The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
By Steven A. Morelli
The agent who was convicted of theft for selling an annuity to a woman with dementia was never proven to have known the client was impaired, according to the prosecutor in the case.
Dementia was a central element in the case that led to the felony theft conviction of Glenn A. Neasham, an annuity producer in northern California. He said he was not aware his 83-year-old client had dementia or Alzheimer’s when he sold her an Allianz MasterDex 10 indexed annuity in 2008. Two of his assistants also testified that they did not see signs of dementia.
The prosecutor argued that the client, Fran Schuber, had been diagnosed with dementia in 2004 and was not capable of consent in the purchase of the $175,000 annuity, which was approved in California for sale to people up to 85.
After the verdict, Lake County Deputy District Attorney Rachel Abelson said in a court filing that there was evidence that Neasham knew Schuber could not provide consent for the sale.
“There was sufficient evidence presented to show that Fran Schuber was not capable of consenting to the transaction in question and evidence showed that he [Neasham] knew that at the time of the evidence,” according to the prosecutor’s motion opposing Neasham’s request for a new trial.
But in an interview with InsuranceNewsNet, Abelson said she was not able to show that in court.
“Not necessarily that he knew that she had Alzheimer's or dementia, I couldn't necessarily prove that,” Abelson said. “The son told him, but we couldn't really pinpoint the time. It might have been at the transaction. Of course, I think he [Neasham] denies that he ever knew that she had this diagnosis.”
Neasham, 52, Hidden Valley Lake, Calif., does still deny that he knew Schuber had dementia. He also said that Schuber’s son, Ted, had told him that he was concerned about Fran’s health but was not specific.
“If he had mentioned that she had Alzheimer’s or dementia, I could have stopped it right there,” Neasham said. “But he didn’t. The only comment he said to me was he was concerned about his mom’s overall health. And I thought, ‘H’mm, I’m concerned about my mom’s overall health, too.’ He never said what the details were.”
When InsuranceNewsNet asked Ted Schuber in a phone interview why he did not tell Neasham about his mother’s dementia, Schuber disconnected the call.
Neasham had contacted Ted Schuber after his mother and boyfriend, Louis Jochim, made an unsolicited visit to Neasham’s office to talk about annuities to get a better return on a CD that Schuber had coming due.
Neasham said he didn’t see any issues with Schuber’s cognitive ability, although Abelson said Jochim had answered some questions for Schuber. Neasham said Schuber answered many other questions and said she wanted to defer financial matters to Jochim.
What did raise a red flag was her choice of beneficiary, which was Jochim and his daughter was contingent beneficiary.
Neasham discovered that Fran and Ted Schuber were estranged and Jochim produced a document showing that he had been named the beneficiary on the CD since 2004. So, Neasham had Fran Schuber sign a document acknowledging that she was naming Jochim the beneficiary and that she understood the terms of the annuity.
Abelson said a key piece of evidence was the concern expressed by the manager of the bank branch where Schuber had the CD.
“Basically, the bank employee told him [Neasham] not necessarily that she had dementia, but that she didn't understand the transaction and basically that she was being influenced by the boyfriend,” Abelson said. “But basically that she didn't understand what was going on. That would be my summary of what was said.”
Neasham agreed with that version of events on the day Fran Schuber and Jochim went to the Savings Bank of Mendocino to get money from the maturing CD for the annuity. He said when someone called him from the bank, he explained the details of the annuity to the manager, “but then she said, ‘we don’t have a problem with the annuity – we have a problem with Lou.’ ”
After the conversation with the bank, Neasham said he asked Schuber if she understood the annuity she was buying.
“She said she did and gave me a check with a big smile on her face,” Neasham said of the check that he sent to Allianz. Schuber had never complained to an official about buying the annuity.
The bank made a complaint about Jochim to the county district attorney’s elder abuse unit, which did not charge anyone in the investigation, but sent the case to the state Department of Insurance. The state’s investigation led to the theft charge against Neasham.
The prosecutor said the sale was considered theft because Schuber was deprived “for an extended period of time [of] the major portion of the value or enjoyment of the property,” according to her response to Neasham’s request for a new trial.
The MasterDex 10, which had been the most popular indexed annuity for several years, had a five-year deferral and 10-year payout. After the five years, the owner can annuitize and get a guaranteed monthly income for 10 years. During the period, the owner can take out 10 percent annually; 20 percent if the owner is in a nursing home. The owner starts with 87.5 percent of value and is credited 1.5 percent annually and would be able to “break even” after seven years if the owner surrendered the product.
Abelson said the annuity was inappropriate in Schuber’s situation.
“I personally don’t believe in selling annuities like the MasterDex 10 with the 15-year period to a person who is unlikely to benefit from it,” Abelson said, calling it a “higher commission product.” Neasham’s commission was 8 percent, which was $14,000.
“When you’re thinking about suitability, I think people need to be a little more realistic about what people’s health needs are later in life,” Abelson said, pointing out the high cost of nursing home care. “It’s really hard to say situation-to-situation, but this was the bulk of this woman’s estate. Basically she had in some sense very little liquidity after this money. I don’t believe personally that things like the MasterDex 10 are good for people over a certain age. But criminally, that’s something different.”
Schuber had a $239,000 CD coming due when she visited Neasham. In reviewing Schuber’s finances, tax situation and goals, Neasham said it was apparent she wanted a legacy product that reduced the impact of taxes and wanted to build value. She bought the $175,000 annuity and had about $100,000 in CDs and cash for liquidity.
When Neasham had the preliminary discussion with Schuber and Jochim, he started on the paperwork. “On the health questionnaire, I asked about her health and she quoted ‘good,’ ” Neasham said, adding that Schuber seemed alert and comprehending the information. “I did my due diligence.”
When InsuranceNewsNet asked Abelson how insurance producers can know for certain that elderly clients have dementia, she said producers can ask questions to ascertain their clients’ mental state.
“They can do a mini mental exam like, ‘What year is it? Who’s the president?’ And make sure somebody actually knows what they’re doing. And sometimes there are things you can ask in just general conversation. I don't know the best answer,” Abelson said. “Obviously, insurance agents are in the business of selling, so they’re not in the business of doing mini mental exams.”
Neasham’s attorney, Mitchell Hauptman, said even if Neasham knew Schuber had dementia, it still wouldn’t automatically constitute theft.
“He had to know more than simply that she may have had dementia. He had to know that she in fact lacked the capacity to consent, which is a legal conclusion that’s significant,” Hauptman said, adding that Schuber’s son took her into conservatorship during the trial, basically taking custody of her more than three years after the transaction. “That says that nobody thought she needed to be conserved for another three-and-a-half years [after the annuity sale]. And once that happens, then she cannot enter into a contract, obviously.”
But before the conservatorship, Hauptman said Schuber even with dementia still had the authority to enter into contracts.
“There are lots of people in America with dementia today,” Hauptman said. “At what point in the course of a disease do we just automatically deprive them of their civil rights?”
Schuber never took any of the 10 percent annual withdrawals she was entitled to. She also did not ask for a refund of her annuity, which her son requested after the trial. Allianz refunded the full amount earlier this year.
Neasham is seeking an appeal of his Oct. 21 conviction of felony theft from an elder. He was sentenced on Feb. 29 to 300 days in jail, which was reduced to 60 days. He is seeking a public defender because he cannot afford his own attorney. He had errors and omissions liability insurance but it did not cover criminal matters.
Click here to read more on the Glenn Neasham case.
Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at email@example.com.
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