 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.
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