Using a MHL Article 81 Guardianship To Foil Scammers
“Elder Abuse Is Spreading, Stoked by the Pandemic – Seniors Fall Victim to Fraud, Physical Violence and Neglect,” was a recent Wall Street Journal front page article. The COVID-19 pandemic has brought to light the vulnerability of isolated seniors. In the past two years, the number of financial scams against seniors has skyrocketed.1 The following hypothetical is a composite of the scams I have seen in recent years and for which commencing a Mental Hygiene Law (MHL) Article 81 guardianship proceeding was the solution.
A senior citizen receives a letter in the mail from “MEGA Millions” informing her that she won $4.5 million and a Mercedes Benz. To claim the prizes, all she must do is pay the Internal Revenue Service the taxes due on the lottery winnings. In order to make the payment of the taxes easier, the “IRS” has called her with payment instructions. She is told to obtain three certified bank checks each in the amount of $9,999 made payable to “John Smith,” and to mail them to a Post Office Box. Wanting to surprise her family with the lottery winnings, she follows the directions and sends payment. Within two weeks, “John Smith” calls again explaining that she needs to make an additional tax payment and provides her with further instructions on how to purchase prepaid gift cards.
When “John Smith” calls next, he assures her that she really did win the lottery and offers to send someone to her house with a new Power of Attorney (POA) for her to sign in his favor so he can help her make the tax payment and obtain the prize winnings. He also suggests that she take out a reverse mortgage on her house so as to have access to additional funds.
As unlikely and suspicious the above sounds, to a vulnerable and lonely senior with diminished capacity, this scenario is plausible.
According to AARP, in 2020 the Federal Trade Commission (FTC) received approximately 116,000 reports of fraud involving prizes, sweepstakes and lotteries that swindled Americans out of more than $166 million. AARP reports that once scammers entrap someone they will keep coming back, calling victims for months or even years, promising the big prize is only one payment away. If the victim stops paying or cuts off contact, they may threaten to harm the senior or a loved one or to report him or her to authorities. 2 Seniors are popular targets, and according to a recent Better Business Bureau study, 80 percent of the money lost to sweepstakes scammers comes from people over age 65.3
In the above example, after sending the scammers more than $400,000 and redirecting her monthly Social Security payments to an account in the name of “John Smith,” the scammed senior proudly tells her family that she won the “MEGA Millions” but admits that she now does not have enough money to pay her monthly bills due to the “tax payments” she has had to make.
The senior had previously appointed her son as agent under her POA. To date, he has not needed to utilize the POA as the senior is a retired professional, independent, and capable of making financial decisions.
Once the senior’s son and family conclude that she has been scammed, in addition to contacting the local authorities (e.g., police, district attorney, attorney general), a Mental Hygiene Law (MHL) Article 81 guardianship proceeding seeking the appointment of a guardian of the property to make financial decisions should be considered, and if appropriate, commenced. In a MHL Article 81 guardianship proceeding, a determination as to the need for a guardian is made based on a functional assessment of the abilities of the alleged incapacitated person (AIP).4
When commencing a guardianship proceeding seeking the appointment of a guardian of the property, one should consider requesting a Temporary Restraining Order (TRO) from the court in the Order to Show Cause to prevent the AIP from accessing bank, brokerage and retirement accounts; to suspend any and all POAs; and to appoint a temporary guardian.
In order for a TRO to be granted, it must be established that there is a likelihood of success in proving that (a) the AIP is an incapacitated person in need of a guardian, and (b) the AIP cannot adequately understand and appreciate the nature of her inability to provide for her finances and to otherwise care for herself as a result of her functional limitations.5 The guardianship petition should demonstrate that the AIP does not comprehend that she is being scammed, that she is prone to financial manipulation, and that she believes that the scammer is acting in her best interest.
The TRO may stop the AIP from accessing monies to pay the scammers, prevent the scammers from using a purported POA, and allow for a family member, loved one or person appointed by the court to handle the senior’s financial affairs pending the court’s decision on whether a guardian is needed.
