August 14, 2010

Living Trust Mills

Living Trust Mills Can Be Financial Traps

I recently received a series of postcards inviting me to an “Elder Law Update”, strongly suggesting that I need to have a Living Trust.  In addition to the seminar, I was invited to stay for a free lunch.

Often times these solicitations come from “trust mills”.  These companies are referred to as “trust mills” because they turn out a high volume of cookie-cutter Living Trusts.  Sometimes they charge clients for the Living Trusts, other times they offer the Living Trusts for free.  However, as an unwitting consumer will soon find out, low cost or “free” estate planning documents are not really “free”.

The most serious problem with trust mills is their ultimate objective.  That is, to obtain an individual’s financial information so that its sales persons can sell unneeded annuities and related investments to unsuspecting individuals, most likely to the elderly and vulnerable adults.

Sales agents for these operations often misrepresent the disadvantages of seniors’ current investments and the advantages of the investments they are selling.  They may even make seniors believe their bank accounts are not as safe as the annuities or investments they want the seniors to buy.  To give themselves a cloak of legitimacy, these sale agents pretend to be experts at Living Trusts.  In their solicitations, these sales agents often pose as expert financial or estate planners.  They pass themselves off as a “trust advisor”, “senior estate planning” individual or a “paralegal” and schedule initial appointments with seniors in their homes.  Under the guise of helping to set up or update a Living Trust, the sales agents find out about the seniors’ financial assets and investments.  They sometimes work in assisted living centers, churches and other places where seniors gather, scamming elderly victims through free seminars and other sales presentations.

Planning an estate and choosing investments involve important legal, financial and personal decisions.  If financial planning documents are not properly prepared or executed, they can be invalid and cause lasting damage.

Following our tips can help consumers avoid becoming victims of trust mills and their scams:

• The sales agents at trust mills are usually not attorneys nor are they experts in estate planning;
• Watch out for companies (and individuals) that sell Living Trusts together with  annuities and other investments;
• Sales agents may fail to disclose possible adverse tax consequences or early withdrawal penalties that may be incurred when transferring stocks, bonds, certificates of deposits or other investments to annuities;
• An annuity is not 100% safe and only a portion is guaranteed by the state;
• Insurance companies can and do fail and their assets may not be enough to pay the full value of the consumer’s investments; So called “promissory notes” are not insured by the FDIC or other governmental agencies and may be very risky.  They may not be registered as securities with the State of Arizona;
• Before consumers buy an annuity or other investment, they should review it with people who know trust law, such as their financial or tax advisor, their attorney and trusted family members; and
• An attorney qualified in estate planning can help consumers decide if they need a Living Trust and other estate planning documents or help them review an existing Trust or Will.

Here are some steps that you should take before you sign papers to create a Will, Living Trust or other estate planning documents:

• Consult with an Arizona licensed estate planning attorney or financial advisor, preferably one recommended to you by a trusted friend or family member, or contact the State Bar of Arizona and ask for a referral of a certified specialist.
• Beware of high pressure sales tactics.  Take time to consider your options.
• If you decide to obtain a Living Trust, make sure it is properly funded.  That is, that the property has been transferred from your name to the Trust.  Unless your assets are retitled in the name of the Living Trust, they may very well be subject to probate proceedings upon your death.