Posted on April 18, 2012 by David Shulman

Beware of non-attorney "living trust" scammers infiltrating the web

While Googling for an old blog post of mine, I stumbled upon which appears to be several fairly aggressive "estate planners" hawking either overpriced "Estate Planning Organizers" or living trusts on the internet to the South Florida community. I put "estate planners" in quotes because these are not attorneys, but might be representatives of a well known trust mill that has been fined and sued, provides worthless documents to their customers, and causes real attorneys that are associated with them to get in serious trouble with the Bar.

But let me back up.

As I said, I was Googling for an old blog post of mine. When I want to find one of my previous posts, instead of using the search on my site, I go right to Google. I'll also sometimes do sample Google searches of various estate planning related terms, for example "South Florida Living Trust" just to see what pops up. This time when Googling, I saw a couple of sites listed on top of the search result page in the ads – not in the natural search. There were:

  1. www.estateplanningsouthflorida.com
  2. www.southfloridaestateplancenter.com and
  3. www.estateplannersfl.com

Each of the three above sites features a different "estate planner" with a little welcome video. The first two links are the exact same site except with a different name and video. The third site isn't the same template as the first two, but with the same information.

This is funny. Each of the three "estate planners" claims either in their videos or on their sites that they have "created" a "free estate planning program" which they will give you if you sign up for their mailing list.

Now the local community of estate planning attorneys is rather small. I either personally know, or have at least heard of most of the attorneys in the area. But I've never heard of any of the above three people, and looking them up on the Florida Bar's Directory of attorneys confirmed my suspicion that they were not - and never have been - lawyers. I signed up on the second site above, and it turns out that the "free estate planning program" is a PDF mini-book entitled "Estate Planning 101: Wills Vs. Living Trusts." After the title page, the book states that it was written by [Doofus in the Second Link Above], Estate Planner." I kid you not. I will not  publish it on my blog for copyright reasons, but you are free to go get it yourself.

The book talks a little bit about estate planning basics, and isn't even that bad. It even ends by saying, "The next step is to locate and work with a top-quality estate planning attorney. I invite you to give my office a call so we can discuss how we can help you outline your desires, explain what you’ve learned about estate planning so far, and investigate each of the areas outlined in the report in detail." So the book tells people to get an attorney - nothing wrong with that - at least with the "attorney" part.

But I knew that there was no way that this doofus could have written this book (especially if the other two doofuses were hawking the same book), but I wasn't sure what they were actually trying to sell, and who they really represented, so I started to investigate a bit further.

banner-bookOn the bottom of the first page it states "Copyright 2012 by the Estate Plan Center, LLC".

Searching for "Estate Plan Center LLC" brings me to this site, in which the company is hawking an "Estate Planning Organizer." Apparently, the Estate Planning Organizer allows you to gather all of your relevant information -family, finances, etc., and put them in one organized place, supposedly, to meet with an attorney to go forward with your planning. It's actually not a bad idea, and it's probably pretty good. However, they're selling it for $197, which is way too much money, assuming that's what they're really selling.

Also on the website is the opportunity to become an affiliate, which what the above three obviously did. The site states, "Promote the Estate Planning Organizer on your site and make a commission every time someone makes a purchase! Simply put our proven advertising on your site and get a check every month for sales…It’s that simple! After you sign up, we will show you how to successfully sell the Organizer on your web site."

What's the problem though??

Here's the thing. Again, going through what they claim to be the actual Organizer itself, it looks like it may be a worthwhile product (although again, not worth $197). If I thought that they were only selling the Organizer, I wouldn't care. But there is something else going on here.

First, the Organizer comes with "bonus" material such as "Living Trust Answers - Discover how to Plan, Prepare, manage and Settle a Living Trust" and "How to Avoid Probate - Your Step-by Step Guide for Transferring Assets into a Living Trust." So I'm starting to wonder if they are selling the Organizer at all, or if it is a loss leader for their Living Trust program.

The owner of the site selling the Organizer, Jeff Radich, has at least one other site, where he is asking people to sign up for a "Free 7-Step Estate Planning Mini-Course" - a clear sign of a Living Trust scam. They get the people in for the "free" course, and then convince them to buy overpriced worthless trusts.

Second, the affiliate websites really make it sound as if the principals were lawyers. On these websites, these scammers are calling themselves "Living Trust Advisors." One website states, "I am an Estate Planner in Coral Springs. For over 10 years I have been specializing in the preparation of estate planning documents & living trusts throughout Florida. I have successfully helped over 100 families plan for the future by preparing a proper estate plan." Another states, "I am a Estate Planner in Pembroke Pines, Florida. For over 34 years I have been specializing in estate planning & living trusts throughout South Florida. I have helped close to a thousand of families set up a rock solid revocable living trust and I can help you too." They even aren't selling the Organizer on the sites. Not specifically. Instead, all of the sties talk extensively about "Living Trusts" again and again. If they are only selling a financial organizer that people can use to take to their attorneys, why are they pushing Living Trusts so hard? Living trusts are right for some people, in some states, some of the time. Anyone who tells you that everyone needs one all of the time, regardless of age, marital status, wealth, and where they live is full of it.

"But David," you may say. "What makes you so sure that these specific people are unethical scam artists looking to rip people off by peddling boilerplate revocable living trusts without knowing what the hell they are doing - or having a license to practice law?"

Good question. I'm glad you asked. On one of the sites's "About Us" page, it states that the "estate planner" "has been part of the living trust revolution in this country right from the beginning, along with the Late Henry W. Abts III, author of the classic book “Living Trust”. Together they have served thousands of families and saved them millions of dollars through proper estate planning. [Non-Attorney] has personally helped clients not only set up their trusts, but also fund their trusts and settle their estates, when necessary."

