By Cyril Tuohy
Living trusts and other estate-related scams have been around for decades, but financial advisors are often the last to know when their client strays from the financial plan, “joins the dark side” or “drinks the Kool-Aid.”
It’s ironic. After all, advisors are supposed to know before their clients sign any financial document, not after the trust documents have been signed, sealed and delivered.
But that’s often the way it happens.
“Advisors are the last to know because the investor goes to a seminar and they sign up,” attorney and trust expert Seymour Goldberg, senior partner with Goldberg & Goldberg in Woodbury, N.Y., told InsuranceNewsNet.
Advisors can’t be everywhere at once, of course. They don’t usually drop into nursing homes to check on their clients, nor do they “helicopter” above retirees walking around the golf course or taking a leisurely stroll in the park.
Meanwhile, senior citizens with lots of time on their hands provide a ready market for unscrupulous living-trust promoters who penetrate the outer defenses to pitch retirees and the elderly on asset protection schemes.
Many senior citizens are inexperienced investors and, if they have diminished mental capacities, they may not be capable of making an important financial decision. That can make them perfect targets for trust mill scam artists who arrange group “investment” breakfasts and lunches with the hope of visiting prospects again later, at home, for a quiet fireside tête-a-tête or at the kitchen table.
Regulators say the scammers are more interested in collecting financial information from a victim-to-be than they are in selling them on a bogus living trust or overpriced annuity scheme.
No one collects data about whether investors should have alerted their advisor — if they have one — of a living trust scam, so it’s impossible to know if advisors are, in fact, the “last advised.”
It's safe to say that any reputable advisor would steer clients clear of investment breakfasts that pitch living trusts. At the very least, clients should never sign any document without first asking their advisor about how to proceed.
Either way, the financial abuse of older Americans runs into the billions of dollars.
Older Americans suffered losses of at least $2.6 billion annually due to financial abuse, according to a 2009 study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse and the Center of Gerontology at Virginia Polytechnic Institute.
Goldberg, author of the book “Can You Trust Your Trust,” said investors often sign up for revocable living trusts because they want to avoid probate costs.
High-pressure sales and scare tactics give investors the impression that if they don’t sign on the dotted line today, they won’t benefit from the 50 percent discount of setting up the trust, incur probate costs and pay estate taxes.
“People say, ‘I'm afraid of probate,’” Goldberg said. “What's the big deal? It takes you a couple of weeks, a month tops — unless you have a disgruntled family member.”
Depending on where people live, probate costs — costs associated with administering the assets of the deceased — are reasonable. If there is no dispute among heirs, probate is often much cheaper than paying to manage a long-term trust.
Marsha A. Goetting, a certified financial planner and professor and extension family economics specialist at Montana State University in Bozeman, notes that on a $200,000 estate, costs for a representative and an attorney might run a family $6,600 due to maximums imposed by laws in that state.
Paying fees to a trustee such as a bank, many of which won’t accept trusts with under $50,000 in assets, will easily surpass the cost of probate, Goetting said.
Probate costs and estate taxes are nowhere near as bad as scammers with living trust mills say they are, according to AARP in a posting titled “The Truth About Living Trusts.”
With losses incurred by the elderly as a group likely to rise as baby boomers move deeper into their retirement years, lawmakers in Congress have introduced tougher penalties on people convicted of financial crimes.
In 2010, the U.S. Census Bureau reported 40.3 million Americans were 65 years or older and made up 13 percent of the nation’s total population. By 2050, people age 65 and older are expected to make up 20 percent of the total U.S. population.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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