Willie Sutton is famous for allegedly answering a question about why he robbed banks with the brilliant retort: "Because that's where the money is."
We can't help but think of Sutton when we consider how commonly older, richer people become targets for economic exploitation. Potential exploiters are many: domestic help, caregivers, economically dependent children, profligate spouses, unscrupulous charities, long-time employees in a family business, and others.
Persons over age 80 will be the fastest growing segment of the U.S. population for the next 40 years. Net worth trends for elderly persons with at least some college education have been positive, particularly compared to the larger population.
While these trends may seem abstract, like many others, they may soon become relevant in your life, either as an elderly person yourself, or as an adult child involved in the care of an elderly parent who is wealthy enough to have become a target for exploitation.
Few issues create more angst for adult children than watching a parent be taken advantage of financially.
A child trying to help a parent is often caught in a terrible position, as they try to preserve the value of an eventual inheritance and keep assets available for the parent's needs, but run up against the parent's natural desire for autonomy and the child's own desire to respect their parent's independence.
It really can feel like the financial equivalent of the difficult decision about when to take away the car keys.
If a parent has written a power of attorney naming an adult child as his or her attorney in fact, one solution that can work very effectively in these situations is a multi-member, manager-managed limited liability company. The adult child can contribute, say, 1% of the capital to the LLC in return for all of the LLC's voting units.
As the sole owner of the LLC's voting units, the child can elect himself or herself manager of the LLC. As his or her parent's attorney-in-fact, the child can contribute the parent's assets to the LLC, in return for nonvoting units in the LLC.
Because the LLC is manager-managed and the parent is not the LLC's manager, the parent will have no voting role in the management or control of the LLC. When they are inside the LLC, the parent's assets will produce the same stream of interest and dividends they did before they were put into the LLC.
Some of this cash flow can be distributed periodically on a pro-rata basis to the LLC's members.
In our example, 1% of each distribution would be made to the adult child, and 99% of each distribution would be made to the parent. The amount and timing of distributions would be determined by the adult child, in his or her role as manager of the LLC.
One effective approach could be to arrange for monthly distributions to the aging parent's checking account. Some of these distributions could be swept immediately to another account (jointly owned by the child and the parent) for which the child kept the checkbook, and used funds in the account exclusively to pay bills and expenses of the parent.
The remainder of each distribution could be left in the parent's account to provide "walking around" money for incidental expenses. Admittedly, this money available to the parent might "leak" to exploitative persons, but the amount of leakage would be small, and within the control of the adult child.
The same issues of trust, transparency, and intra-family harmony apply to this LLC solution as in other areas. In any particular instance, it could be advisable for all of the adult children to be voting members of the LLC, or even to be co-managers.
That way, the child taking leadership for implementing the solution is less vulnerable to claims by siblings that anything about the strategy might have been to the lead siblings advantage, and the detriment of the others.
This strategy is less vulnerable than other solutions to the parent's becoming angry with his or her adult child(ren), or attempting to reverse the measures taken to protect the parent's assets. Once parental assets are in the LLC, large gifts to exploitative persons or organizations will be difficult for the parent to fund.
The adult child will still face challenging issues with the aging parent, but by using an LLC of the sort outlined above, day-to-day worry about large-scale economic exploitation of their parent will be greatly reduced.
The LLC approach may be more attractive than other options, such as a guardianship or conservatorship for the parent, because no court involvement is required, and the strategy can be implemented rapidly.
As we have long known, our nation's finances will be very challenged as our population ages. None of us can solve those larger issues alone, but in the meantime, we encourage you to do what you can for your own family to improve financial and family relationship outcomes with aging parents.
Public domain image above of Willie Sutton: credit to U.S. Department of Justice, Federal Bureau of Investigation, via Wikimedia Commons.