Elder financial abuse is an alarming problem in this era of aging population. Baby boomers are entering retirement with a higher life expectancy and more wealth than any generation before them. The combination of mental decline and substantial wealth renders many seniors vulnerable to overreach. Empirical studies suggest that financial abuse against seniors is hard to detect and likely prevalent. In private suits alleging elder financial abuse, courts often apply the mental capacity doctrine to avoid seemingly exploitative contracts, gifts and many other lifetime transactions. The formal rationales for avoidance are that the elderly party to the impugned transaction lacked mental capacity, and that the transaction was inequitable. Moreover, guardians and attorneys who manage property for the elderly may have perverse incentives to exploit their position. Presuming the worst from the property manager, courts and legislatures typically impose onerous fiduciary duties to minimize conflicts of interest and deter misconduct.

Orthodox fiduciary law explicitly aims to overdeter. This Dissertation first argues that the mental capacity doctrine in prevailing American law is ill-suited for the era of aging population. In theory, the doctrine grants a mentally-incapable individual a power to choose whether to avoid her transactions. In reality, that power is usually exercised by a claimant who expects to inherit from the incapable individual. Prevailing doctrinal theories overlook the possibility that the claimant may seek to avoid a transaction to increase her expected inheritance rather than to advance the interests of the incapable individual. The mental capacity doctrine thus poses a heighted risk of avoiding transactions that actually benefited potentially incapable seniors and reflected their testamentary intent. This harms the welfare of many seniors by unduly limiting their ability to benefit their close relatives and friends, reward informal caregiving, and recruit their preferred caregivers. The mental capacity doctrine can nonetheless be reformulated to offer appropriate protection against elder financial abuse without undue intrusion into close families and personal relationships.

In particular, when applied to transactions involving close relatives and friends, the doctrine should be narrow, determinate, and respectful of individual will and preferences. This Dissertation further 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 Dissertation 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 Dissertation also proposes reforms to harness their reputational concerns.