Elder Financial Abuse : Fiduciary Law and Economics

As baby boomers in the United States enter retirement with a high life expectancy, courts and legislatures are increasingly pressed to resolve disputes over the properties of the elderly. Empirical studies suggest that financial abuse against the elderly is hard to detect and likely prevalent. Those who manage property for the elderly may have perverse incentives to exploit their position. Presuming the worst from the property manager, American fiduciary law typically imposes onerous fiduciary duties to minimize conflicts of interest and deter misconduct. Orthodox fiduciary law explicitly aims to overdeter.This Article argues that orthodox fiduciary law is too strict on most guardians and agents who manage property for the elderly. The problem is that mental or physical decline is common among seniors, but a lack of mental capacity typically stultifies the power to authorize a fiduciary to depart from adherence to strict fiduciary duty. By contrast, mentally-capable individuals are free to discharge those aspects of fiduciary law that they find intrusive and undesirable. In other words, while fiduciary law is mostly a default law when applied to capable individuals, it is a mandatory law when applied to elderly incapable individuals. Harming the welfare of many seniors, mandatory application of fiduciary law tends to stultify the pursuit of valuable other-regarding preferences in close families and personal relationships. Such strict and inflexible application further disregards the presence of intrinsic bonds and informal norms.To remedy these shortcomings, this Article proposes a substituted-judgment defense to permit those departures from strict fiduciary law that the incapable individual would have authorized if she was mentally-capable. This defense should be made available to close relatives and friends but not to profit-driven professionals. To deter and sanction elder financial abuse by professional guardians and agents, this Article further proposes reforms to harness their reputational concerns