Posts Tagged ‘fraud’

Heir Sues Agent For Adding Beneficiaries To Bank Accounts

JULY 23, 2001 VOLUME 9, NUMBER 4

Fae Powell had given her nephew Jackie Powell a power of attorney so that he could handle her financial affairs. Mr. Powell used that power of attorney to change over $600,000 worth of bank CDs into “payable on death” status, naming himself and other nephews and nieces as beneficiaries. Ms. Powell’s will, however, left her estate to her sister and others. Did Mr. Powell have the authority to make those changes in his aunt’s estate plan?

The question posed to the Nebraska courts was actually more complicated than that. In most states it is clear that a power of attorney does not give the agent (sometimes also referred to as the “attorney-in-fact”) authority to make gifts unless there is a specific provision in the document. But is changing accounts so that they pass automatically on death to someone else really a gift? After all, no transfer would occur until after Ms. Powell’s death, so it could be argued that her agent had made no gifts.

Ms. Powell’s situation was further complicated by her nephew’s insistence that she had specifically instructed him to make each change, and that he was simply signing her name to actions she was really directing herself. Of course, it would be difficult for him to prove that she gave him such instructions, unless she did so in the presence of neutral observers.

Ms. Powell’s sister Eleine Hampshire did not believe that Mr. Powell was carrying out the decedent’s instructions. She pointed out that if the changes had not been made she would have inherited nearly $80,000 from Ms. Powell’s estate, and so she sued Mr. Powell for fraud.

The Nebraska Court of Appeals threw Ms. Hampshire’s case out of court. The justices decided that the action should have been brought by Ms. Powell’s estate against her attorney-in-fact, and that Ms. Hampshire could not sue directly for the loss to the estate. Never mind that Mr. Powell was named as personal representative of the estate—that problem would have to be solved by someone seeking to disqualify him from serving in the probate court. Ms. Hampshire had simply filed her lawsuit improperly. Hampshire v. Powell, May 8, 2001.

The Nebraska court’s decision, based as it is on procedural grounds, fails to answer the underlying question: does an agent under a power of attorney have the authority to change beneficiary designations on accounts, life insurance and the like? Other cases have decided the question differently, depending on the individual facts in each instance. It would certainly be better to have the change in beneficiary designations signed by the individual herself, rather than by the agent. In Arizona the law is a little clearer: unless the power of attorney gives express authority to make such changes (and the authority is separately initialed on the form), they are probably invalid.

Déjà Vu: Another AZ Public Fiduciary Charged In Thefts

MAY 14, 2001 VOLUME 8, NUMBER 46

In 1997 a rural Arizona county Public Fiduciary stunned the state’s advocacy community when he acknowledged taking hundreds of thousands of dollars from his ward’s estates (“Mohave Public Fiduciary Pleads Guilty, Faces Certain Jail Time“). Thefts by private fiduciaries (and lawyers representing fiduciaries) are all too common, but everyone blithely assumed that public officials would be more closely monitored, and unlikely to steal.

Now an Arizona Auditor General’s report charges that another Public Fiduciary methodically stole from her wards’ estates. This time the subject of investigation is Rita Riell-Corbin, who served as Gila County Public Fiduciary until December, 1999.

According to the Auditor General’s report Ms. Riell-Corbin began taking money from estates entrusted to her as early as 1994. Over the next six years she converted at least $1,177,884 to her own benefit, the report charges.

Ms. Riell-Corbin was the Public Fiduciary in rural Gila County (county seat Globe, Arizona) from 1986 until her removal from the position. She oversaw a staff of 4 other employees and managed a caseload of something less than 100 wards and decedents. Her financial misdeeds affected at least 40 of her wards. Not surprisingly, she targeted those cases in which there were no family members likely to challenge her expenditures. In some of the decedent’s estates she took money that would otherwise have gone to one of her living wards.

During the six-year period investigated by the Auditor General’s office Ms. Riell-Corbin used her wards’ money to pay for improvement of homes she owned, for her own insurance and telephone bills, and to make monthly payments on credit cards used extensively for personal and family purposes. She personally wrote checks for those types of expenditures in excess of $750,000.

