Living trusts can be a useful estate planning tool, but are being used here as a ruse by unscrupulous salespeople to persuade seniors to buy bogus trusts and investment products, government and private attorneys say.
Living-trust scams, which prey on seniors fears that taxes and other costs will devour their estates, can result in the unnecessary purchase of a living trust, lawyers say. In some cases, they say, seniors can lose a substantial amount of their estates if they fall prey to such deceitful tactics.
A living trust is a legal agreement in which a person, called a grantor, gives property to a trustee to hold for the benefit of a beneficiary, says Cheryl Kringle, a Seattle-based assistant attorney general in the consumer protection division of the Washington state Attorney Generals office.
One of the advantages of a living trust is that, if properly drafted and executed, it can enable an estate to avoid probatethe legal process through which a deceased persons estate is administered and distributedbecause the trust, not the deceased, owns the assets, Kringle says. Only property thats still in the deceaseds name must go through probate.
Since Washington has a streamlined probate system, and some individuals with small estates can avoid probate without a living trust, the advantages of such trusts are muted somewhat, Kringle says.
Yet, some untrustworthy salespeople or insurance agents, usually operating through whats called a trust mill operation, tell seniors horror stories about the probate process and exaggerate the benefits of a living trust as they seek to exploit seniors fears that probate costs will eat up their estates, Kringle says. Typically, they get in touch with seniors by sending out postcards to seniors homes or retirement facilities, inviting recipients to free seminars, where they schedule in-home appointments. During those visits, they use high-pressure sales tactics to persuade seniors to buy living trusts. They also obtain asset information, which they use in later visits to pitch insurance products such as annuities and long-term care policies, she says.
Seniors are more willing to give up their financial information in the context of protecting their family and assets through living trusts, Kringle says.
Setting up a living trust in such a way typically costs between $900 and $5,000, which isnt cheaper than working with an attorney, she says. Insurance products offered to seniors can carry hefty commissions as well.
One problem with such a living trust sale is that it might not suit the buyers estate-planning needs and might not save the buyer any money, she says. Another problem is that the trust might not be properly funded, meaning that property really hasnt been transferred to the trust, and therefore the trust is invalid, she says.
Unfortunately, the scam often isnt discovered until after a victim dies, and the beneficiaries realize what has happened, she says. If seniors realize theyve made a mistake, they might be embarrassed and unwilling to tell someone about the problem, she says.
Seniors arent as likely to complain compared with the rest of the population, and most of them wont know anything is wrong with this, Kringle says. They feel that someone is looking out for their best interests.
One example of a living trust scam that occurred a few years ago here involved a group of insurance agents who sold fake insurance and investment products to dozens of seniors in the Inland Northwest, says Jack Zurlini, a Spokane-based assistant attorney general who handled the case. The agents used ads on the sides of trucks, promising high returns on investments to drum up business, then told seniors they could protect those investments by placing them in living trusts, which were sold to the seniors for between $2,500 and $7,500, Zurlini says.
Authorities discovered the multimillion-dollar scam when a representative from Spokane Neighborhood Action Programs called the attorney generals office here, expressing concern because several seniors had met with her to talk about whether they should apply for reverse mortgagesand their insurance agents were present during the meetings. Those agents had recommended that the seniors take out reverse mortgages and use the proceeds to buy investments that turned out to be phonyand transfer those investments to trusts that also were fake, Zurlini says.
The agents were ordered to stop selling the bogus trusts and investments, but unfortunately, victims who already had bought the phony products and trusts werent able to get their money back, he says.
These were honest people who worked a lifetime of saving up money, and it was gone, Zurlini says. These scam artists abuse their positions of trust by selling bogus products.
In another case here, an insurance agent used a conversation about living trusts to persuade an elderly Spokane man to liquidate his portfolio of tax-exempt bonds and replace it with a tax-deferred annuity, which would yield a lower return for the customer, but a hefty commission for the salesman, says Thomas M. Culbertson, an attorney at Spokane-based Lukins & Annis PS who represented the mans daughter, who was the beneficiary of the trust.
The man had had a heart attack that turned out to be fatal, but before he died had told a friend to whom he had granted power-of-attorney to sign papers hastily to complete the transaction. The insurance company contacted Culbertson with questions about the transaction, and it ended up being voided.
Kringle says the primary objective for the attorney generals office in living-trust scam cases is to obtain an injunction against practitioners of the deceitful practices. Secondly, it tries to make offenders pay civil fines, cover any legal fees related to the case, and make restitution to the victims.
If a victim has died before a resolution can be reached, the family can sue on his or her behalf, although its hard to prove that someone has been deceived when theyre gone, she says.
Tips to avoid scams
Before signing papers to create a living trust, one should consult with a third party, such as a well-recognized estate planner or attorney, Culbertson says. Consumers also should be wary of high-pressure sales tactics and pitches for other insurance and investment products made along with a pitch for a living trust.
The vast majority of financial services people are professionals who do a good job, Culbertson says. Theres just a few bad apples that cause disproportionately big problems.
Seniors also should involve their families in estate-planning decisions, if at all possible, he says.
The likelihood for abuse is significantly less when an elderly person brings their beneficiaries into the process, Culbertson says.
Zurlini says consumers also need to watch out for salespeople who explain investment products in perplexing terms, emphatically assert that those products are only available to a small group of people, and claim the investments make extremely high returns.
Its not your fault if you cant understand what theyre trying to explain to you, because its a total scam, Zurlini says. Exclusivity and high returns should always be huge red flags.
A press release issued by the state attorney generals office last spring mentioned several other tips to help the unwary avoid living-trust scams, including:
Inquire whether the person offering the living trust is an insurance agent. The Washington state Insurance Commissioner has said that selling living trusts isnt an acceptable method to obtain leads for insurance sales.
Avoid salespeople who give the impression that the American Association of Retired Persons is selling or endorsing their products. AARP doesnt endorse living-trust products.
Be cautious of anyone who claims that everybody should have a living trust or presents the living trust as a sure-fire method to avoid taxes.
Compare prices. Unlicensed sellers often claim their prices are lower than a lawyers fees, then charge as much as or more than a qualified attorney.
If you decided to obtain a living trust, make sure its properly funded. Otherwise, its nothing more than an expensive stack of paper.
If you buy a living trust during a home visit or seminar away from the sellers usual place of business, you can cancel the purchase within three business days.
Contact Emily Brandler at (509) 344-1265 or via e-mail at firstname.lastname@example.org.
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