Annuities Feed

Baby Boomers Beware: Equity Indexed Annuities

I'm straying from my usual format to address a growing concern that affects more and more seniors and almost-seniors.  In this economy and uncertain financial climate, many retirees look for a way to invest their hard-earned lifetime of savings in something "safe."  Yet, they don't want to miss out on a way to earn interest at the same time.Elderly woman

There are many financial planners and insurance agents out there who look to take advantage of baby boomers ' parents (or baby boomers themselves) who have money to invest.  They sometimes sell a type of annuity called Equity Indexed Annuities, or EIA's. 

These financial products usually come with lofty promises -- your money is guaranteed to be safe, so it won't ever go down, but you'll still earn money when the stock market goes up.  Sounds great, right?  Sign me up!

Not so fast -- there's a reason this sounds to good to be true.  There's a catch with Equity Indexed Annuities.  Some EIA's are good investments for the right people in the right circumstances.  Others are not.  How do you tell the good ones from the bad?

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Trust kit company hit with $16 Million judgment

Few things make good estate planning and probate litigation attorneys angrier than unethical trust kit companies that prey on senior citizens.  Many use false statements to encourage them to purchase estate plans, and more, without ever seeing an attorney.

One of these companies is being held accountable.  It calls itself "The Estate Plan" and according to the allegations of a class action lawsuit, it ran a scam as fraudulent and devastating as any.  It and 11 other defendants are being sued in federal court in Arkansas, on behalf of elderly citizens throughout Texas and Arkansas that have fallen victim.  Because the company, The Estate Plan, did not appear to defend itself in the case, the court entered a $16 million default judgment against it.  The case continues against the remaining 11 defendants.Estateplan

According to this article in the Southeast Texas record, the company held seminars and attracted seniors through free lunches and dinners.  At these seminars, it scared seniors with misleading illustrations showing how estate taxes and probate costs can rob people of estates, leaving their heirs with next to nothing.  It then sold prepacked trust kits, which were purchased by the victims without any consultation with a lawyer.  Worse, the company gathered financial information about the trusting elderly people and then sold them annuities and other financial products without disclosing the costs and fees involved.

While this company operated in Texas and Arkansas only, the sad truth is that companies like this peddle these products throughout the country.  Here are some of the many problems they create:

1. No one should ever -- EVER -- buy a living trust or similar estate planning document without meeting with a qualified estate planning attorney.  Trusts are not "one size fits all"; everyone and every family is different.  Every living trust should be different too.  Any money spent on a prepacked trust is a waste.

2. Very few people need living trusts because of estate taxes.  The estate tax level in this country is so high that very few people will ever have to worry about it.  In 2009, the level is 3.5 million dollars (although this could change).  Plus, trusts don't avoid the estate tax; but they can help minimize it for those who qualify, but only if they are done properly.  There are many, many good reasons to have living trusts, but unfounded fears of losing estates due to estate taxes are not one of them, for most people.

3. The trust kit company in this case, like most, did not help people "fund" their trusts, but instead relied on "pour-over wills", which transfer assets into the trust after death.  How do these wills work?  By going through probate court.  In other words, this company did not even help people minimize probate court costs, which is one of the ways it scared people into buying their trusts.  By working with a good estate planning attorney, clients learn how to use trusts the right away and avoid probate court altogether.

4. The company also sold variable annuities and other unsuitable investments to seniors, after it had gained their trust and learned their financial information.  Sometimes, in the right circumstances, certain annuities can be good investments for seniors.  Other times, unscrupulous salesmen -- like those working with this company (according to the lawsuit allegations) -- misrepresent the financial products they sell to trick seniors into buying them.  Many of these annuities carry very high surrender fees which lock up the senior's money for 10, 15 or even 20 years.  This means that the seniors can't access their own money, often at times when they most need it, without paying huge sums in penalties (which can be as high as 25%).

The moral from this story should be obvious -- don't leave your future and your family's inheritance up to chance.  Trust kits are seldom worth the paper they are printed on.  Even the less unethical companies ignore the basic rule that only a qualified estate planning lawyer should help seniors (or anyone else) create wills, trusts and other estate planning documents.

And always watch out for annuities sold to seniors.  There are too many unsuitable annuities being sold by financial planners who seem reputable, but who don't always let seniors know what they are getting into.  If you have an elderly loved one who is considering buying an annuity, look closely, ask lots of questions, and if you have any concerns, have an experienced attorney look over the annuity before its purchased.  This is very important whether the annuity is sold through a trust kit company or elsewhere.

In fact, I and other probate litigation attorneys who have experience with these annuities can help seniors even after they've purchased an unsuitable annuity, if the family doesn't wait too long to get legal help.  Usually, it's not too late to undo the damage caused by a shady annuity that a senior citizen never should have bought in the first place.

Posted by:  Author and probate attorney Andrew W. Mayoras, co-author of Trial & Heirs:  Famous Fortune Fights! and co-founder and shareholder of The Center for Probate Litigation and The Center for Elder Law in metro-Detroit, Michigan, which concentrate in probate litigation, estate planning, and elder law.  You can email him at awmayoras @

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