Around this time of year, unscrupulous companies step up their efforts to market costly living trusts to older Americans – arrangements that may actually undermine the buyer’s economic security.
Recently, Minnesota’s attorney general became the third attorney general to file suit against two California companies run by the same family that allegedly sold inappropriate living trusts to seniors. State attorneys general in Pennsylvania and North Carolina filed suit against the same companies. Previously, the North Carolina attorney general won an order preventing the companies from selling products in the state while the lawsuit against it is pending.
According to the lawsuits, American Family Legal Plan (AFLP) and Heritage Marketing and Insurance Services, both run by a father and son from California, convinced seniors they were receiving impartial investment advice when in reality the companies were pushing their own products. The lawsuits allege that sales agents convinced seniors to purchase living trusts that were not necessarily in their best interest and were not tailored to their individual needs.
According to the AARP, the Federal Trade commission (FTC), and a number of state attorneys general, these high-pressure con artists have built an industry around older people’s fears that their estates could be eaten up by probate costs or taxes, or that the
distribution of their assets could be delayed for years. The solution, they claim, is a living trust.
“What these fast-talking crooks don’t tell their clients,” AARP Volunteer Consumer Affairs Specialist Irma Swantner says, “is that the ‘living trust’ they’re selling could become the buyer’s ‘living hell.’”
The living trust is an estate planning device that eliminates the need for probate of the individual’s estate at his death. Assets are held in the trust and then distributed outside of probate at the time of death.
There is nothing wrong with a living trust or with trying to avoid probate. Attorneys may recommend a living trust as an estate planning device for some of their clients where it is appropriate for their particular needs. However, salespeople masquerading as professional estate planners are working the provinces trying to convince older Americans that such trusts are for everyone. Going door-to-door or using phone solicitation, they often greatly exaggerate the costs and delays of probate and are unlikely to mention that the vast majority of estates are not subject to federal or state estate taxes. Their products are “cookie-cutter” living trusts, sometimes in the form of living trust “kits.”
The problem is that many people don’t need a living trust, a trust from a kit may not meet a particular client’s needs and often these companies charge more than the service is worth. In addition, according to the FTC, some companies are using the living trust concept merely as a way to gain access to consumers’ financial information and sell them other financial products.
Among the dangers of “one-size-fits-all” living trusts, say AARP officials, is that in many cases they won’t make the grantor and spouse eligible for Medicaid reimbursement of nursing home costs. In addition some trusts improperly instruct the trustee to distribute property to beneficiaries immediately upon the death of the grantor. If creditors make a claim against the trust after asset distribution, the trustee becomes personally liable for any valid claims against the trust.
According to an AARP study, about four million people older than 50 with less than $25,000 in annual income may have purchased costly, unnecessary, and potentially dangerous living trusts as a result of high-pressure sales tactics by firms masquerading as AARP affiliates. In fact, AARP is not associated with and does not endorse any company that markets or sells living trusts.
There are a number of steps you can take to avoid getting scammed, including avoiding high-pressure sales tactics and high-speed sales pitches, not trusting companies that say the AARP is selling or endorsing their product, and making sure a living trust is properly funded. Seek the advice of a qualified elder law attorney before signing anything.
