Minnesota Attorney General Lori Swanson is suing two California companies, American Family Legal Plan and Heritage Marketing and Insurance Services, Inc., for operating a "trust mill" that preys upon Minnesota senior citizens.
Swanson said that American Family Legal Plan initiates a "trust mill" scheme through a direct mailing to senior citizens, telling them that the company has special expertise in estate planning and can advise clients on how to avoid estate taxes and probate fees.
If the senior citizen responds positively, Swanson said an agent posing as an estate planner meets the senior citizen at home and sells the person a plan for $2,000 or more. Swanson said that during this meeting, the agent will distort and misrepresent the impact of probate fees and estate taxes, causing the senior citizen to buy the trust out of fear that their heirs will lose the estate.
"These companies deceptively sold boilerplate living trusts to senior citizens regardless of whether those trusts were suitable for the seniors' estate planning or financial needs," Swanson said.
Swanson said the first half of the profit scheme is the "trust mill." After the first meeting with an agent, the senior receives one short telephone call from an attorney who asks very general questions.
Thereafter, regardless of the senior's assets, marital status, existing estate plan, or the likely tax or probate liability, the attorney approves the use of a boilerplate "living trust" for the client. The attorney does not have a personal meeting with the senior, nor does the attorney ask specific estate-related questions. American Family Legal Plan agents receive a commission of approximately $600-$800 for each living trust sold.
Swanson said the second half of the profit scheme occurs when the trust document is delivered to the senior citizen by an insurance agent from Heritage, who poses as a representative of the estate planning firm. The agent calls the senior citizen prior to the meeting and tells the senior to gather together his or her financial records. At the meeting, the agent reviews the trust document and the senior's financial records, then attempts to sell annuities to the senior citizen.
The Heritage agent is not compensated for the trip unless annuities are sold, and the agent is expected to sell $25,000 per meeting.
Senior citizens complained to the Attorney General's Office that they:
• believed that the American Family Legal Plan representative at the first meeting was representing a law firm and had special expertise in the field of estate planning;
• were surprised that, after paying $2,000 or more, the only contact they had from an attorney was a brief telephone call;
• purchased the estate planning service because of the fear that was created by the American Family Legal Plan agent regarding the senior's exposure to estate taxes and probate fees;
• in some cases, had to wait months to receive their living trust;
• were never told that insurance would be solicited until the final meeting; and
• thought they were receiving estate and financial planning advice that was customized to their needs and were not simply being sold a boilerplate living trust.
Swanson said that both companies are owned and controlled by Stanley and Jeffrey Norman, who are father and son and reside in California. Swanson said that the companies are the subject of lawsuits by Attorneys General in at least two states, North Carolina and Pennsylvania.
Based on an interview with a former American Family Legal Plan employee, Swanson believes the company may have sold to Minnesota seniors as many as 30 trusts each week. Accordingly, these trusts may have been sold to as many as 2,000 Minnesota seniors, for a total of about $4 million.
In addition, Swanson said the companies expected approximately $25,000 in annuity sales for each trust sold, which would add up to $50 million in annuity sales.
The suit, filed in Hennepin County District Court, alleges the companies engaged in consumer fraud, false advertising, and deceptive trade practices. The suit also alleges that the companies violated Minnesota insurance suitability and insurance solicitation laws, as well as state laws applicable to financial planning. The suit seeks injunctive relief, civil penalties, and restitution.