California Bar Journal
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Kudos to the bar for warning in scams against elderly

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The State Bar, keeper of California’s astronomically growing lawyer population, takes more abuse than a roomful of, well, lawyers.

It’s too lenient on errant attorneys. Or it’s too hard on small firms and lets megafirms slide. Or it spends too much on lobbying. Or it ignores the complaints of the common folk.

You get the picture.

Which is why you should hear the story of Roy and Marjorie Marchant.

The Marchants are an elderly couple living in San Mateo. They are not rich, but well-off enough to own a home, modest investments and $500,000 worth of rental property producing about $25,000 a year after expenses.

Life, in short, is pleasant for the Marchants. Or at least it was until June 1998.

That’s when Roy received a flyer advertising an estate-planning seminar at the San Mateo Garden Center. Roy went to the seminar and came away impressed by a scheme to leave his heirs his estate, tax free.

The scheme went something like this:

The Marchants would give their $500,000 worth of rental property to a charitable trust. The trust would sell the property tax free and use the proceeds to buy an annuity, which would pay the Marchants about $40,000 a year.

The Marchants would then buy $500,000 of life insurance held in a separate trust. So when the      Marchants died, their heirs would get from the life insurance the full $500,000 value of the rental  property.

Slick, huh?

Not really. What the con artists at the seminar didn’t tell Roy was this: The life insurance would cost about $32,000 a year, which, when subtracted from the annuity income, would leave the Marchants with about $8,000 — far less than their original rental income. Worse, the Marchants could never sell the rental property to cover any unexpected expenses. And the kicker: The Marchants’ estate was never even big enough to trigger estate taxes.

The scheme’s promoters, of course, didn’t much care. They came away with handsome commissions for selling the annuity and the insurance policy.

By the time the Marchants figured all this out, it was too late. They had closed the deal. Today, they are stuck with trying to recover their estate through a lawsuit of uncertain prospects.

About the only good thing to come out of the experience is that the Marchants are now movie         stars. The movie is actually a video made by the long-suffering State Bar of California. It is called “Taking Charge,” and it is the centerpiece of the bar’s unprecedented and obviously much needed program to warn the elderly about estate-planning scams.

Because there is nothing unusual about what happened to the Mar-chants.

“You’d be surprised,” explains Redwood City attorney Paul Barulich, a primary force behind the bar’s program. “Elder citizens as a group are so trusting that they deal on a handshake and a word. Many yearn for the contact.”

The way the scams often work is that the promoters present themselves to the elderly as experts in estate planning, although their only training is in reaping commissions from the sale of insurance and annuities.

 “If they knock on the door and say, ‘I’m here to sell annuities,’ the door gets slammed,” says Barulich. “But if they say, ‘I’m here to do estate planning, and I know more about it than your lawyer,’ it’s a different story. They’re wolves in sheep’s clothing.”

One of the most egregious examples of selling annuities under the guise of estate planning involved the Alliance for Mature Americans. The Lake Forest-based organization sold more than 9,700 annuities to seniors in California and other states with sales pitches that sometimes lasted as long as eight hours.

Part of the case against AMA and the insurance companies that provided the annuities ended last summer in a multimillion-dollar settlement, $150,000 of which financed the bar program.

The program is an extraordinary undertaking, the first time the bar has moved beyond its traditional roles of licensing and disciplining lawyers to teach the public about unscrupulous promoters. So far, the program has trained about 300 trusts-and-estates attorneys, who voluntarily speak three times each year at community centers, churches and other locations convenient for seniors.

They talk about the warning signs of a scam, clues such as deals that sound too good to be true and terms that change and grow more complex with each meeting. They offer commonsense tactics such as getting details in writing, resisting pressure to do things quickly and seeking independent advice from a lawyer or certified public accountant.

And they offer a remedy: A phone number — 1-888-/460-SENIORS — that victims can call to ask advice or report a scam. The number connects to the bar’s “intake unit,” which summarizes complaints and refers them to a special section of the state attorney general’s office for criminal or civil prosecution.

Although it is too soon to report any noteworthy prosecutions, the program is based more on prevention than punishment, on the theory that education is operating the best defense. It is a  theory that should serve senior citizens well — and improve the State Bar’s flagging reputation.

“It restores the confidence that the public should have in attorneys and the State Bar in general,”  Barulich says. “It shows that we really are a consumer protection agency.”

Reynolds Holding is a legal affairs writer for the San Francisco Chronicle. This column is reprinted with the Chronicle's permission.