The Auditor General’s report charges that Ms. Riell-Corbin is not the only person culpable in this latest fiduciary abuse. County officials supervising the Public Fiduciary’s office, the attorney representing the office, and the Superior Court (which must approve all fiduciary accountings) also breached their fiduciary duties, according to the report. The report alleges that all “failed to act when they knew, or should have known, of the Public Fiduciary’s improper activities.”

Ms. Riell-Corbin has been charged with eight counts of theft, fraudulent schemes, misuse of public money, conflict of interest and perjury. Those charges were finally leveled April 26, 2001, sixteen months after her schemes were first discovered. Sorting through bank records and reviewing account information (Ms. Riell-Corbin apparently routinely destroyed copies of checks issued for her own and her family’s benefit) was a massive and complicated undertaking, substantially slowing the investigation.

The Auditor General’s report is available online at the office’s website at www.auditorgen.state.az.us/. Look for its “Investigative Report: Theft and Misuse of Public Monies by the Gila County Public Fiduciary.”

Federal Initiative Combats Medicare and Medicaid Fraud

NOVEMBER 1, 1999 VOLUME 7, NUMBER 18

Two programs—Medicare and Medicaid—provide the majority of acute medical and long-term nursing care for America’s senior citizens. In fact, those two programs provide over one third of all medical care for Americans of all ages. With the total cost of those two programs approaching $400 billion per year, efforts have intensified to cut the cost of medical care for the poor and elderly.

Health care rhetoric frequently focuses on fraud in the Medicare and Medicaid programs. Estimates of the extent and cost of fraud are difficult to come by, but range as high as $33 billion per year (see, for example, the National Center for Policy Analysis website at www.ncpa.org/health/pdh5.html).

In response to concerns about fraud in federal health care programs, the Administration in 1995 announced the formation of a program to find and eliminate fraud. Named “Operation Restore Trust,” the initiative claimed almost $25 million in returned program dollars in its first year of operation. Originally focused on the five most populous states, the program was soon expanded into smaller states, including Arizona. Other states and agencies have also begun concerted anti-fraud efforts.

The State of New Mexico, for example, recovered almost $2 million over a six-year period from a program focusing on criminal investigations and prosecutions. A single nursing home prosecution in 1997 returned over $100,000.

Much of the fraud uncovered by federal and state investigators is subtle. Earlier this year, for example, federal prosecutors in Florida indicted Jack Campo and five other men for allegedly participating in an illegal “kickback” scheme. Doctors are accused of accepting fees for referring patients for unnecessary tests and procedures; the total loss from the actions of the defendants is alleged to be over $1 million.

Fraud in Medicare and Medicaid is not always subtle. Operation Restore Trust has unearthed instances such as a van service billing $62,000 to transport a single patient 240 times in a sixteen-month period. In another case, a single psychiatrist billed an average of 26 sessions per day, each lasting 45 to 50 minutes.

This year, Operation Restore Trust will turn its focus to fraud in nursing home care. Four years of publicity and prosecutions may have caught some of the most flagrant instances of abuse, and deterred others who now fear the possibility of public exposure and prosecution.

For more information on fraud in the Medicare and Medicaid programs, visit the Health Care Financing Administration’s internet website at www.hcfa.gov/medicaid/mbfraud.htm or the Administration on Aging’s site at pr.aoa.dhhs.gov/ort/ (the AoA is a division of the Department of Health and Human Services).

Telemarketers Convicted For Fraudulent Sales Techniques

JULY 12, 1999 VOLUME 7, NUMBER 2

Thomas Mullen and 28 other defendants were charged with telemarketing fraud in New York federal court. At trial, the jury convicted Mullen on two of four counts, but the trial judge decided that there had been insufficient evidence of Mullen’s intentions and set aside the conviction. The government appealed, arguing that there was sufficient evidence to support the jury’s decision and Mullen should be found guilty.

The Second Circuit Court of Appeals decided this week that Mullen’s conviction on one of the two counts should be upheld, but that the second count should be dismissed. His case was returned to the federal district court judge for sentencing on the one count.

