The California Legislature’s Continual Erosion of Bad Faith From the Definition of Financial Elder Abuse
Written by Attorney Benjamin D. Fox
The following defense, in various forms, is often heard in financial elder abuse cases: “This is what Grandma told me to do!” or “I only did what Mr. Smith would have wanted me to do.” Essentially, the alleged abuser claims he or she was only operating with the elder’s intent or best interest in mind. In other words, the alleged abuser raises a good faith defense. This defense becomes most problematic when the elder has passed away or poor mental or physical health impedes the elder from expressing a different story, if one exists. Since the first statutory definition of financial elder abuse became effective in 1995, the California legislature has continually eroded this good faith defense.
In 1995, the Legislature added Welfare & Institutions Code, section 15610.30 to define fiduciary abuse. The statute limited fiduciary abuse to those who had care or custody of an elder, or who stood in a position of trust to an elder. Arguably, this definition did not recognize complete strangers who neither had care or custody of an elder, nor stood in a position of trust to an elder. The statute prohibited taking of the elder’s property “to any purpose not in the due and lawful execution of” the elder’s trust. Thus, a good faith defense may have been effective because a transfer of the elder’s property based on the elder’s wishes could constitute a due and lawful execution of the elder’s trust.
The Legislature amended the statute in 1997 to apply fiduciary abuse to any person. However, the taking of the elder’s property had to be either for a wrongful use or for any purpose not in the due and lawful execution of the trust between the elder and the taker. It appears a good faith defense would still be appropriate against such a definition. A defendant could argue that in following the elder’s wishes, the taking was not for a wrongful use and was in the due and lawful execution of trust. The statute, however, created an additional form of fiduciary abuse where a third party held property belonging to the elder and, in bad faith, refused to return the property when the elder requested return of the property. The statute went on further to state a third party would be deemed to have acted in bad faith if the third party knew or should have known the elder had a right to the property.
Here, a good faith defense may have only been effective against the first form of fiduciary abuse, but the objective “should have known” standard in the second form of fiduciary abuse begins to erode the good faith defense. Of course, the should have known element only applied to the situation wherein a third party held the elder’s property and refused to return it after the elder requested its return. This situation is only applicable to some forms of fiduciary abuse.
Just one year later in 1998, the Legislature amended the statute further and replaced the term “fiduciary abuse” with “financial abuse.” The Legislature also replaced “not in the due and lawful execution of his or her trust” with “the intent to defraud.” The term “wrongful use” remained undefined. Thus, a good faith defense remained viable to the first form of financial abuse. The Legislature left the remainder of the statute, including the “should have known” standard in the second form of financial abuse, unchanged.
In 2000, the Legislature completely revamped the statute. Wisely, the Legislature simplified the statute and eliminated the second form of financial abuse and expanded the single definition to anyone who “takes, secrets, appropriates, or retains” property of an elder. The taking had to be done to a wrongful use or with the intent to defraud. The statute further stated a third party shall be deemed to have taken to a wrongful use if the taking was in bad faith. Furthermore, the third party would be deemed to have taken in bad faith if the entity or person “should have known” the elder had the right to have the property transferred to the elder. As a result, bad faith was still required, but could be proven by an objective standard.
Nevertheless, a good faith defense could still be effective because the bad faith presumption applied only to objective knowledge the elder had the right to have the property transferred. Whether or not the property should be transferred back to the elder is not applicable to many financial abuse scenarios. For one, transferring the property implies the third party still has the property. Thus, the Legislature was slowly eroding the good faith defense, but a narrow pathway still existed for the defense.
After relatively rapid restructuring of the statute from 1995 to 2000, the Legislature did not make any changes until 2008. Then, in 2008, the Legislature added undue influence as a form of financial abuse and, more importantly for the purposes of this article, completely eroded the good faith defense with respect to a wrongful use taking of an elder’s property. The Legislature clarified the issue by eliminating “bad faith” from the statute altogether. Now, a person or entity shall be deemed to have taken the elder’s property for a wrongful use if the person or entity “knew or should have known that this conduct is likely to be harmful to the elder or dependent adult.” This eliminates the discussion of whether the property can be transferred back to the elder and completely changes the playing field.
Imagine this scenario. An elderly woman lives alone in her own home that she owns outright, which is her only significant asset. She is having a hard time keeping up with the constant flow of mail, bills, and house responsibilities. A neighbor, Jane Doe, befriends the elderly woman. In due course, the neighbor begins assisting the elder with insurance payments, medical appointments, and general companionship. Some months later, the elder shows signs of dementia and is in need of assisted living. When it is time to finance the necessary long-term care, an attorney-in-fact for the elder attempts to sell the elder’s home, but discovers the home had been transferred from the elder to Jane Doe. The elder no longer has assets to pay for long-term care. Jane Doe swears the house was a voluntary gift from the elder because of the bond that had formed between them.
Jane Doe is raising the good faith defense and dementia has so affected the elder she is not able to directly attack the defense. Jane Doe’s defense, however, means nothing if she cannot answer the question of whether she should have known her obtaining the elder’s house was likely harmful to the elder. Given the context of the situation, the answer to the question appears obvious. What objectively reasonable person would justify obtaining an elder’s only significant asset leaving the elder unable to care for herself?
Thus, Jane Doe’s good faith, even if subjectively genuine, is not a viable defense. More importantly, there is no defense available to her because the “should have known” element creates a conclusive presumption of taking for a wrongful use: “A person shall be deemed to have taken…for a wrongful use if, among other things, the person or entity takes…the property and the person or entity knew or should have known that this conduct is likely to be harmful to the elder.” (Welf. & Inst. Code, § 15610.30, subd. (b) [italics added for emphasis].)
Since 1995, the Legislature has made a genuine push to make the law more effective in protecting elders. In amending the financial abuse statute and continually eroding a good faith defense, the Legislature has moved ever closer to reaching its goal.