State Says Company Tricked Seniors

Intensifying their crackdown on alleged financial abuse of seniors, regulators on Thursday sued a Woodland Hills-based “living trust mill” that they claim tricked thousands of older Californians into buying unnecessary investment products.

In a civil lawsuit filed in Los Angeles County Superior Court, Atty. Gen. Bill Lockyer and Insurance Commissioner John Garamendi accused Family First Advanced Estate Planning Inc. and affiliated companies of violating state law in the sale of hundreds of millions of dollars’ worth of living trusts and deferred annuities since 1997.

The suit seeks more than $110 million in fines and restitution.

“The perpetrators of this fraud deceived seniors into using their hard-earned retirement nest eggs to buy unneeded annuities that actually undermined their financial security,” Lockyer said. He said he feared that senior investment abuses would keep his staff busy as the state’s 65-plus population soars from 3.4 million to a projected 6.4 million by 2020.

Taxpayers can legally avoid probate by placing their assets in a living trust, which dispenses the assets upon their death. Regulators say the tool can be exploited by “trust mills” that use the plans as bait to find seniors with substantial assets in 401(k)s, individual retirement accounts, certificates of deposit or other investments.

The trust mills then pitch annuities to the investors.

Annuities are products that often package a tax-deferred investment account with an insurance feature. They can be useful savings devices but also can hold pitfalls, such as high fees and limitations on withdrawals.

Family First used telemarketing, direct mail and seminars at senior centers to find clients, offering free in-home estate planning consultations as a guise to gain confidential financial information that was later used to pitch the customers annuities, the lawsuit claimed.

The annuities generated commissions as high as 12% for the sellers, the attorney general’s office said.

The sales agents allegedly misled clients into thinking they needed new or updated living trusts, improperly advised them to sell securities to fund the annuities and failed to disclose policy drawbacks including “surrender penalties” that could limit seniors’ access to their savings for 15 years.

An attorney for Family First vowed to fight the allegations.

“We will defend our position in court,” said Kent Keller of the law firm Barger & Wolen in Los Angeles. “Beyond that there’s nothing to say.”

The defendants include Nick A. Michaels, president of Family First Advanced Estate Planning; John Owen, president of Family First Insurance Services, which shared the same corporate offices; and American Investors Life Insurance Co. of Topeka, Kan., which issued the annuities.

Also named were Group Legal Services Inc. of San Diego, Senior Law Practice Group and attorney Thomas R. Lee of Woodland Hills. They allegedly prepared estate planning documents or lent their names to the enterprise.

Lee declined to comment, saying he hadn’t seen the complaint. Michaels, Owen and the other defendants couldn’t be reached.

American Investors’ parent, AmerUs Group of Des Moines, bought the Family First companies in 2002. AmerUs was not named in the suit.

Family First Insurance Services was still operating, regulators said Thursday, but it was unclear whether Family First Advanced Estate Planning was still in business. Regulators said they believed that the firm had severed ties with Group Legal Services and Lee recently.

The insurance department and the attorney general’s office began probing the companies in early 2003 after hearing complaints from consumers, regulators said.

Michaels and Owen started the companies after working with the Alliance for Mature Americans, a now-defunct trust mill based in Lake Forest that was broken up in 1997, said Scott McNamara, staff counsel for Garamendi’s office.

Family First Advanced Estate Planning, American Investors and several other firms were sued in October on behalf of several seniors by two consumer groups, California Advocates for Nursing Home Reform and the Institute on Aging, which are seeking class-action status.

Last March, Family First Advanced Estate Planning and Group Legal Services agreed to stop doing business in Washington state and to give refunds to consumers after the attorney general there investigated them. The companies did not admit or deny violating Washington law.

California regulators are seeking at least $70 million in consumer restitution and damages and more than $40 million in civil penalties.

Garamendi put a political spin on the case, saying President Bush and Gov. Arnold Schwarzenegger should see it as an example of the dangers that privatizing Social Security and state pension programs could bring.

“This entire scam ought to be a wake-up call to the president as well as the governor,” he said. “If you open the doors, there are those who will engage in abusive and illegal practices.”