Although the details of Mullen’s conviction and appeal are interesting, what is really revealing is the court’s description of the work of a telemarketer. Since the central legal question was whether Mullen realized he was involved in actually defrauding the (often elderly) customers he contacted by telephone, the appellate court described the practices of Mullen and his coworkers in detail.

Mullen worked for RFG Group, which sold water and air filters, vitamins, fire retardant sprays, cosmetics, cleaning supplies and promotional items such as pens and key chains. RFG salespersons would call a prospective customer and explain that he or she had been selected for a special promotion by the product’s “sponsor.”

Although callers were carefully coached not to ever say that purchase of the firm’s products was necessary to qualify for the promotional prize, the pitch was (as the Court of Appeals described it) “intentionally worded to imply that such a connection existed.” The customer would be assured that he or she would win one of several valuable prizes, to be chosen at random; the prizes supposedly included Hawaiian vacations, valuable art, new automobiles, cash and jewelry.

“Such extensive effort,” wrote the Court of Appeals, “might not normally be necessary to sell cosmetics or cleaning products…. However, RFG Group was at a competitive disadvantage, as its products were sold at an enormous mark-up from their wholesale cost. For example, RFG sold a six-month supply of vitamins for between $259 and $399, even though the vitamins cost RFG less than $12.” Similar mark-ups were made on water filters (from a cost of $56 to a sales price of $799) and cosmetics (a one-year supply cost RFG Group $81, but was sold for up to $899).

The prizes, of course, were not as described by the callers. The Hawaiian vacation, for example, was actually a certificate for lodging at a motel in Hawaii, and was worth about $45, and the “valuable art” a $47 lithograph or a ceramic dolphin statue. “Only once was a new car awarded, and it was purposely given to an elderly man who made a small purchase so as to negate criticism that RFG targeted the elderly or gave substantial awards only in return for even more substantial purchases.”

RFG’s outrageous practices hardly stopped there, however. Once a buyer had been induced to purchase vitamins or cleaning supplies the first time, his or her name was moved into a different category. Thereafter, he or she would hear regularly from a special corps of RFG salespeople, known as “reloaders.” This elite group of telemarketers, chosen for their ability to close sales, made repeat calls to former clients, since the company found that subsequent purchases tended to be for larger amounts than the first sales. U.S. v. Guadagna, July 6, 1999.

Mullen, along with 24 of his 27 codefendants, was ultimately convicted of wire fraud in the federal court. Unfortunately, the practices described in the Court of Appeals opinion are far too common, in spite of the efforts of law enforcement.

Phoenix Seminar on Preventing Abuse, Neglect, Exploitation

JANUARY 20, 1997 VOLUME 4, NUMBER 29

Last week in Phoenix, the Maricopa Elder Abuse Prevention Alliance hosted a two-day seminar on prevention of abuse, neglect and exploitation of the elderly. Speakers ranged from nationally-known advocacy leaders to local social service and legal practitioners.

Jeff Calvert, coordinator of the Alliance, listed some of the warning signs of abuse, distinguishing between physical signs (burns, bruises, decubiti, malnutrition, etc.) and behavioral signs. Calvert noted that many behavioral conditions may exist in elders not subjected to abuse, but that they may also indicate something is amiss. His list included:

  • Agitation, anxiety
  • Withdrawal
  • Isolation
  • Confusion
  • Fear
  • Depression
  • Anger
  • Disorientation
  • Resignation
  • Hesitation to talk openly
  • Implausible stories
  • Non-responsiveness

Donna M. Reulbach, director of a Massachusetts program to prevent financial exploitation by involving bank tellers and officers, described her agency’s efforts with banks. She also listed some of the indicators that financial professionals can use to recognize exploitation. The elder customer may be:

  • accompanied by a stranger who urges large cash withdrawals
  • in the company of family members who appear to speak for the elder and make all decisions
  • nervous or afraid of the person accompanying them
  • giving implausible explanations about financial matters
  • unable to remember transactions
  • fearful that they will be evicted (or sued) if money is not given to a caregiver
  • isolated from family or supports (or isolated from family other than the relative accompanying them to the bank)

Lori Stiegel, Associate Staff Director of the American Bar Association’s Commission on Legal Problems of the Elderly, described national trends in prevention and punishment of abuse, neglect and exploitation. She noted that Arizona’s recent inclusion of “emotional abuse” in its criminal statute, coupled with the broad definition of “vulnerable adults” as the group entitled to special protection, made Arizona one of the more progressive states in dealing with problems of abuse, neglect and exploitation.

