Home

Senate Committee Investigates Living Trust Scams

Tue, 07/11/2000 - 11:00pm — Karen Stevenson
Description: 

The U.S. Senate Special Committee on Aging held a hearing about the abuse of Living Trusts. A living trust is vehicle which can be legitimately used for estate planning purposes, but there is growing evidence of widespread scams and other fraudulent activity in this area, particularly aimed at vulnerable low income older people who probably do not need this sort of protection.

The AARP recently released a study that found that 18% of people with incomes of $25,000 or less had a trust, compared to a 1991 survey showing that only 8% of respondents at that income level had a living trust. This represents a 125% rate of growth in purchases among lower income older persons, far outpacing the 53% growth rate for seniors of moderate and higher incomes. Ironically, creating a trust creates an additional problem for low income persons who might need to rely on Medicaid to pay for nursing home costs, since the creation of the trust may make them ineligible for Medicaid if they apply for benefits within five years of the initiation of the trust.

Witnesses warned that "Living Trust Mills" are appearing in various parts of the country, which turn out cookie cutter documents not tailored to the needs of the participant. In some cases the documents are invalid in the state in which the older person lives, since trust laws vary from state to state. Sometimes the older people paid fees to set up trusts, but their assets were never actually transferred into them, rendering them useless. Other problems arise when the people selling the trusts use the process as a way of ascertaining the value of the estate their victim owns, so that they can sell annuities and other expensive and unneeded products to them.

These fraudulent operators often tell their victims not to use their attorney to draw up these documents, since the attorneys might talk them out of it "in order to collect fees from probating their estate." They tell their prospective clients that expensive and time-consuming probate will bankrupt their estate and leave their loved ones without an inheritance, and that delays in the probate process will freeze assets from a surviving spouse or heirs. And then they hammer the message home with "guilt trips" delivered through the mail, on the phone and at the door - over and over and over again. They also use the senior's fear and concern for outliving his or her savings as a way to convince him or her to re-invest their savings and retirement funds into annuity contracts with insurance companies that pay the highest commissions.

The U.S. Senate Special Committee on Aging held a hearing about the abuse of Living Trusts. A living trust is vehicle which can be legitimately used for estate planning purposes, but there is growing evidence of widespread scams and other fraudulent activity in this area, particularly aimed at vulnerable low income older people who probably do not need this sort of protection.

The AARP recently released a study that found that 18% of people with incomes of $25,000 or less had a trust, compared to a 1991 survey showing that only 8% of respondents at that income level had a living trust. This represents a 125% rate of growth in purchases among lower income older persons, far outpacing the 53% growth rate for seniors of moderate and higher incomes. Ironically, creating a trust creates an additional problem for low income persons who might need to rely on Medicaid to pay for nursing home costs, since the creation of the trust may make them ineligible for Medicaid if they apply for benefits within five years of the initiation of the trust.

Witnesses warned that "Living Trust Mills" are appearing in various parts of the country, which turn out cookie cutter documents not tailored to the needs of the participant. In some cases the documents are invalid in the state in which the older person lives, since trust laws vary from state to state. Sometimes the older people paid fees to set up trusts, but their assets were never actually transferred into them, rendering them useless. Other problems arise when the people selling the trusts use the process as a way of ascertaining the value of the estate their victim owns, so that they can sell annuities and other expensive and unneeded products to them.

These fraudulent operators often tell their victims not to use their attorney to draw up these documents, since the attorneys might talk them out of it "in order to collect fees from probating their estate." They tell their prospective clients that expensive and time-consuming probate will bankrupt their estate and leave their loved ones without an inheritance, and that delays in the probate process will freeze assets from a surviving spouse or heirs. And then they hammer the message home with "guilt trips" delivered through the mail, on the phone and at the door - over and over and over again. They also use the senior's fear and concern for outliving his or her savings as a way to convince him or her to re-invest their savings and retirement funds into annuity contracts with insurance companies that pay the highest commissions.