This guide helps lawyers to:
- detect actual or potential financial abuse of an older client, particularly where there has been a promise, or an intention, to transfer assets in exchange for care and/or accommodation;
- identify the lawyer’s role, duties and responsibilities when acting for older clients in these kinds of dealings;
- identify and advise on the factors that will increase a client’s vulnerability to exploitation or abuse;
- identify the most appropriate protective action to take;
- try to remedy any financial abuse that has already occurred; and
- refer the client to the appropriate services where required.
Professional duties of Lawyers include:
- Avoiding conflicts of interest
- Giving comprehensive and independent advice
- Ensuring your client has the capacity to make the decision and is not acting under undue influence
The Law Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 set out duty to client requirements.
Avoid conflicts of interest
It is advisable to act for one client only.
You must not act for more than one client where there is an actual or potential conflict, for example, between an older person and their adult child.
If you are contemplating acting for more than one party, you need to be sure that the advice you are giving each one would still be the same if you were not acting for the other, and that their individual interests will still be properly protected. If you are unsure, then you should not act for the two parties. (In the type of dealings covered by this guide, this will almost certainly be the case.)
To ensure confidentiality and develop trust, and to ensure that you get the whole story, it is also advisable to interview your client without anyone else present (unless you need an independent interpreter). It is important, however, to recognise the role of support people. If a client asks for a support person to be present, and privilege is not an issue, a support person’s presence could be considered for the initial introduction, provided they are a neutral person.
You need to be absolutely independent of the party with the influence or control over the older person. You need to clearly state that you cannot take instructions from the adult child/relative of your client or any other party with an interest in the transaction. If a family member with an interest in the transaction insists on being present, inform them of your professional obligations and explain that in order to advise your client properly, you need to speak to your client in confidence. (It can be difficult to convince clients that family members must be sent elsewhere for independent legal advice, but that is what must be done.)
Confirmation of instructions taken alone and any correspondence or follow-up work should be sent to your client and not to their children or other family members.
For advice on potential conflicts of interest: Call the Law institute of Victoria Ethics Advice line on 03 9607 9336 or visit the Ethics section of the LIV website.
Case study
Transfer of house with licence to reside in exchange for care – possible conflict of interest
Maud is 77 years old. She owns a house in the suburbs of Melbourne. Lately she has observed a gradual decline in her general health and feels she is starting to become quite forgetful. She has three adult children, who all live in Melbourne. None of her children get on with each other.
Her youngest daughter, Julia, is the closest to Maud; she is not married and helps her mother manage her day-to-day affairs and household chores. They have a lovely relationship. Julia has suggested to her mother that she transfer her house into Julia’s name and that Julia will give her a licence to reside there for life. In exchange, Julia has promised Maud that she will care for her in the home until her death.
Maud and Julia come to you to do the conveyancing and to prepare a licence agreement.
Considerations:
- Who is your client?
- Who would you seek instructions from?
- Would your client’s interest be properly protected if you acted for both parties in this transaction?
- Would you interview Maud and Julia together?
- Has Maud come to your office of her own free will?
- Is Maud making the decision of her own free will?
- Can you identify a potential conflict?
Seniors Rights Victoria’s view
The client should be Maud or you should not act at all. A conflict arises because there is a proposed disposition of assets with inadequate consideration. The relationship between mother and daughter is good now but there is potential for it to break down. No protection has been put in place for Maud. There are issues of Maud’s dependence on her daughter and of her capacity.
Advice given to Maud should be comprehensive and you would need to make an assessment of her capacity. (See Capacity.)
Give comprehensive advice
Give full and independent advice so the client can make an informed decision
Any legal advice we give to older clients about exchanges of assets for care must be completely independent, fully informed and comprehensive, so that the older person is able to fully appreciate the nature of the transaction and enter into it freely.
Try to identify your client’s motivations and intentions:
Do they wish to support their children or to avoid institutional care?
Do they wish to stay in their home?
Do they understand the consequences (now and in the future)?
If an arrangement appears to be unwise or improvident, you may need to suggest other ways to achieve a desired outcome, for instance by structuring a proposed transaction differently or by discussing options with other service providers such as social workers or financial advisers.
You need to ensure that the older person has understood the precise effect of what they want to do, the alternatives which are available to them in law, and the comparative advantages of all alternatives. (See also Interviewing the client.) Your client has the right to make improvident transactions or not to act in their own best interests, and they may still prefer to dispose of the assets. (See Stivactas v Michelatos (no 2) [1993] Australian Contract Reports 90-031.)
Lawyers need to ensure they fully document the advice they give. Five percent of the total costs of claims against Victorian practitioners in 2007–2009 were Amadio claims (LPLC 2009 and 2010). This case underlines the need for security providers (including guarantors and direct borrowers) to receive independent legal advice and for solicitors to sign a certificate attesting to advice being given, particularly where the guarantors are under some special disability. (In Amadio the disability was the guarantor’s age and limited English.)
