"No parent wants to leave a messy estate for his or her children," Grassley said. "Scam artists exploit these good intentions. They pressure people into buying things they don't need. They sell them useless products. Sometimes they even steal from their victims. This has to stop. We have to protect innocent people who are just trying to get their affairs in order before they pass away."
Grassley's comments came after a hearing, "Death Planning Made Difficult: The Danger of Living Trust Scams," at which witnesses explained the difference between legitimate living trusts and products from scam artists.
With a living trust, an individual sets up a trust for his or her assets, witnesses said. The trust goes into effect while the individual is still living. A designated beneficiary receives the assets upon the person's death. Living trusts have advantages over traditional wills. Namely, they allow heirs to avoid probate court, which can be time-consuming and/or costly.
Many living trust sales outfits are legitimate. However, more and more outside opportunists are targeting older Americans with living trust scams. Grassley's committee compiled the following examples:
Two years ago, an 82-year-old Wisconsin man first was persuaded to buy a living trust he did not need and then was talked into converting bank c.d.s into 30-year life insurance annuities. Attempts were made to liquidate more than $325,000 from this man's accounts before his bank, daughter-in-law and authorities became involved. His daughter-in-law, Judy Kulinksi of Pewaukee, Wisc., testified.
This year, a couple in Minneapolis, Minn., was found guilty of defrauding the Internal Revenue Service by selling living trusts and then counseling clients to lie to the IRS about who created the trusts, why the trusts were created, what was in the trusts and how to present them in tax filings.
A woman from Bay City, Mich., tells the story of how her parents were pressured into purchasing living trusts after attending a seminar last September. Her parents were told that if they used one of this company's trusts they could not use an attorney and should not even ask questions of one. The parents, after receiving a hard sales pitch in their home, signed several documents giving the company access to all of their financial information. Eventually $20,000 was removed from their account. The daughter was finally able to get all of the money back after a long and expensive process.
In Iowa, some consumers have gone out of state for estate planning seminars and returned with living trusts that, unbeknown to them, are useless under Iowa law.
Grassley said the examples are disturbing, especially in light of new information from the AARP, which reports an increase in living trusts among older Americans of all income levels, but especially low-income older Americans.
Since 1991, the purchase of living trusts by older Americans with low incomes has gone up 125 percent, according to the AARP. The organization says low-income people don't need a living trust because their estate needs are simple, yet these individuals are often the targets of scam artists. As many as four million people fall into this category.
Grassley said several states have taken aggressive action to stop scam artists. At the federal level, the Federal Trade Commission and the Securities and Exchange Commission have brought limited suits against unscrupulous companies that came to their attention.
State and federal cooperation is key because in some cases, a company prosecuted in one state will open in another state, Grassley said.
Grassley said he hopes for strong communication between bar associations, consumer fraud agencies, the state attorneys generals and federal agencies to stop living trust scam artists and prosecute them for their misdeeds. He offered consumer tips for avoiding fraud.
"My advice to older Americans is, find a financial planner who lives in your town, who has roots in your community, and stick with that person," Grassley said. "A stranger who knocks on the door may be here today, gone tomorrow, along with a chunk of your savings."
Senator Chuck Grassley's Ten Things to Remember when Selecting Living Trusts and other Financial Planning Services
1.Choose your financial planning advisor carefully.
2.Ask for a written list of credentials. Qualified, capable attorneys, insurance agents and financial planners will provide a list of states in which they are licensed, along with the name, address and phone number of their employer, firm or company. To check on attorney licenses, call your local state bar association; to check on insurance licenses call the state insurance bureau or commissioner; to check other licenses or certifications, call your state's consumer agency. For general questions, call the state's office on aging services.
3.Call references. Ask for the names and phone numbers of other clients who have received similar services.
4.Talk to several experienced estate planning attorneys who are licensed in your state about: (1) the anticipated costs of drafting a will, living trust and other estate planning documents and (2) how much probate in your state would cost and how much time it would take.
5.Don't do business with somebody if their attitude or answers to your inquiries about their credentials, experience or background make you uncomfortable. Look for another financial planner.
6.Before creating a living trust: (1) Review the amount and type of your assets. (2) Decide how you want your assets distributed.
7.Compare the prices of products of door-to-door sales people with those of experienced estate planning attorneys.
8.Take your time to decide what are the best financial planning tools for your circumstances. Don't let the urgency to grab a "special limited-time offer" prevent you from carefully reviewing your options.
9.You must fund a living trust by transferring money or property to the trust to make the document effective. These continue to be counted as your assets. Be aware of extra costs you may incur and certifications you may require if you need to sell property after you put it into a revocable trust, for example, to pay for extended nursing home care or other health needs.
10.Be aware of the personal liabilities that may be imposed on the trustee when distributing the trust assets after your death to your creditors and beneficiaries, including paying federal estate taxes and state inheritance taxes.