Living trust mills are just a front for dubious insurance product sales: Internet Scambusters #761
Living trusts are supposed to be a way of simplifying and protecting your assets and savings for your descendants after you die.
But some unscrupulous salespeople use them as a front to trick victims into unsuitable investments that pay the scammers a high commission.
In this week's issue, we'll explain how these tricksters and their trust mills operate and where to look for the key information you need on making trust decisions.
Now, here we go...
Living Trust Mills Lead to Annuity Scams
Misunderstandings about the operation of living trusts has led to widespread abuse in the form of "trust mills" -- unscrupulous insurance and sales operations that exploit the confusion and abuse consumers, mainly seniors.
In very simple terms, a living trust is a legal structure that holds a person's assets and can be passed on to your beneficiaries after death, without the need for probate.
In some circumstances, a trust can result in significant financial savings and because of that, scammers prey on people's worries that their estate -- property and savings -- will be plundered by the Treasury after their deaths.
"Seniors may be bombarded with advertisements, phone calls and pitches from door-to-door salespeople insisting that living trusts are the keys to eliminating problems in estate planning," says the National Consumer Law Center (NCLC).
"For others, buying a living trust is simply a waste of limited resources."
With a trust mill, scammers use supposed estate planning as a way-in to sell victims other overpriced and unsuitable financial products such as expensive annuities.
A trust mill operates by posing as an estate planning specialist firm, when, in fact, employees work on commission for an insurance company that simply churns out cheap, off-the-shelf living trusts.
Often these services are marketed at extremely low prices (when a true, personalized living trust can cost hundreds or even thousands of dollars to establish).
They use the front of being living trust specialists as a way of discovering all the assets and savings of their victims so they can then move on to their next step.
"The sales agents' job is to persuade their clients to cash in their retirement investments such as CDs and mutual funds in order to purchase an annuity for which the agents receive commissions," explains the online legal services company LegalZoom.com.
"Generally, the sales pitch follows a pattern. Targeted seniors are told their current investments are high-risk or generate low interest rates. Therefore, it's in the seniors' best interest to cash in their investments and buy the less risky or higher interest annuity the agent sells."
Apart from the rip-off, this behavior is actually illegal -- yes, it's unlawful to provide legal advice about estate planning unless you're a licensed attorney. But that doesn't stop the scammers.
"These transactions may needlessly burn up seniors' savings, affect eligibility for some public benefits or tie up assets so they cannot be tapped easily when medical or other needs arise," the NCLC warns.
The scammers have other tricks to play too. Sometimes they use official sounding names to make their operations seem legitimate. A common ploy is to imply some sort of link with the retired people's organization AARP.
Another is to falsely claim to be an attorney or paralegal and to misrepresent the way trusts work and the protections they provide.
Or they sell do-it-yourself living trust kits which are more likely to befuddle purchasers than solve their financial problems.
For instance, one important aspect of a living trust is the legal process of transferring a person's assets into the trust. This is extremely difficult for an individual to do without professional help, which is what you'd have to do with a kit.
If you're considering a living trust, here are some important things to know and steps to take:
* Make sure you need one. According to an AARP study, 4 million Americans may have bought trust plans they don't need.
Talk to your trusted financial advisor and then, if appropriate, an attorney.
Visit ElderLawAnswers to find an elder law attorney in your state.
* Be wary about unsolicited approaches and mailshots promoting living trusts. Some may be legitimate but check that the promoter is an attorney and not an insurance salesperson.
The important point is that a living trust program should focus precisely on that. Any attempt to sell you other products should be regarded with suspicion.
* Be suspicious too of cut-price trust programs, and avoid do-it-yourself kits.
* Note that AARP is not connected with and doesn't sell or endorse any provider of living trusts.
* Educate yourself. There are plenty of books and online information about living trusts, wills and annuities.
Also, check out the reports we've referred to:
- The NCLC's document Avoiding Living Trust Scams
- * The LegalZoom report Trust Mills: What to Watch Out For
Alert of the Week
If you're a Medicare enrollee, you'll be receiving a new Medicare card that no longer contains your Social Security number -- a long overdue security improvement.
It'll take almost two years to complete the switch -- which we'll look at in more detail in a future issue -- so beware of scammers in the meantime.
The card issue program is automatic. There's no need for you to do anything, so calls that claim you have to pay a fee, that your benefits may be cancelled, or that request your Social Security number are all scams.
So, hang up!
That's all for today -- we'll see you next week.