SMSFs and elder abuse: What advisers need to know

Advisers are being put on high alert for signs of elder abuse, with Louise Biti, director of Aged Care Steps, warning that self-managed superannuation funds (SMSFs) inadvertently increase the risk of detrimental outcomes.

In a recent ASF Audits podcast, The SMSF Experts with Shelly Banton, Ms Biti discussed key facets for protecting older people in an SMSF.

She highlighted that while beneficial, SMSFs can heighten and exacerbate elements of elder abuse. This is primarily because many financial decisions occur privately since SMSF trustees are also members and sole decision-makers.

Privacy in this situation can allow undue influence or misinformation from others, potentially leading to risky decisions or transactions occurring behind closed doors.

“Maybe somebody else is putting pressure on an older person, guiding them, telling the wrong information, having a different view and so it’s that fact that there’s the trustee with the control decisions behind closed doors, the potential for somebody else to influence or dictate and direct, is where we can have a disaster,” Ms Biti said.

“If you look at all the statistics around elder abuse, most of it is perpetuated by the family, the children, and very often, the children with the EPAs [enduring power of attorneys]. There is a focus on scams and abuse by unknown parties, but far more of the problem is with the families themselves.”

This internal family dynamic can lead to financial exploitation, underscoring the need for vigilance among advisers.

Red flags to look out for include a parent bringing their adult children into the fold as members of the same fund.

“Then they’re going to be a trustee and have control, and they’ve got a very different stage of life, a different risk profile, maybe a different view of investments, wanting to take more risks,” Ms Biti added.

“Those factors can totally influence a parent. We can also get imbalances in the control as well. If you know the kids are going to outnumber the parents, or the parent that’s left after a death, all of those things are particularly problematic.”

Ms Banton used an example of parents who lost their funds after their son used the money to fuel his drug addiction. Yet their own fear of criminal repercussions meant they tried to cover it up by replacing the lost money.

These heightened family dynamics where parents are either guilt-tripped into looking after their adult children, or fail to see the harm in covering up, is just part of the elder abuse puzzle.

“There’s also an enormous amount of psychological abuse where there’s financial abuse. That emotional guilt-tripping to the parents around ‘You need to help me’, or ‘If you don’t help me, this is what will happen’, or’ or ‘You’ll never get to see the grandkids again’,” Ms Biti said.

“At a point where parents are starting to get older and need the support and want the closeness of families, they’re being threatened with losing that and so that compromises decision making as well.

“It’s hard to tell the amount of financial abuse in the community, but if you look at older people who are generally defined as being over 65, the estimates are around about 15% every year are subject to some sort of financial abuse, with a large part of that coming through from the families.”

Both experts said it’s critical for SMSF and financial advisors to understand the definition of elder abuse and to know how to recognise the signs whether malicious or not.

Ms Biti added that it’s critical to know the difference between supported decision making and substituted decision making. This is especially true when a document such as an Enduring Power of Attorney is in place.

“If the person has lost legal capacity and they’re not able to make those legal decisions, then you need a substitute decision maker, and that is the enduring power of attorney, or somebody with financial management orders granted to them,” she said.

“Even in those cases, we believe you shouldn’t totally exclude the person at the centre of the situation, or the older person, because even though they may not have the legal capacity, they still have a right to be consulted.

“They still have a right to be heard, to try to understand to the best of their capabilities what they want to do and how they’d like to do it.”

Given the risks, it’s crucial for advisers to be aware of the signs of elder abuse within SMSF structures and to take proactive steps to protect their clients.​

Click here for more insights and to listen to the episode in full.