Lawyers have been found to be negligent in cases where they have not properly advised clients, and dispositions have been set aside in cases of undue influence or unconscionability because the advice of the lawyer was found to be lacking.
See Davis (2008, p. 46) citing Riz & Anor v Perpetual Trustees Australia & Ors [2007] NSWSC 1153; and see Dominic v Riz [2009] NSWCA 216; and Cavenham Pty Ltd v Robert Bax & Associates [2011] QSC 348 regarding the retainer to act generally in a client’s interests and to give appropriate advice.
A standard for proper legal advice in situations like these was set by Barrett J in Winefield v Clarke [2008] NSWSC 882:
- Obtain full instructions.
- Identify the client’s level of capacity and their understanding of nature of the transaction. (See Capacity.)
- Conduct a full discussion of arrangements and consequences.
- Ensure the client is entering into the transaction freely.
- You must be fully informed of all the material facts when giving advice, such as whether the property constituted your client’s only asset.
For more information on managing risk, see the Legal Practitioners Liability Committee’s Risk Advice.
Capacity and influence
Ensure your client has the capacity to make the decision and is not acting under undue influence.
When dealing with a vulnerable elderly person, you must be sure they have the capacity to understand and that any decision to transact money is free and voluntary. (See Badman v Drake [2008] NSWSC 1366 para 84.)
Capacity
Capacity issues can compound conflict of interest situations where, say, a family member arranges a legal appointment for their elderly relative and attends with them.
See Capacity.
Undue influence and unconscionability
A person may be subject to undue influence or unconscionability whether or not they have the capacity to make their own decisions.
Your role includes knowing when and how to act regarding enforceability of dispositions and arrangements which have been affected by undue influence or unconscionability, and the remedies for determining the respective equities of the parties. (See Equity.)
Things to look out for:
In the older person:
- What is their standard of education and literacy, financial and otherwise?
- Does the older person (your client) suffer a disadvantage or disability that could affect their ability to make decisions in their best interests? For example, are they ill, alcohol or drug-dependent, infirm, illiterate, at a disadvantage in speaking English, financially unaware, or mentally incapable?
- Is the older person physically or emotionally dependent on another? Do they, for example, rely on a family member for the basic necessities of life, are they incapable of looking after themselves without support?
- Is the older person financially dependent on another?
- Can they manage their finances? Are their finances left in the hands of another?
- Has the older person sold properties before?
In the relationship:
- Is there a relationship of trust and confidence with the person looking to benefit?
- Is there evidence of domination of the older person?
- Is there a difference in bargaining power between the older person and the person receiving the benefit?
- Has a person of influence used duress or any other influence to procure the transaction?
In the proposed transaction:
- Is there adequate consideration for the proposed disposition?
- Does the older person know the value of the assets? Have they been misled into believing the value is less than it is?
- Will the older person suffer a manifest disadvantage as a result of the disposition?
- Does the person receiving the benefit know about the disadvantage?
- Has the older person been misled by a person looking to benefit?
- Has the older person been discouraged from seeking legal advice?
For advice on a client affected by undue influence
If you believe your client is acting under the influence of another but insists that you act on their instructions, call the Law institute of Victoria Ethics Advice line on 03 9607 9336 or visit their website.
Case study
Transfer of share of house in exchange for care – possible undue influence
William is 81 years old. He owns a home in country Victoria and his daughter Philippa now lives with him. Three years ago William’s other children placed him in a residential facility because of numerous health problems. They also noticed that William was disoriented and forgetful and that his capacity to make decisions was appreciably impaired. William did not want to stay in the aged care facility and Philippa’s marriage had just ended and she had nowhere to go. Philippa suggested he leave the facility and that they live together in his country property. She took him to a lawyer and had a power of attorney and enduring guardian executed in her favour. William has been in a position of increasing dependence on her ever since.
William has a number of health issues and cognitive decline. Philippa cares for William at home and attends to his daily needs. She helps him take his medication, cleans the house, takes him shopping and on other outings, does his banking and is generally attentive to his well-being. William has become totally dependent on Philippa. He trusts her implicitly and is grateful she brought him home when she did. He has been concerned that his other children will try to put him in aged care again and sell the house for a bond. Philippa has suggested they go to a lawyer to have half the house transferred to her (for no consideration). She has promised to keep him in his home and stop any sale from happening. They come to you to carry out the transfer.
Considerations:
- Has Philippa assumed ascendancy or a position of influence over William?
- Has William placed trust and confidence in Philippa?
- Is William coming to you of his own free will?
- Does William properly understand the decision he wants to make? (See Capacity.)
Seniors Rights Victoria’s view
You should hear alarm bells here – is William’s will being overborne? His understanding and decision-making appear to be affected by his dependence on Philippa which is, in part, the product of his mental deterioration. (See Winefield v Clarke [2008] NSWSC 882.) Philippa probably has influenced William’s thinking. (See Undue influence and unconscionable dealing.)