Phoenix prosecutors Terri Clarke and Pamela Svoboda, together with Phoenix Police Lieutenant Ken Tims, described the goals of and problems encountered by a concerted program to prosecute abusers. Their most notable concern: the difficult in prosecuting cases where the victim may be incapacitated, ill, or deceased, or may now be denying any abuse took place. They noted that abused elder women may commonly suffer from low self-esteem, come from traditionalist backgrounds, demonstrate “learned helplessness” and see their own role as keeping the peace between the abuser and the rest of the family (or society).

Phoenix Doctor Walter J. Nieri noted that many instances of abuse and neglect (as well as some examples of financial exploitation) come from long-term care settings. While nursing homes are closely regulated, and the possibility of undetected abuse is consequently lower, adult care homes are much more numerous and subjected to less state monitoring. He also pointed out that much abuse and neglect can be traced to caregiver stress, and provided a checklist for assessment of the level of stress in individual cases.

Susan Aziz and Chayo Reyes described the Los Angeles Fiduciary Abuse Specialist Team, a multi-agency task force established to combat the “crime of the nineties:” elder financial abuse. The three-year-old program involves Police, Public Guardian, Adult Protective Service and Probate Court representatives, among others. The Team conducts training sessions and focuses on fiduciary abuse.

Minnesota Protective Agency Not Liable for Failure to Act

OCTOBER 7, 1996 VOLUME 4, NUMBER 14

In February, 1983, Minnesotan Georgia Hoppe signed a durable power of attorney. She trusted Paul Bengston, an employee of the Green Lake State Bank where she kept her accounts, and so named him as her agent in the power of attorney. Although Mr. Bengston left the bank’s employment a few years later, Ms. Hoppe continued to name him as her agent.

Six years later, Ms. Hoppe was hospitalized and then released to a nursing home. Almost immediately, Mr. Bengston began to take advantage of her trust. In the nine months after her institutionalization, Mr. Bengston took about $100,000 from her accounts.

Finally a bank employee became suspicious. Allen Struck contacted Ms. Hoppe at the nursing home, hoping to ask her about the transfers. Ms. Hoppe was reluctant to discuss her finances with him, and pronounced her complete confidence in Mr. Bengston’s handling of her accounts.

Minnesota’s “Vulnerable Adults Reporting Act” (similar in most respects to Arizona’s law requiring reporting of abuse, neglect and exploitation) required bank employees to report their suspicions of financial exploitation, and so Mr. Struck did what the law required. He first contacted an intake worker at the County Family Services Department (the equivalent of Arizona’s Adult Protective Services); the intake worker in turn contacted the local Sheriff’s office, the County Attorney and the state Department of Health Facilities. All agreed that an investigation should be undertaken, and that Ms. Hoppe should be evaluated to determine whether she was competent to make financial decisions.

What happened next was complete failure of the system to investigate the charges against Mr. Bengston. For over seven months, no case worker visited Ms. Hoppe, interviewed Mr. Bengston or followed up on Mr. Struck’s report in any way. Meanwhile, Mr. Bengston took an additional $64,500 of Ms. Hoppe’s money, and the ever-vigilant Mr. Struck made another report to the Family Services Department.

Finally, in October, 1990, the protective agency lumbered into action. A special guardian was appointed for Ms. Hoppe, the power of attorney revoked, and proceedings begun to recover the misappropriated funds. When Mr. Bengston proved to have few remaining assets, the special guardian sought recovery from the bank and the County Family Services Department.

The County asked the judge to dismiss Hoppe’s suit, claiming that nothing in the Vulnerable Adults Reporting Act required the County to actually conduct an investigation. The judge agreed, and so dismissed the suit. Minnesota’s Supreme Court ultimately agreed with the District Court decision.

