California Attorney General Edmund G. Brown Jr. and Insurance Commission Steve Poizner  announced a $7.2 million settlement with American Investors Life Insurance Company, Family First Insurance Services, and Family First Advanced Estate Planning over charges that the companies wrongfully sold annuities to senior citizens.

The case involved two companies acting as what is referred to in the estate planning business as “trust mills.” The business model of a trust mill generally is to offer free or very low-cost estate planning services to seniors, with the estate planning work often being done by people who were not licensed to practice law. In gathering the information to prepare the estate planning documents they learn about the clients’ investments. Once the documents are prepared, the trust mill sends an insurance sales person out to get the signatures on the wills and trusts. This agent then convinces the clients that their current investments are not sound and persuades them to purchase annuities, which the agent just happens to sell.  Now, there is nothing wrong with annuities as an investment in the right situation. However, these annuities had very long maturity periods, as much as 15 years, during which the clients would pay large penalties for withdrawing their money, which made them not appropriate investments for elderly people. Often the particulars of the investments were not disclosed to the senior clients.Under the terms of the settlement, the companies will pay $1 million in civil penalties, distribute $5.5 million to consumers who purchased annuities and pay $700,000 to reimburse the Office of the Attorney General and Department of Insurance for their costs of investigation and prosecution. The settlement also requires Family First Insurance Services and Family First Advanced Estate Planning to permanently cease all business operations. As an aside, what was not an issue in this case, but which I have seen numerous times in my practice, was the poor quality of the legal work done by the trust mills. I have seen couples with very modest estates being told they should have an ABC trust, which, if estate tax is not an issue is just a huge, unnecessary bookkeeping and tax hassle. I have also seen trusts so poorly drafted that the surviving spouses had to file a petition in probate court to modify the trust in order to make any sense out of it. So much for probate avoidance.  I caution everyone to remember the old saying “If something looks too good to be true it probably is.” If someone is offering to write a revocable trust and a will for you for free or for just a few hundred dollars, you have to ask yourself why. The two big lessons to be learned from this case are: 1.      Do not let anyone who is not an attorney write an estate plan for you. There are just too many complexities in this area of the law to trust it to someone who is not educated.  2.     Do not take investment advice from anyone who sells any kind of investment product. Period. It doesn’t matter what it is, life insurance, annuities, mutual funds. If they make their living selling it they cannot possibly give you objective investment advice about it. If you believe you have been victimized by Family First, another trust mill or by annuity fraud, you should report the crime to the local district attorney or the Department of Insurance. You may also file a complaint with the Attorney General.

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