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California Appeals Court Expands Protections Against Elder Financial Abuse

On September 3, a California appeals court issued a landmark decision on the subject of financial abuse of the elderly. California maintains strict laws designed to protect persons aged 65 and above, who are more susceptible to fraud. In this case, the appeals court found the law could apply to potentially harmful financial transactions not yet completed.

Bounds v. Superior Court of Los Angeles County

This case involves an unusual legal remedy known as a writ of mandamus. In California, a mandamus proceeding is brought by a petitioner against a lower court, and the defendant or respondent is designated the “real party in interest.” If granted, the writ is a command issued by the appellate court to the superior court.

The petitioner in this case was an 88-year-old woman diagnosed with Alzheimer’s disease. Through a living trust, she controlled a business and real property in Los Angeles County. In early 2013, she entered into an agreement to sell the real property and some of the business’s equipment to two buyers. The parties signed a letter of intent and proceeded to open escrow.
The petitioner did not consult with an attorney until after signing the letter of intent. At that point, an attorney advised her to renegotiate the terms of the deal, believing the buyers’ offer was substantially below market value. The buyers balked, and the petitioner decided to terminate the escrow. The buyers sued the trust for performance of the sale.

The petitioner, acting for herself and the trust, filed a cross-complaint against the buyers, accusing them of elder financial abuse. The cross-complaint said the buyers took advantage of the petitioner in her weakened mental state, intentionally low-balling their offer and misleading her into believing the sale would resolve her business’s financial problems.

The buyers filed a demurrer-an objection-to the cross complaint, which a Los Angeles Superior Court judge sustained. The petitioner then filed a petition for a writ of mandamus with the 2nd District Court of Appeal, seeking an order to vacate the Superior Court’s decision. The appeals court granted the writ of mandamus, reinstating the cross-complaint without deciding the merits of the case.

California law says elder financial abuse occurs when a person “takes, secretes, appropriates, obtains, or retains real or personal property of an elder . . . for a wrongful use or with intent to defraud, or both.” Here, the buyers argued they did not “take” the petitioner’s property-the sale never closed-and they could not be liable under the statute. The appeals court declined to read the law so narrowly. The court explained, the whole purpose of the law is “to protect elderly individuals with limited or declining cognitive abilities from overreaching conduct that resulted in a deprivation of their property rights.” It would make no sense to require the victim to wait until she was already victimized to enforce her rights under the law.

Here, the letter of intent and subsequent escrow were enough to “significantly impair” the value of the petitioner’s property. It also limited her ability to borrow against the property. These are part-and-parcel of the “property rights” the elder financial abuse law is designed to protect, according to the appeals court. Therefore, the petitioner can proceed with her cross-complaint.

Always Get Advice

The potential for elder financial abuse highlights the importance of careful estate planning. It is not enough to simply create a trust or will. You should also execute a power of attorney so a competent agent can act on your behalf in the event of your mental or physical disability. It is never a good idea to enter into any transaction disposing of trust property without the advice and assistance of an attorney. Contact the Law Office of Scott C. Soady today if you have questions about this or any other California estate planning matter.

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