According to the Minnesota Supreme Court, the failure to report abuse, neglect or exploitation is a crime and subjects the person failing to make reports to civil liability. But the protective services agency is under no obligation to act in a timely fashion on the allegations. Ms. Hoppe’s estate (she died while legal proceedings were pending) recovered nothing from the County for its failure to investigate Mr. Bengston’s wrongdoing. Hoppe v. Kandiyohi County, Feb. 16, 1996.

Bank Liable to Victimized Heirs For Participation in Plan

SEPTEMBER 16, 1996 VOLUME 4, NUMBER 11

Evelyn Gruber was an elderly widow, living in Florida. In 1992, she had executed a will leaving most of her $5 million estate to Estelle, who she viewed as her “real family” despite the fact that Estelle was a step-daughter. Evelyn’s mental status was deteriorating, and shortly after signing the will she came under the control of her and nephew.

Over the next two years, Evelyn’s sister and nephew engaged in what the trial court later called a “reprehensible conspiracy” to divert her estate into their own names and control. They took her to a lawyer of the nephew’s choosing and had her sign a power of attorney (giving the nephew authority over her estate) and, over the course of time, two new wills.

So far, Evelyn Gruber’s story is sadly commonplace. The distinguishing element of the story is the involvement of a local Florida bank in the scenario. After Ms. Gruber’s death, Estelle moved to invalidate the later wills and sought return of $1,325,000 taken from Evelyn by her nephew. Estelle also made a claim against Ms. Gruber’s bank, alleging that it had been involved in the conspiracy to transfer Ms. Gruber’s estate.

Estelle’s claim against the bank was based on two transactions. In the first, an officer of the bank had honored the disputed power of attorney and permitted Ms. Gruber’s nephew to withdraw large sums of money in his own name and also to purchase nearly a half-million dollars worth of securities using Ms. Gruber’s funds. In the second, a trust officer for the bank went with Ms. Gruber and her nephew to the lawyer’s office to act as a third witness to the will.

According to Estelle, both bank officers had been warned that Ms. Gruber was incompetent, and that she was subject to the undue influence of her nephew. Both officers became willing participants in the conspiracy, she argued, because the new will named the bank as co-Personal Representative of Ms. Gruber’s estate and co-Trustee of the trust established by that will.

After trial, the Florida Circuit Court found that Ms. Gruber had in fact been subjected to undue influence and invalidated the will. It also entered judgment against the nephew for funds taken from Ms. Gruber prior to her death. Neither result is terribly surprising, based on the facts as found by the court.

More surprisingly, the court entered judgment against the bank for $1,325,000 in loss, plus $208,000 of lost interest. It also imposed punitive damages of $4,500,000 against the bank.

This case has not yet reached the Florida Court of Appeals (where it is apparently headed). It is still a striking example of how liability can be imposed against not only the primary wrongdoers, but also those who do not act to prevent loss. Estate of Gruber, Feb 13, 1996.

Agent May Not Lien Parents’ Home for Personal Loans

AUGUST 5, 1996 VOLUME 4, NUMBER 6

Oregon residents Edward and Patricia Hagan did what many older adults do; they gave their son Gerry a general, durable power of attorney so that someone would be able to handle financial matters for them. As too often happens, their son misused the power.

Gerry borrowed $100,000 from a third party, Jay Shore. Later, he borrowed another $95,000 from Lorraine Hall. He used the money in both cases for his own purposes. Unfortunately for Mr. and Mrs. Hagan, in both cases he secured the loans by giving a deed of trust against his parents’ home. He signed both deeds as his parents’ attorney-in-fact.

Mrs. Hagan slowly lost her ability to handle financial affairs, but the encumbrances remained a concern for Mr. Hagan. In 1994, acting for both himself and his wife, Mr. Hagan brought an action to declare them invalid. His attorney argued that Gerry clearly exceeded his authority in signing the deeds, since the loans were for his own benefit and not his parents’.

Mr. Shore and Ms. Hall, through their attorneys, argued that Gerry had the authority to place encumbrances on his parents’ property. They pointed to a provision in the power of attorney which released all third persons from “responsibility for the acts and omissions” of Gerry.