Because the court does not appoint a court evaluator in every case, the appointment of one should be requested in the petition. Pursuant to MHL § 81.09, the court evaluator is charged with meeting all parties, investigating the allegations set forth in the petition and making recommendations to the court.6 The court evaluator has the authority to take steps to protect and preserve the property of the AIP in the event said property is in danger of “waste, misappropriation or loss.”7 If the court does not appoint a temporary guardian or does not sign a TRO, and if the assets are in danger of being dissipated and misappropriated, the court evaluator can marshal and protect same.8
The petitioner should provide the court evaluator with all financial records and proof of the financial abuse and scams. The court evaluator may also seek copies of bank and brokerage account statements, cancelled checks, wire transfers and money orders from the petitioner and respondent and may subpoena the financial institutions for their records.9
Pursuant to MHL § 81.02 and § 81.12, the burden is on the petitioner to prove by “clear and convincing evidence” that the AIP is unable to provide for her property management, and that she cannot understand and appreciate the consequences of such inability.10 At the guardianship hearing, the petitioner, through direct examination and testimony as to the AIP’s short-term memory, cognitive abilities, and actions and behaviors, evidentiary proof (such as cancelled checks, wire transfers, money orders and bank and brokerage statements) must testify as to the respondent’s functional limitations. The testimony of the petitioner must address the nature of the scam, the payments made to the scammers, and the depletion of the AIP’s monies. Most importantly, the testimony should include the actions taken by the AIP that illustrates their fixation on the MEGA Millions winnings and their payment to the scammers to secure the purported winnings.
The AIP has the right to be present and testify at the guardianship hearing. During the course of a recent guardianship hearing, the AIP testified on cross-examination that she had won the lottery and was merely waiting for her prize monies once she paid the taxes due.
In determining whether the AIP is incapacitated and in need of a guardian to handle her financial and property affairs, the court must find that the AIP cannot appreciate the nature and consequences of her inability to handle such matters and that the AIP is likely to suffer harm if a guardian is not appointed.11 The argument should be made that the AIP’s failure to understand that she is being scammed and her fixation on making payments to secure the winnings is a “functional incapacity.” Furthermore, the revocation by the AIP of an existing POA and the execution a new POA in favor of the scammer is further evidence that the AIP does not comprehend that she is being scammed and that no amount of reason will convince her otherwise.
In a proceeding I recently handled, despite the senior’s inability to understand that she is being scammed, she lived independently, drove, traveled, and was oriented to person, date, time and place. Unfortunately, the AIP was singularly hyper-focused on paying the money to receive her lottery winnings that she either could not recognize, or refused to recognize, that she was being scammed. It should be argued that the fixation on paying the scammers is a “functional incapacity” that has caused irreparable harm to the AIP.
Pursuant to MHL § 81.02, the court may appoint a guardian if the court determines that the appointment is necessary “to manage the property and financial affairs of that person.”12 The guardianship can be tailored to the specific needs of the AIP. For example, the court may allow the person in need of a guardian (PING) to retain some autonomy: the court can appoint a guardian to manage their financial affairs and pay bills, thus restricting access to the majority of their assets, but provide the PING with access to a minimal amount to allow them to pay for incidentals.
In another recent guardianship proceeding, the court found the AIP to have sufficient capacity to enter into a settlement agreement wherein the AIP’s funds were transferred into an irrevocable trust for which the petitioner and the AIP’s long-time accountant were co-trustees. The AIP’s real property and other assets were transferred to the trust and retitled in the name of the trust, and his monthly income was directly deposited to the trust account. Thus, though no finding of incapacity was made, the AIP’s assets were protected and the AIP continued to make his personal and medical decisions.
Once the court determines the AIP is an incapacitated person (IP) or a PING, and a guardian of the property is appointed, the guardian should immediately marshal the IP’s income and liquid assets into a guardianship account that the IP cannot access. If the IP owns real property, the guardian should immediately file a “Statement of Real Property,” pursuant to MHL § 81.20, with the local county clerk’s office, “identifying the real property possessed by the incapacitated person, and the tax map numbers of the property, and stating the date of adjudication of incapacity of the person regarding property management, and the name, address, and telephone number of the guardian and the guardian’s surety.”13 The Statement of Real Property effectively provides notice to any buyers, lenders and title companies that the owner of the property has a court-appointed guardian, and that said property cannot be liened, mortgaged, or otherwise transferred without prior court approval.
The guardian should also be given the authority to commence a turnover proceeding against anyone the guardian believes misappropriated the IP’s monies and to seek return of the stolen funds.14
A guardianship proceeding resulting from the AIPs falling victim to a scam and failing to understand that they have been scammed often lends itself to flexibility and creative solutions. Once a guardianship proceeding is brought, scammers can almost immediately lose their ability to manipulate and cheat their victims. The guardianship enables the victim to be protected from the scammers.
*The National Elder Law Foundation is not affiliated with any Governmental authority. Certification is not a requirement for the practice of law in the State of New York and does not necessarily indicate greater competence than other attorneys experienced in this field of law.
Sara Meyers is a member of the firm of Enea, Scanlan & Sirignano, LLP located in White Plains, NY. She concentrates her practice on elder law, trusts and estates, special needs planning, guardianships and long-term care planning strategies with a focus on Medicaid home care and nursing homes. She is a member of the NYSBA, Elder Law and Special Needs Section Executive Committee and Trusts and Estates Section. Ms. Meyers has a B.A. in history from Brandeis University and a J.D. from the Cardozo School of Law.
