What is Elder Fraud?
Elder fraud is the illegal and improper use of a vulnerable senior’s financial assets. Various types of individuals generally prey on vulnerable seniors. Family members, neighbors, telemarketers, and financial planners are all capable of swindling seniors out of their hard earned money.
Elder fraud is a growing issue for seniors in the United States. As your loved one begins to age, their mental health will inevitably begin to deteriorate. This can leave seniors more vulnerable to making poor financial choices.
The purpose of this article is to inform you about the most common types of elder fraud so you can best protect the financial interests of your aging loved one.
What are the Different Types of Elder Fraud?
Elder fraud comes in numerous forms. Generally elder fraud involves the use of deceptive or misleading practices in order to steal money away from vulnerable seniors. Common forms of elder fraud include deceptive loan practices, shady investments, telemarketing scams, and misrepresentation of retirement planning services.
Deceptive Loan Practices
Many seniors fall victim to deceptive loan practices by disreputable finance companies. Reverse mortgages, home refinancing, and home equity loans are all legitimate ways of creating income to pay for long-term care. However, if not done properly these transactions could cost the senior thousands of dollars.
Some finance companies take advantage of seniors by misrepresenting information. Other practices involve structuring loans in a way that harms the elder by forcing them to unknowingly pay far too much for their newly created income.
Most of these practices involve the senior putting up their home for collateral on a loan. The most common practices used are equity stripping and loan flipping.
Equity stripping is a dangerous practice that could result in the foreclosure of a senior’s home. This occurs when the lender knowingly offers a loan to a senior with poor repayment terms. The repayments eventually rise to the point where the senior can’t afford to pay them. This puts a strain on the senior’s income and leads to an entirely different loan that the senior can’t afford.
Loan flipping is the process of convincing the senior to take on additional loans that they do not need. This scheme encourages the senior to take on new loans by offering the senior a significant amount of money up front and a low cost and long-term repayment plan.
The loan usually begins as a remedy to replace the senior’s existing mortgage. However, the senior runs into trouble when they are encouraged to take out additional loans. Over time the newly accepted loans put a strain on the senior’s financial resources. Eventually, the senior ends up using the money they borrowed originally and much of their pre-existing funds to pay back the additional loans they took out.
Seniors are often vulnerable to fraudulent investment schemes. Because they are no longer working, senior’s appear to be more willing to accept shady investments in the hopes of earning extra income. Most of the time, seniors are pressured into making poor financial investments because they are told they need to act immediately.
There are several common types of investments that seniors fall victim too such as commodity trading, US treasury bills, and high yield investment programs.
Commodity trading involves investing in gold, silver, gems, and other precious metals. Seniors are wrongly told that investing in precious metals never fails. However, precious metals at some times can be highly volatile making their value unpredictable. Because they are not properly informed of the risks associated with the investment, seniors unknowingly face the risk of a sizable financial loss.
US Treasury Bills
One common investment scam involves selling seniors worthless retirement bonds. Seniors are often drawn in by the sense of legitimacy provided by US treasury bills. Investors will purchase bills believing they are authentic only to buy worthless bonds. It is important to never buy a treasury bill from a company that you have not heard of or that you cannot find information on.
High Yield Investment Programs
Financial planners sometimes convince seniors to undertake high yield investment programs. High yield investment programs provide seniors with the allusion that the investment is risk free and that it returns a large interest rate. However, these programs are often much more risky then they appear.
The most common type of elder fraud involves phone scams by telemarketers. Rather than shopping on the internet, seniors are much more likely to utilize the telephone for purchasing products. This makes them extremely vulnerable to scams by telemarketers.
Many telemarketers will call and attempt to solicit funds from phony charities. This is often performed after a natural disaster such as a hurricane or tornado. Telemarketers will call seniors and attempt to solicit money for fake charities to support the victims of these disasters.
Free Prize Scams
Another common telemarketer scam includes calling seniors and telling them that they have won a free prize. The telemarketer will then tell the senior that they have to provide money for shipping in order to claim their free prize. The cost of shipping to claim the prize is usually greater than the cost of the prize itself.
The most dangerous form of telemarketing scams is identity theft. Telemarketers will call seniors in order to get personal or financial information from them. Once they have the information, they will then use it to commit credit card fraud or steal money from the senior’s bank account.
Misrepresentation of Retirement Planning Resources
A common type of elder fraud is where individuals misrepresent estate planning, insurance policies, and retirement planning services to seniors. Financial planners will occasionally provide false or inaccurate information about retirement planning services in an attempt to make a sale and earn a commission. This leads elders to pay thousands of dollars for a retirement planning service that they do not truly need.
Furthermore, some financial planners may try to convince seniors to replace their existing life insurance polices or annuities. These financial planners will try to convince the senior that the new policy is better, when in reality it carries harmful tax consequences for the senior. The result of this transaction would leave the senior with a financial loss and the financial planner making a hefty commission.
Elder fraud is a serious issue for seniors. A poor financial mistake could easily cost you or your loved one thousands of dollars. To avoid being the victim of elder fraud, it is important to thoroughly research any investment opportunity or loan.
Before you make any substantial investment or begin planning your estate, consulting an experienced and competent elder law attorney is recommended. Ultimately, having an experienced attorney by your side can best serve to protect your long-term financial needs.