Avoiding elder financial abuse: safeguards solicitors should have in place

The Australian Law Reform Commission’s recent report, Elder Abuse – A National Response, recommends the strengthening of safeguards to minimise the risk of abuse in cases of ‘enduring appointments’ – a description covering enduring powers of attorney and enduring guardian appointments.

The report also recommends that best practice guidelines be developed for legal practitioners in relation to the preparation and execution of wills and other advance planning documents, particularly in relation to elder abuse, undue influence, and testamentary capacity. To that end, this article provides four safeguards that should lessen the likelihood of elder financial abuse. These safeguards are largely drawn from judicial comments from the last decade but also from the Law Society’s revised publication, When a client’s mental capacity is in doubt: a practical guide for solicitors; and the relatively recent judgment in Ryan v Dalton; Estate of Ryan [2017] NSWSC 1007, in which the Court proposed some ‘basic rules of thumb’ for dealing with the ‘increasingly prevalent issue’ of challenges to mental capacity (see also: LSJ, September 2017, 100).

1. The meeting set-up

Identify the client

Failing to properly identify the client can expose third parties to liability that may also extend to the solicitor. This was an outcome of Reilly v Reilly [2017] NSWSC 1419, where the solicitor acted for all parties in an intergenerational transfer from the father (through the actions of his attorney) to his daughters when the father had lost mental capacity. The transaction was voided and the solicitor found to have acted negligently.

Take instructions from the client

Instructions should be taken from the client and not the client’s ‘delegate’ (supposed or real). In Legal Profession Conduct Commissioner v Brook [2015] SASCFC 128, the practitioner took instructions to prepare a will for ZG. The instructions were taken from ZG’s daughter, BJ, who asserted that she was acting with the authority of ZG. At that time, ZG was 86 years of age and resident in a nursing home. At no time did the practitioner meet with or speak to ZG. The Full Court of the Supreme Court of South Australia determined that to protect the public and uphold public confidence in the legal profession this action warranted the solicitor’s name being removed from the Roll of Practitioners.

Act for one client only

There are risks ranging from disciplinary action for breach of professional conduct rules, to awards of damages for negligence or breach of fiduciary duty for a solicitor who acts for more than one client on a legal transaction. See respectively, Legal Services Commissioner v McNamara (Legal Practice) [2011] VCAT 1228 – where the solicitor acted for both executor and beneficiary – and Vertzayias v King [2011] NSWCA 215 where the solicitor acted for both borrower and guarantor.

See the client alone

The client should be interviewed alone or, at worst, with a support person who has no interest in the legal transaction. Any potential beneficiary should not be within sight or hearing (see Woodley-Page v Simmons (1987) 217 ALR 25).

Devote sufficient time to the meeting

There needs to be sufficient time to enable an assessment of the client’s understanding and volition. In Dickman v Holley; in the estate of Simpson [2013] NSWSC 18, the solicitor gave evidence that he’d seen the client for approximately 10 minutes, during which time he assessed the client’s mental capacity and took instructions for a will and power of attorney. It is probably not a coincidence that the will was found to be invalid by reason of lack of testamentary capacity, lack of knowledge and approval, and by reason of testamentary undue influence.

Meet in an appropriate place

The meeting needs to occur in a place where it is appropriate to give advice about a legal transaction. Judging from the failed legal transactions in Badman v Drake [2008] NSWSC 1366, Maestrale v Aspite [2012] NSWSC 1420; Matouk v Matouk (No 2) [2015] NSWSC 748 and Ryan v Dalton; Estate of Ryan [2017] NSWSC 1007, a café is not an appropriate place.

Consider the atmospherics

It is important to ensure the environment allows the client to take in what he or she is told. This may mean the client should not have a baby or toddler at the meeting and that mobile phones be made inert.