The Oregon Court of Appeals ruled that Gerry exceeded his authority when he used the powers of attorney to encumber the property. This is so because the loans clearly did not benefit Mr. and Mrs. Hagan (despite the argument by the lenders that they may have derived some emotional benefit from permitting loans to be made to their son). Consequently, the trust deeds are invalid, and the court declared that the encumbrances were unenforceable. Hagan v. Shore, Oregon Court of Appeals, April 17, 1996.

The Hagans’ dilemma suggests two further concerns. First, even though they were successful, the legal proceedings were time-consuming and expensive. Mrs. Hagan was apparently already losing her capacity at the beginning of the proceedings, and the psychic and emotional toll on Mr. Hagan was presumably immense.

Furthermore, it should be clearly understood that the Hagans might have experienced a different result in only slightly different circumstances. If, for instance, any portion of the loan proceeds had been used for their benefit, or if Gerry had testified that he discussed the matter with either or both of them, or if the power of attorney had conveyed the power to make gifts to Gerry, the Hagans might have lost their home.

Both lenders would have their first recourse to Gerry, so that every encumbrance of property would not necessarily result in loss of the property. Nonetheless, the potential for loss and abuse is substantial. Most local practitioners can tell more than one story like the Hagans’.

How can concerned seniors plan for circumstances such as the Hagans”? There are several things which might have been suggested to Mr. and Mrs. Hagan to head off the kind of trouble they experienced:

  • Someone other than Gerry should have been considered as a potential agent. Family members are not the only available choices. It is likely that Gerry’s tendencies were known to his parents, and they should have known him to be unsuitable.
  • Specific limitations can be placed on agents. The power of attorney might have precluded the ability to encumber the home, for example.
  • Not everyone should have a power of attorney. If the Hagans were at all uncertain, they should have been advised that they could simply rely on the conservatorship process within the courts. While this would have increased expenses and administrative difficulties, it would have prevented the costs incurred by Mr. and Mrs. Hagan.

Fraud Found By Government In Medicare and Medicaid

MAY 20, 1996 VOLUME 3, NUMBER 47

Last May the big news in aging was the fourth White House Conference on Aging. While the Conference did not lead to major new initiatives or approaches in dealing with aging or the elderly, one crowd-pleasing promise came from President Bill Clinton and Health and Human Services Secretary Donna Shalala. While Congress considered massive cuts in Medicare and Medicaid, many focused on fraud alleged to be rampant in both programs, the Administration announced an initiative to crack down on such fraud.

Called “Operation Restore Trust,” the anti-fraud plan targeted the five biggest states in both population and Medicare and Medicaid expenditures. Government operatives particularly looked at the programs in New York, California, Illinois, Texas and Florida.

After one year, the program claims major success. Operation Restore Trust claims to have identified and corrected $42.3 million in overpayments in the five targeted states. Since the cost of the special program was about $4 million, the Department of Health and Human Services claims a return of $10 for every dollar expended on control of fraud and waste.

Among the examples of fraud cited by the Department was one instance in which a nursing home routinely invited new residents to a get-acquainted tea. Later, one resident’s son noticed that the nursing home had charged Medicare for a group therapy session; after investigation, it turned out that the tea was being billed as therapy for all attendees.

Most of the efforts expended by Operation Restore Trust have been in nursing home, home health agency and durable medical equipment suppliers’ bills. In appropriate cases, the task force has pursued and obtained criminal convictions, fines and civil penalties against offenders, all of which have been paid into the Medicare Trust Fund or the U.S. Treasury.

The five states targeted by Operation Restore Trust account for 38.5% of the nation’s Medicaid beneficiaries and 34% of Medicare beneficiaries, according to the Department of Health and Human Services. Although only a little more than a third of Medicare and Medicaid beneficiaries are directly affected by the initiative, Department officials point out that it has given officers practice in building cases for fraud and experience in assembling cases.

Based on the claimed savings of $10 for every $1 expended, President Clinton has indicated that he will include more funds for expansion of Operation Restore Trust in his 1997 budget proposal. According to HHS Secretary Shalala, “In its first year Operation Restore Trust has proved its value and the president wants to extend its reach to every state in the nation.”

