“CYA”: Cover Your Assets (When Dealing with Fraud)

When someone commits fraud, you feel violated. And, in fact, you have been. But the nightmare doesn’t stop there. If not properly prepared, you and your staff could spend hundreds of hours making calls, canceling credit cards, working with attorneys, and spending thousands of dollars to regain control.

As critical as it is to be prudent in trying to prevent attacks, equally important is how to mitigate the effect once you’ve been victimized. Having what I call a “life inventory” of everything important to you defines the universe of your assets and liabilities. It allows you and your advisors to be able to evaluate areas of potential weakness and also allows all parties to quickly respond to fraudulent activities when they occur.

Identity fraud is the most common form of fraud, with credit card fraud being the most prevalent type. According to the FTC, identity fraud increased 73% from 2019 to 2020 and is rising. Per a joint study by Experian and the Department of Justice, affluent individuals are 43% more likely to experience identity fraud.

Documents most used include driver’s licenses, government benefits, passports, and credit cards. Fraudsters no longer require physical documents. They hack into corporate servers, using information obtained through a method called “imposter fraud,” which is when someone calls the victim, pretending to be a representative of a company, charity, or bank, gaining the personal information needed.

Misappropriation of assets is also prevalent in high-net-worth families. Live-in staff and personnel with access to homes put these families at a higher risk. Misappropriation differs from theft; it occurs when a trusted person, presented with an existing opportunity over time, abuses the family’s assets for personal gain, as opposed to a thief that knowingly enters a home for the express purpose of stealing. While doing diligence and background checks is critical, instantly being able to prove ownership of missing possessions is paramount.

Having an inventory quickly helps address these types of crime.

Ranked in order of fraud risk, a life inventory has four categories:?Digital Assets, Credit Cards and Financial Information, Critical Documents, and Physical Assets.

Digital Assets

These include:

• All online accounts requiring a username and password, including social media, shopping, entertainment, banking, brokerage and personal accounts.
• Domain names (some are quite valuable!)
• Cryptocurrencies: Digital currency that is used to buy goods and services that use virtual exchanges (and don’t necessarily provide monthly statements.)
• Non-Fungible Tokens (NFTs): Represent unique assets that cannot be replaced including art, collectibles, and real estate, with new items being continually added.

Without documentation, these are difficult assets to keep track of because of being “virtual.” They’re easy targets for fraudsters and can slip through the cracks, disappearing from an estate without your knowledge and without a trace.

Credit Cards and other Financial Documents

These include contracts you sign, such as investments in a Private Equity or Real Estate fund. And of course, let’s not forget credit cards! While credit cards increase your purchasing power, they’re not assets; they’re actually liabilities. Items in this category are gateways to significant financial investments and holdings as well as liabilities that affect you and, ultimately, your estate.

Critical Documents (physical or digital)

These are documents that can have critical, significant financial value and that codify important life decisions and declarations about you and your wishes, including asset distributions to heirs. They include items such as birth certificates, social security cards, marriage/divorce documents, health directives and trusts.

Physical Assets

These are your physical belongings such as houses, cars, jewelry, collections, and artwork, with their associated provenance; supporting documentation such as receipts, restorations, certifications of authenticity. Your physical assets may be in numerous places: homes, storage, in transit, on loan, with one of your children, in a safe deposit box. By having photos of your items in their proper locations, with documentation, you validate their presence for insurance purposes, and for your trusted advisors, including estate executors.

How It Plays Out

With regard to fraud, the phrase "You Don’t Know What You Don’t Know" is both financially and emotionally devastating to all parties involved.

Have you ever gone on a social media site and seen a reminder notification of someone’s special day, only to sadly note they’re no longer around? Many times, family doesn’t know how to close down online accounts. Fraudsters scan obituaries and deceased people’s social media sites, watching for valuable information to help them access bank accounts, personal credit, and open new accounts in the deceased’s name. The more information they find on these sites, the easier it is to commit fraud. This practice is called "ghosting" and frequently happens because it can take up to?six months?for financial institutions, credit-reporting bureaus, and the Social Security Administration to receive and register death records, allowing fraudsters ample time to rack up significant charges. Your deceased relative no longer worries about the ramifications but, if identity fraud is triggered and you don’t have an inventory, the family and the estate will have to unravel a mess without knowing what they’re looking for. Having an inventory provides a prioritized, up-to-date checklist to quickly close down unnecessary accounts, reduce the risk of fraud and methodically address it as soon as it becomes known.

A client of mine, a well-known family office, created their “life inventory,” including all the inventory items mentioned above. The family office staff faithfully maintained it, regularly updating it. ?The inventory had additional valuable uses, including estate and insurance planning. When one of the senior members passed away suddenly, the attorneys received the inventory in record time.?It contained everything needed to identify the various assets/liabilities so they were able to swiftly deal with them, mitigating the risk of fraud.

While education is important in helping prevent fraud, having an up-to-date, current inventory arms you, your trusted advisors, and your executors with needed information to not only protect you from fraud but quickly respond to it both during your lifetime and after. It’s the best “insurance for your insurance” and gives “peace of mind” heightened meaning.

For a free Life Inventory checklist, feel free to contact me at [email protected] or go to pinventory.com