California’s Attorney General, Gerry Brown, and Insurance Commissioner, Steve Poizner, announced a $7.2 million settlement between the state and American Investors Life Insurance Company, Family First Advanced Estate Planning and Family First Insurance Services after the companies scammed seniors into buying annuities.

The Scam

According to a press release from the Attorney General’s (AG’s) website (http://ag.ca.gov/), Brown said, “These companies tricked senior citizens into buying annuities that would not pay out for years and had substantial early withdrawal fees—investments that made no sense for elderly people.” The settlement resolves a lawsuit filed in 2006 against the companies.

According to the release, here’s how the scam worked:

Family First sent sales representatives, who were not authorized to practice law, [went] to senior citizens’ homes to provide legal advice on estate planning. At no time during the initial solicitation or the home visits did Family First disclose that their ultimate goal was to sell annuities. After preparing the living trust documents, the agents returned to the seniors’ homes—under the guise of acting as their financial or estate advisors—and induced the seniors to move their liquid assets into annuities.

The representatives did not disclose that seniors would be unable to withdraw more than the specified amounts while waiting for the investment to mature—sometimes up to 15 years—without incurring substantial penalties. The scheme, known as a Living Trust Mill, is a growing threat to senior citizens who are lured by the free seminars and sales agents who pose as financial or legal experts.

Living Trust Mill Schemes

The Attorney General’s office explained how these shemes work:

Scam artists have capitalized on the growing popularity of estate planning and living trusts by establishing schemes, known as Living Trust Mills, which use the estate planning services as a cover to sell annuities. The sales agents lure seniors with free seminars and sometimes pose as estate planners or financial experts to gain trust, allowing them to review personal financial and investment information. Agents running a Living Trust Mill are known to pressure seniors into converting all their investments into annuities by scaring the seniors into believing their original investments are unsafe.

$7.2M Settlement

The $7.2M settlement requires the insurers to distribute $5.5M to those consumers who purchased annuities with the companies and incurred surrender penalties. On top of that, the insurers must pay a $1M civil penalty and another $700,000 to the state for the investigation and prosecution of the matter by the Attorney General’s and the Insurance Commissioner’s offices.

Additional information

The AG’s office has published warning signs to help seniors recognize how these schemes work. To view these, and for additional information on the settlement, see their website at http://ag.ca.gov/.