September 15, 2011

Living Trust Mills

A noticeable problem within the estate planning field is the proliferation of living trust mills. The following are some questions that address this problem.

1. What is a trust mill?

A trust mill is an elaborate scam concocted by nefarious insurance agents that seek to deceive consumers into purchasing costly and largely unneeded financial products, namely annuities, through the guise of providing them with a living trust.

In other words, the allure of purchasing a living trust serves as the Trojan horse, and once the sales agent has gained access to the consumer, he or she then seeks to sell largely useless financial products to the unwitting consumer.

2. How does a trust mill work?

A trust mill company will publicize a free living trust seminar at a local diner, hotel or inn in a local newspaper. Since there are legal advantages for writing a trust, such as the avoidance of probate and estate taxes, consumers are naturally intrigued by this. Also, the allure of a free meal or beverage cannot be understated as well. Consequently, interested consumers will attend the seminar.

The seminar is almost always hosted by an insurance agent who uses the title "trust advisor," "senior estate planner" or "paralegal" instead of insurance agent. These aforementioned titles have basically no legal value to them because these titles do not indicate a license to practice law independently. It is simply a facade to deceive consumers into believing that the insurance agent has the requisite legal expertise. Regardless, these sales agents sign up curious consumers at the seminar who wish to write a living trust. The sales agent then makes an initial visit to the consumers’ home to gather the necessary financial information to write the trust. The sales agent passes this information on to a person to write the actual trust document. Some trust mills actually have attorneys write the living trust while others do not. The sales agent then takes the trust document to the consumer’s home for execution. At this point, the crucial part of the scam takes place.

Armed with the consumer’s financial information, the sales agent strongly encourages the consumer to consider purchasing financial products from them, which are invariably annuities. The sales agent will often say whatever is necessary to complete the sale, or lying. The reason why the sales agent wants the consumer to purchase an annuity is because of the high commissions the sales agent will receive for selling an annuity. Meanwhile, in almost all cases, the annuity the sales agent is offering is the worst possible investment for the consumer. For reference, an annuity is basically a financial arrangement where the investor is paid a fixed sum of money for a fixed number of years for making an initial lump-sum investment. While it might sound financially attractive, the annuities that these sales agents offer often have high up-front costs and severe early withdrawal penalties. The end result is that the consumer purchases an expensive and superfluous financial product, while the sales agent walks away with a hefty commission. Or in the other words, the consumer loses and the sales agent wins.    

3. How can I spot a trust mill?

There are a couple of tell-tale signs for spotting a trust mill. First, the seminar is hosted by a non-attorney. Second, the flyer for the seminar will mention how an insurance agent may deliver the trust documents to the consumer. If you see either of these variables the seminar is probably a trust mill.  

4. How prevalent are trust mills?

Trust mills are prevalent here in California as well as the United States. For example, in 2007, the California Attorney General reached a $7.2M settlement with American Investors Life Insurance Company, Family First Insurance Services, and Family First Advanced Estate Planning for their roles in selling high-priced annuities to seniors.
5. Who should I contact if I have been victimized by a trust mill?

You should contact your district attorney’s office and the CA Department of Insurance consumer hotline at 1-800-927-4357.