Legacy MattersCarolyn Said, a reporter for the San Francisco Chronicleexamines the history behind a California class-action suit against those insurance companies who use estate-planning sessions to sell annuities to seniors.
Charlotte Cook found out something startling after her East Sacramento neighbor of 20 years, Leo Travis, died. She discovered that her friend, a frail, almost-blind man with severe emphysema, had cashed in his life savings in his final months to purchase annuities that wouldn't mature until he was 98.
Cook was furious. "He would have had to pay major fines to get his money back out should he have needed hospitalization or to go into a skilled nursing facility. He had no liquid capital left," she said.
That's why Cook, as the executor of Travis' estate, joined with two seniors who were sold similar products and two advocacy organizations for seniors in a class-action lawsuit against insurance companies and living-trust companies that market to elderly people. It is the largest case of its kind in California......
The lawsuit, filed late last month in San Francisco Superior Court, charges that the companies sponsor free estate-planning seminars for seniors as a way "to learn about the senior's assets and manipulate them into purchasing manifestly inappropriate financial investments for seniors, namely annuities."
Two companies named as defendants in the suit -- Estate Preservation Inc. of El Segundo (Los Angeles County) and Ameri-Estate Legal Plan Inc. of Irvine (Orange County) -- said they had done nothing illegal or unethical.
Two other defendants, American Investors Life Insurance Co. in Topeka, Kan., and American Equity Investment Life Insurance Co. in Des Moines, Iowa, said they had no comment. Another defendant, Gentry Group of Dallas, did not return phone calls.
"There's nothing wrong with a living trust," said Louise Renne, former San Francisco city attorney and now a partner with Renne Sloan Holtzman & Sakai, representing the plaintiffs in the case. "But there certainly is something wrong when a living-trust seminar or mill is used as a way to gather information about a senior's assets and then sell them an annuity."
Financial planners say annuities are a poor investment choice for people over 65 because they generally have long maturation periods and severe penalties for early withdrawal. Sometimes they even have substantial surrender charges if the owner dies before a certain age.
But they are lucrative for the insurance agents who sell them. According to FundAdvice.com, typical annuity commissions are from 5 to 5.5 percent of the money invested, with some agents collecting commissions of up to 14 percent.
Posted by Jill Fallon at December 11, 2004 2:50 PM | Permalink