Over the next six years, Congress has proposed cutting the growth of the Medicare and Medicaid programs by a total of approximately $240 billion (President Clinton has proposed smaller cuts, totaling “only” $170 billion). Based on the first year experience of Operation Restore Trust, this initiative might be capable of reducing the cost of Medicare and Medicaid by a total of about $600 million over that same period. In other words, and aggressive fraud and waste reduction program might account for as much as three-tenths of one percent of the President’s proposed reductions, or one-quarter of one percent of the proposed Congressional reductions. Clearly, while fraud detection and reduction should be given a high priority, it will be nothing more than the proverbial drop in the budget bucket.

Private Fiduciary Appointed Because Of Family Fight

FEBRUARY 12, 1996 VOLUME 3, NUMBER 33

When Rose Kelly died in Phoenix in 1993, she left behind five children and her husband of many years, Francis. Mrs. Kelly had taken care of Mr. Kelly for several years prior to her death; his advancing confusion and memory loss made it difficult for him to take care of his own personal or financial affairs.

In the course of settling Mrs. Kelly’s estate, her children learned that Mr. Kelly’s Will left his home to a favored grandson (Jeffrey), who had been actively involved in Mr. and Mrs. Kelly’s life for his entire adult life. Jeffrey’s mother Connie (one of Mr. Kelly’s four daughters) had also been actively involved, having lunch with her father at least six days a week.

Upon learning of the Will, Mr. Kelly’s son Donald took Mr. Kelly to a lawyer in Phoenix to prepare a new Will. The result: Jeffrey’s bequest was deleted, and Mr. Kelly named Donald as agent under a durable power of attorney. Over the next few weeks, Donald changed all his accounts (over $400,000 in assets) into joint tenancy between Mr. Kelly and Donald.

Relationships among the Kellys deteriorated rapidly, and a family meeting was called to try to resolve differences. The gathering broke up abruptly when Mr. Kelly threatened Connie and Jeffrey. Soon after, another daughter (Joyce, who had been estranged from Mr. Kelly for years) moved in to take care of him, and Connie and Jeffrey found that they could not visit their father and grandfather without suffering verbal threats and abuse.

Believing that part of the problem was the control of Mr. Kelly by other family members, Connie filed a petition to be appointed as conservator and (later) guardian. Donald and Joyce countered that Donald should be appointed.

At the hearing, Connie’s attorney produced a multi-disciplinary evaluation by two physicians, a psychologist and a social worker. Their conclusion was that Mr. Kelly needed both a guardian and conservator, and that the best hope for Mr. Kelly would be appointment of an independent fiduciary.

The court-appointed investigator agreed, writing that “the only way I can see to diminish the conflict and aggressiveness of the family is to remove them one step from the decision-making process.” Judge Skelly appointed Nancy Elliston, a Phoenix private fiduciary, as both guardian and conservator. (Ed. note–completely unrelated to the situation with the Kelly family, Nancy Elliston subsequently developed her own legal problems. See Phoenix Leader In Private Fiduciary Industry Goes To Jail, the January 31, 2000, Elder Law Issues)

Donald and Joyce appealed the appointment of Elliston as guardian (they had agreed that she could be appointed conservator). They contended that their own expert disagreed with the multi-disciplinary evaluation, and that family members should have priority over strangers. Joyce, Elliston and Mr. Kelly’s attorney all disagreed.

The Arizona Court of Appeals determined that, even though one expert did not feel the guardianship was necessary, the trial court could choose to believe the multi-disciplinary evaluation instead. The Court also upheld the appointment of Elliston. Arizona law establishes a priority list for appointment of guardians, with family members near the top and professional fiduciaries at the bottom. However, the law permits the trial court to ignore the priority list if the “best interest” of the ward requires appointment of someone else. In this case, said the Court of Appeals, the trial judge properly determined that family members were unlikely to act in Mr. Kelly’s best interest. Quoting from an earlier case from Iowa, the Court noted that “from time to time wards need more protection from kin than from strangers.” Kelly v. Elliston, Arizona Court of Appeals, Division One, January 25, 1996.

Unfortunately, the Kelly family feud is all too common an occurrence. Private fiduciaries exist (and thrive) precisely because of such family difficulties.

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