One of the biggest dangers when it comes to having a living trust drafted, especially for the elderly, are living trust mills.
Trust mills have been the target of past legal action by the State of California.
Back in 2005, the California Attorney General at the time, Bill Lockyer, filed a lawsuit against Family First Advanced Estate Planning, as well as Family First Insurance Services and several other associated individuals and companies.
The lawsuit alleged that the defendants had created a scam to take advantage of elderly individuals. They had been conned into buying into annuities that were of little use to the buyers, as in some cases they couldn’t make significant withdrawals without penalty for more than 15 years. In the meantime, the annuities generated a windfall for the defendants. The Attorney General sought more than $110 million in damages, in the form of civil penalties, restitution, and damages. Two years later, then Attorney General and now Governor Jerry Brown reached a settlement for $7.2 million.
Trust mills don’t provide estate planning services, but instead aim to turn a profit by selling financial services.
Trust mills typically get you in the door by offering to draft a living trust for you at a significantly discounted price. This can be a big draw, especially for those who have shopped around for an estate attorney, and then discover the seemingly great deal offered by the trust mill.
Once the trust mill gets you in the door, they will sit you down with someone with a title like “senior estate planner,” “trust advisor,” or something else along those lines. But what they really are is a salesperson. First they will discuss setting up a trust.
Unfortunately, these trusts are often fill-in-the-blank documents written by cut-rate lawyers in other states, or even by paralegals or other non-lawyers who don’t have the legal standing to actually draft a trust. These trusts are bottom of the barrel, and will rarely be suited to your specific needs or even California’s estate law system, which can result in them being invalidated and having your assets pass into probate.
But the discussion of your trust is just part of the onboarding process. Once they have all of the information necessary to fill out a trust, then they transition to what they really want. The true aim of these firms is to get you to invest with them. They may tell you that your current retirement investments are less than ideal, or that they are even risky and put you in danger. Conveniently enough, their firm will have investment vehicles such as annuities that are far more advantageous. In reality, these investments are often terribly insecure, and at best completely unsuited for persons who are past retirement age.
It’s important to keep in mind that trust mills are often not tiny fly-by-night entities. The aforementioned Family First firm employed more than 300 people. These firms may have professional-looking offices, courteous staff, and all the accoutrements that you would expect of a respectable financial firm that wants to do right by you and your family.
Thankfully, there are a few ways to spot a trust mill before they take advantage of you.
Be leery of any firm offering a “free living trust seminar” or other large event in which they give you a free meal in exchange for your time. It costs a decent amount of money to set these events up, so you can be certain that they’re looking to turn a big profit by selling you unnecessary services.
Trust mills often have sales agents—with a fancy title—that will come out to your home for a “free consultation” with a handful of folders and pamphlets. Remember, all of this glossy material costs money to create and print. They have to make that money back somehow.
Watch out for anyone playing on your emotions. A good estate attorney can explain to you in a logical, rational manner why you should take a certain approach. If someone is describing to you in detail how your children are going to be left in the cold if you don’t take their advice, or you could end up in a nursing home and have your property taken away from you, then it’s because they want you to think emotionally, rather than logically.
Remember the “trust advisors” we mentioned? When they sit down with you, ask if they have been admitted to the State Bar of California. They may refer to some unnamed, vague certification or other piece of paper, or may say they are a paralegal. All of this is a red flag. It is illegal for non-lawyers to assist you with creating a trust. If they can’t show you that they are a proper lawyer, get out.
When you’re discussing investments, always ask about early withdrawal penalties and tax issues that can arise when resulting from transferring your investments. Don’t get yourself stuck in a situation where you can’t get to your money when you need it most.
Don’t make your decision on your own. Always get a gut-check from family members you trust, as well as a lawyer. You should always get second and third opinions when it comes to anything as important as your estate.
Never have a trust drafted by anyone who is also offering you investments. There’s too much opportunity to be taken advantage of in that scenario.
But don’t assume that you’ll be able to spot a trust mill. These organizations make money through volume, so they have had thousands of opportunities to refine their sales pitch and know how best to break down your defenses. When it comes to estate planning, it’s always best to have an experienced estate attorney on your side, such as Grant Toeppen.
To learn more about how we can help you create a living trust that’s right for you and your specific situation, give us a call at (209) 456-5547, or send us a message using our contact form.