2. Meeting procedures

Identify yourself

As Irvine v Irvine [2008] NSWSC 592 demonstrates, it is important that the client knows you are their solicitor. Ideally, the person has chosen you as his or her solicitor, but, if that is not the situation, the person should understand that they may choose their own solicitor.

Get the language right

It is vital to communicate with the client in a language in which both you and the client are conversant. If this isn’t possible, ensure an independent interpreter with the requisite credentials translates the conversation.

Ascertain the client’s intentions

It will often be important to allow the client to enunciate his or her reasons for seeing you. Ascertaining the outcome the client wishes to achieve by the legal transaction will usually define the solicitor’s retainer.

Explain the legal transaction

There are a number of aspects to this. It will often involve the following:

• drawing the client’s attention to the effect of the legal transaction, both positive and negative. It was said by Street J in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 that it is not textual advice that is needed but advice upon the more general topic of whether the legal transaction should be entered into at all, and, if so, the general nature of the transaction;
• advising as to the propriety of the transaction, and warning the client against an improvident transaction;
• advising the alternatives available to the client; and
• advising the advantages and disadvantages of the alternatives.
• Check for mental capacity

In Ryan v Dalton; Estate of Ryan [2017] NSWSC 1007 it was said that ‘[a] solicitor should always consider capacity and the possibility of undue influence, if only to dismiss it in most cases’. The Court observed that in the case of anyone over 70 being cared for by someone in a nursing home or similar facility, the solicitor should ask the client and their carer or a care manager in the home or facility whether there is any reason to be concerned about capacity, including as a result of any diagnosis, behaviour, medication or the like.

Check for volition

It has long been said that legal transactions must be ‘the offspring of [the person’s] own volition’. This issue is different from mental capacity. A significant change in the contents of a will, especially if it results in the inexplicable exclusion of beneficiaries (as in Dickman v Holley; Estate of Simpson [2013] NSWSC 18), or the inexplicable inclusion of beneficiaries, can point to testamentary undue influence. Another factor that may suggest abuse, pressure, exploitation, coercion and the like is the regular changing of wills or powers of attorney within a relatively short period of time. Other signs of a lack of volition include:

• the client making a transaction disposing of almost all the victim’s assets;
• the client disposing of all his or her assets for nominal or no consideration (such as Turner v Windever [2005] NSWCA 73); and
• the client failing to be paid the stated consideration (as in Winefield v Clarke [2008] NSWSC 882).
• Ensure the client understands

It will be crucial for the solicitor to discuss the legal issues in a manner which allows the solicitor to form an opinion about the client’s understanding of the legal transaction. With a will, the testator should read the will. As explained in Petrovski v Nasev; The Estate of Janakievska [2011] NSWSC 1275, this will allow the testator to correct any inadvertent errors, such as the spelling of the testator’s name. Where there is doubt about the client’s cognition, the solicitor should read the will out loud to the testator with pauses to explain the terms during the reading to ascertain that those terms are understood by the testator and carry out his or her intentions.

Allow time for cogitation

Some clients will want or need an opportunity to reflect on the advice given. Accordingly, unless there is a need for urgency, it will often be important to allow the client the opportunity to consider any documents and issues at his/her leisure. In Thorne v Kennedy [2017] HCA 49, one factor suggested to assess whether a binding financial agreement was the product of undue influence was whether there was time to reflect on the solicitor’s advice.

3. Engage in open dialogue

As explained in Doulaveras v Daher [2009] NSWCA 58, open-ended questions allow for an evaluation of the client’s understanding. Open questions will often start with words like:

• ‘Why?’ (as in ‘why are you seeing me today?’ or ‘why are you leaving X out of your will?’)
• ‘What?’ (as in ‘what is the reason you are appointing Y as your attorney?’, or ‘what do you know about Z’s financial circumstances?’)
• ‘Who?’ (as in ‘who is the person best able to make these decisions for you?’ and ‘who do you want to benefit from your estate after your death?’)
• ‘When?’ (as in ‘when do you want your attorney to be able to act for you?’)
• ‘How?’ (as in ‘how is that legal action in the person’s best interests?’).

