, prepared by the National Center of Elder Abuse at the American Public Human Services Association (formerly the American Public Welfare Association) in collaboration with Westat Inc. The Report can be accessed at http://www.aoa.gov/eldfam/Elder_Rights/Elder_Abuse/AbuseReport_Full.pdf.)

Based upon an estimated 59,218 substantiated incidents of elder abuse, the Report found that perpetrators of elder financial abuse were most likely to be the elder’s adult children followed by other relatives of the elderly victim.

Even if we discount the statistics showing that family members predominate in the field of financial elder abuse, the unavoidable fact remains that the Prohibited Transfers statute is not protecting those identified Alameda County victims and families. Instead, the Prohibited Transfers statute, originally created to address blatant financial abuse of the elderly, actually specifically exempts abusers who are related to the elderly victim.

Public policy concerns would seem to require that the prohibition against financial abuse of the elderly should apply to all people, whether or not they are related to the victim. This duality of purpose between California’s well-developed common law and the 1993 statutory protections actually works at cross purposes in many cases of financial abuse of the elderly.

California already has a substantial statutory scheme addressing elder abuse

The current discussion about how to amend the Prohibited Transfers statutes appears to overlook the fact that California has already enacted a comprehensive statutory scheme to address the problem of elder financial abuse. Enacted in the mid-1980s and evolving since that time by legislative process, the Elder and Dependent Adult Civil Protection Act is a private attorney general statutory scheme that mandates reporting people who care for or come into contact with the elderly and infirm. Most recently, banks and financial institutions have become mandated reporters of known or suspected elder abuse. These statutes provide the statutory basis for the new tort of financial abuse of the elderly, which is used by the elderly victim’s attorneys in civil actions to recover the elder’s property.

The very first words of the Elder and Dependent Adult Civil Protection Act make the Legislature’s findings of fact and intent to stop elder abuse crystal clear. The Legislature’s intent is to stop elder abuse, including financial abuse by attorneys like Orange County attorney James Gunderson and financial abuse by the elder’s family members. (See, Welf. & Inst. Code, §15600.)

The legislative intent underlying the enactment of the Elder Abuse Act are clearly written and exist to assure all of us, especially elderly Californians, of the integrity of a system of laws which acknowledge the need for protection of those unable to protect themselves.

Conclusion

The Prohibited Transfers statute simply fails to protect elderly victims of financial abuse by making the elder’s family members exempt from the statute. Common sense requires that the Prohibited Transfers statutory scheme be repealed in its entirety and that California’s common law rules governing questioned transfers be codified. The 1993 statutory scheme is both unnecessary in view of existing law, is confusing when read in conjunction with existing statutory and common law protections and it simply fails to protect significant numbers of elderly victims from financial abuse.

The face of elder financial abuse

Elenore Wills was educated at Berkeley and went on to a long teaching career in the Bay Area. According to a lawsuit filed on her behalf, she was a victim of financial abuse and was unable to protect herself from her abuser.

Alameda County Counsel’s Office reviewed elder abuse complaints and found that of the 31 claimed cases of financial abuse, 28 were valid claims  and half of these cases (14 out of 28) identified the elder’s family members as the perpetrators.

       

Daniel D. Murphy

Current as of January 2009:

Daniel D. Murphy is a San Francisco estate and trust litigation attorney, whose practice primarily focuses on financial elder abuse litigation. Mr. Murphy is the author of the current definition of “financial abuse” under the Elder and Dependent Adult Civil Protection Act, which became effective January 2001 [Welfare & Institutions Code section 15610.30, (Senate Bill 2107)]. He writes on the subject of financial elder abuse litigation for CEB [Chapters 6 and 7 of Elder Law Litigation (3rd Edition 2003)], and serves as a member of the Board of Directors of Legal Assistance for Seniors, a nonprofit legal aid organization in Oakland, California. Mr. Murphy is also a member of the State Bar’s Estate Planning, Trust and Probate Section of the California State Bar.

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