A client called me the other day asking what I know about annuities. She was invited by a friend to attend a free seminar with a free lunch by a “Trust Advisor.” Her friend, recently widowed, didn’t have a trust and didn’t know how best to invest her nest egg left by her late husband. The “Trust Advisor” said that he helps retirees manage, protect, and transfer wealth and that he does estate planning.
The brief overview given during the lunch culminated with a sign up list being passed around to schedule an appointment with the advisor. The offer was for a free in-home consultation to review the senior’s assets and investments. If you signed up that afternoon for a date in the future, not only did your receive a free lunch, you walked
away with a free $10 gas card or gift card to a local restaurant! Who says there’s no free lunch?
My client didn’t sign up. Instead, she immediately called me asking about annuities.
Now, I do not profess to be an expert in financial investment strategies. But, I am always suspicious of someone selling an insurance product while offering trust or estate planning solutions without significantly involving an attorney.
Generally, these people are agents for an insurance company, or independent insurance brokers that sell insurance products. They are not attorneys; they do not provide legal advice. And if they do sell you a living trust, typically it is done by what are called
“Living Trust Mills.” These types of operations are set up solely to sell annuities with high commission rates for the agent. It would be rare for you to actually meet the attorney that supposedly wrote the trust. What’s worse, the annuity can undermine the senior’s financial future by making them ineligible for Medicaid (Medi-Cal in California) benefits they might otherwise qualify for without the annuity.
Now let me first say that there is no investment that is right for everyone and that there is rarely an investment that is bad for everyone. So this is not to say that all annuities are bad. Certain annuities are considered Medicaid compliant: A Medicaid compliant annuity is generally considered to be a single premium immediate annuity (SPIA) purchased on or after February 8, 2006, that meets the guidelines described in the Deficit Reduction Act of 2005 (DRA). (California’s viewpoint of Medicaid compliant is a little more complex given that we have not yet implemented the DRA.) If you don’t want to take the time to read and understand the 2005 DRA, make sure to discuss it with an estate planning attorney versed in Medicaid (Medi-Cal) law before you buy. Don’t just rely on the sales agent’s explanation of the law.
Here are some tips from California Advocates for Nursing Home Reform’s ( CANHR) fact sheet you should follow if you are approached to buy an annuity:
- Don’t buy anything at the initial presentation. Tell the
salesperson you want time to think about the investment.
- Don’t buy the first annuity you are offered; investigate and
compare it to other products.
- Consider other options for planning that might be available,
particularly if you are looking at Medi-Cal planning.
- Always talk to a neutral third party knowledgeable about
Medi-Cal estate planning.
- Find out about the surrender penalties and terms and how they
might affect the principal.
- Find out how much commission the sales agent will make.
- Remember, you have 30-days to cancel the contract.
I tell my clients that an annuity may be the right solution when combined with proper estate planning. Never make decisions like these in a vacuum. Share your thoughts with
your adult children, or other trusted family member. Make sure that you have them with you for any sales presentation, and always get the opinion of a trusted attorney versed in elder law.
For more information on annuity and other insurance scams see the California Department of Insurance’s website for more information on Predatory Insurance Sale Practices.