There are several ways in which elder financial abuse can occur, but one of the main ones is through the use of undue influence. Undue influence is often difficult to identify, because it depends on the parties involved and their unique circumstances.
Undue influence was judicially introduced about 100 years ago to effectively deal with vulnerable people being taken advantage of, and it’s almost always the key theme in financial abuse cases.
Descriptions of Undue Influence
Of the numerous examples, several possible descriptions follow:
an act of persuasion that overcomes the free will and judgement of another
the improper use of a Power of Attorney
an elderly person because of diminished mental capacity may not realise funds are being withdrawn from their bank accounts until they’re almost depleted
it may include acts of continuing to badger an elder person where they have refused to consent until they eventually give in
There there are threats to end a relationship in order coerce an elderly person
Undue Influence exists where a contract has been entered into as a result of pressure
it differs from duress where force may have been intentionally used or there was a threat to use force
Undue Influence and Older People
It is impossible to list definitively the kinds of situations in modern times where undue influence may occur. However, there appear to be several recurrent situations where elders have brought an action based on undue influence:
Elders may be dependent on a person (such as a child or caregiver) for their daily needs and may give money or property to that child or caregiver.
Elders may be requested to assist a family member by providing a personal guarantee and/or security to a third party, normally a financial institution.
Elders may enter into an arrangement to transfer property to a relative or caregiver in order to ensure that they secure accommodation and care in their retirement.
Lonely elders may become romantically involved with a person generally younger than them and give them money or property.
Elders may transfer property while they’re alive (as opposed to giving it through their will after death) to compensate a relative for working in the family business.
In Couper Holdings Pty Ltd (in liq) v Bell, a 69 year old mother executed a mortgage over her domestic residence to secure all moneys owing by her son and his business associates for the purchase of a business. The Supreme Court of Western Australia found that the son had proposed the mortgage to the financiers before he had discussed it with his mother. When the son did propose the transaction to the mother, he did not explain the details of the purchase. He assured her that he would be a millionaire within 12 months and that he would sell some of his properties to cover the purchase should there be any shortfall. She was unaware how many properties he had or that he had borrowed heavily from banks to acquire them. She had not previously mortgaged her property to secure borrowings for her children. She was advised to obtain independent advice by her son’s solicitor but declined to do so because she trusted her son and, as a pensioner, was concerned about the costs of legal advice. The judge held that the mortgage was procured by the exercise of actual undue influence and that the execution of the mortgage was not the exercise of her independent free will. The mother’s lack of business experience and the son’s failure to disclose important financial information influenced the decision. The financier entrusted to the son the task of procuring the mother’s signature and ought to have known that the son was in a position to influence the mother.
However, there is not an automatic presumption that undue influence exists between an older person and his or her adult child. Courts have made it clear that the ‘normal’ or commonplace relationship between elderly parents and adult children will not be sufficient evidence for a presumption of undue influence.
In order to prove that undue influence has taken place, elders have to fulfill two requirements. Firstly, elders (or persons acting on their behalf) must satisfy the court that there was such a strong relationship of trust and confidence that the court should be compelled to presume that the transaction was not the result of the free and independent will of the elder. Secondly, in a number of cases an elder has also had to demonstrate either that the transaction was manifestly disadvantageous to him or her or that it was for the substantial benefit of the defendant.
It is important to emphasise that these two matters are the vital thresholds which must be successfully crossed before an elder has any real chance of having the transaction set aside.
Courts will pay special attention to evidence which indicates that the elder can manage their own affairs in order to determine whether the elder has acted independently. If it can be established that the older parent or elder had previous business experience and had previously mortgaged their own home, courts are less likely to set aside a transaction. Where business experience has been proved, the fact that the elder may have had a limited education or a limited knowledge of the English language has not swayed the courts. Indeed, in Sinclair v Galluzzo, these factors were swiftly dismissed by the Court, which clearly considered the parents to be shrewd business-people capable of understanding the basic effect of a mortgage and managing their own affairs.
As the population is ageing to an unprecedented degree, the vulnerabilities of the aged are becoming more apparent. The doctrine of undue influence as it currently stands fails to protect a significant portion of elders who willingly transfer large assets, such as their home, or guarantee substantial liabilities of relatives and caregivers, to the detriment of their financial security.
No matter how elder financial abuse occurs, it is always wrong to take advantage of an older person for the purpose of obtaining their assets or money. If you suspect elder abuse is occurring, it’s important to act as quickly as you can. The sooner we can act to rectify the situation, the more like it is we can reduce financial losses.
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