These are the types of questions a journalist asks. A good example of this type of questioning is found in Read v Carmody [1998] NSWCA 182. Conversely, closed questions that simply elicit a ‘yes’ or ‘no’ answer, such as ‘Do you agree?’ or ‘Can you look after yourself?’ should be avoided as they do not aid an assessment of a person’s understanding. These are the types of questions asked by a cross-examiner. A terrible example of this type of questioning occurred in Estate of Stanley William Church [2012] NSWSC 1489.

4. Proof

Sound procedures can assist with proof of matters that may become contentious. In that regard, practitioners should:

Take detailed notes

You should take detailed notes of questions, answers and general observations. This is because the ‘evidence of an experienced and impartial solicitor, who knew the deceased, would normally carry great weight’ (Petrovski v Nasev; The Estate of Janakievska [2011] NSWSC 1275). This is particularly important in circumstances that may cast doubt on the client’s mental capacity, such as a long-standing diagnosis of dementia, hospitalisation or a significant medical condition.

Obtain appropriate expert opinion

If time, circumstance – such as where the solicitor has a doubt about the client’s mental capacity or volition – and the client’s instructions allow, a solicitor should obtain a medical opinion about the client’s mental capacity, capacity to withstand pressure or other appropriate issues. However, as the Court of Appeal has recently restated in Craig-Bridges v NSW Trustee and Guardian [2017] NSWCA 197, it is important to recognise that the ‘tests’ for mental capacity are legal, not medical. This doesn’t mean a medical opinion is not useful in assessing a person’s mental capacity to undertake a legal transaction; it often will be, especially one obtained contemporaneously from a long-standing treating doctor. However, if it is appropriate to obtain a medical opinion:

Give the doctor the relevant information

As well as informing the doctor of the legal standards against which the assessment is made, comprehensive background material should be provided. This includes medical and personal history known to the solicitor, the solicitor’s observations about the client, and the reason the client is undertaking the legal transaction.

Identify the information sought

Commonly, information about the patient’s medical history, details of treatment, and details of medication is requested. It may be appropriate to seek the doctor’s opinion whether the condition, treatment or medication is likely to impair the client’s ability to remember, reflect and reason, and do so in a rational way. And, if so, whether the impairment is likely to be permanent or temporary, and, if temporary, it’s likely duration, whether it has or is likely to become worse or better, and over what period of time.

Tell the doctor the legal tests

If the doctor is being asked to state an opinion about the client’s mental capacity – and this will often not be appropriate – the medical practitioner will often need to be directed to the relevant legal ‘test’ for mental capacity. Tests about medical capacity that are routinely performed by medical practitioners for the purpose of diagnosis, such as orientation to time and place, or the Mini-Mental test, are generally not helpful in assessing mental capacity in the legal context.

Understand the doctor’s role

The medical practitioner should not explain the legal transaction. Accordingly, a doctor probably can’t directly comment on whether the client understood the legal transaction.

If the relevant issue is mental capacity, the doctor should report on the client’s ability to have the requisite understanding after explanation. The solicitor must provide the explanation.

Keep records

A solicitor should retain file notes and any medical report indefinitely. This is because the necessity for proof can arise many years after the legal work is performed. For instance, a person’s will could be made decades before death. It is only after death that the issue of testamentary capacity will arise.

Also, as shown by Hookway v Hookway [2017] TASFC 4, an issue about testamentary capacity can even arise many years after the testator’s death. In Estate of Beryl Lee Hordern (Deceased); Homersham v Carr [2017] NSWSC 753, even though most of the file was destroyed ‘in the ordinary course after seven years’, some parts of the file were retained ‘because of their importance to the question of the deceased’s testamentary capacity’.  If it is not feasible to retain the whole file – which is the better situation – there is much to be commended about this alternative.