As soon as I saw the name "Henry W. Abts III," I had my "Aha!" moment. Henry Abts was the founder of "The Estate Plan," which is probably best known for using non-attorneys to sell expensive and worthless living trusts, along with other bogus financial products, to senior citizens

In the 2005 case of Cleveland Bar Association v. Sharp Estate Services, Inc. Et. Al, the Supreme Court of Ohio set forth in great detail how Abts's and his affiliates scam works. Read the case if you're interested. I'll give you the Cliff's Notes: "Scumbags rip off seniors with bogus trusts." Abts's affiliate was fined over $1 million, with the Court stating, " We impose a civil penalty in the amount of $1,027,260, determined by multiplying 468, the number of living-trust and estate plans sold by Sharp in Ohio, by $2,195, against all respondents on a joint and several basis."

In 2006, the Nebraska Supreme Court and Nebraska Bar, in Nebraska Ethics Advisory Opinion for Lawyers No. 06-10 ruled "The Committee believes it to be ethically inappropriate for a Nebraska lawyer to be contractually associated with [The Estate Plan] or similar organizations. . . Contractual associations with organizations such as TEP present Nebraska attorneys with opportunities for multiple violations of Nebraska Rules of Professional Conduct."

In 2009, a $16 million default judgment was entered against them for "masquerading as qualified financial advisers, estate planners, lawyers, and paralegals to exploit and prey upon senior citizens with the creation and selling of "unnecessary and often useless living trusts.

"Attorneys Charge too much for estate planning."

So here's the real question. Why do I care?

The scammers will make the inevitable argument, "Attorneys only criticize us because we are stealing their business and they charge too much. They are jealous and are trying to protect their turf."

I'll tell you a secret. I make a hell of a lot more money probating estates in which the planning wasn't done properly, than I do by actually doing proper planning. If I was only interested in financial gain, I would tell everyone to go out and use one of these trust mills, because I know that they would be messed up, and when the person dies, they would have to hire me to fix it.

I care because these scammers are harmful to society. They rip people off, and sell them ineffectual products. They are practicing law without a license. They don't know what they're doing. They are giving people false peace of mind.

I reported the above web sites to the Florida Bar this morning. Hopefully, they will be able to do something.

Moral of the story? It's a minefield out there, and scammers are getting even more aggressive using the internet. If someone calls themselves an "Estate Planner" but is not an attorney, run away.

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Posted on March 30, 2012 by David Shulman

Tax Court digs the knife in deeper in bad family limited partnership case

Today we learn from a supplemental opinion to Turner v. Commissioner, TC Memo 2011-209 Aug 30, 2011 (Estate of Turner I), that a marital deduction is not available when § 2036 is deemed to pull assets back into the estate, but the assets aren't actually there to give to the surviving spouse.

Estate of Turner I was a standard "bad facts" family limited partnership (FLP) case, in which cash and stock were contributed to a family limited partnership. The decedent then made gifts of FLP interests to his children. The Tax Court found that under Estate of Bongard v. Commissioner, 124 TC 95 (2005), there was no significant non-tax reason to form the entity, and that the decedent retained too much control under § 2036 of the Code. Therefore all of the partnership assets, including those that were transferred away by gifts to his children, were included in his gross estate - causing significant estate taxes to be owed. 

"Aha!" says the estate. If the assets were included in his gross estate, then because his estate planning documents had a pecuniary marital bequest, they are distributed to his wife and therefore qualify for the marital deduction under § 2056. 

Not so, says the Court.

Under § 2036, even though the decedent had in fact transferred the assets away, they were deemed to be in his estate. However the marital deduction only applies to assets "which passes or has passed from the decedent to his surviving spouse." Because no such passing took place, no marital deduction was available. 

Ouch.

See Turner v. Commissioner, 138 T.C. No. 14 (March 29, 2012)

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Posted on March 29, 2012 by David Shulman

Wow, you people are really interested in the lottery

I'm glad that so many people are checking out the estate planning options if they win the lottery. Here is a list of recent search terms that brought people to my site.

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Posted on March 29, 2012 by David Shulman

Planning on Sharing your Lottery Winnings with your Family: Write it Down Now!

MegaMillions mania is sweeping the nation. With the grand prize over $500 million, people are dreaming of what they would do with the money, and how they would share it with their families and friends. One one hand, the odds of winning – 1 in 175 million – are infinitesimal. But hey, someone has to win, and it might as well be you. There is however, one guaranteed winner in the lottery–the IRS. Not only are the lottery winnings taxable income to the winner, which will be taxed at a marginal rate of 35%, if the winter tries to share them with his family, there could be substantial gift taxes imposed also.

When someone wins the lottery, what is often done is their family will claim the prize through a partnership or other business entity that is comprised of family members. With a partnership the family could have varying interests. The theory is that the family all decided before the lottery to invest in the ticket together. Mom and Dad contributed 50 cents to the investment cost of the ticket, Uncle Bob contributed 25 cents, and Cousin Rita contributed 25 cents. The family will either claim that the partnership purchased the ticket, or the ticket is then contributed to a partnership in exchange for proportionate interests in the partnership.

If this works, this helps to solve two significant tax issues -the income tax and the gift tax. Because of the marginal nature of the income tax, and because a partnership in itself does not pay taxes, but passes the taxes on to its partners, splitting the income among multiple partners saves on income taxes, because each individual partner has the opportunity to be taxed at the lower bracket rate before reaching their highest marginal rate. Of course, with a a jackpot this size, the difference might seem de minimis.

The other issue is the gift tax. As I've written about before, there is wealth transfer tax comprised of the gift tax and the estate tax. Each person can give away, during life or at death, a certain amount of property before the tax kicks in. Currently, that amount is about $5 million a person. Any property given away over that is taxed at the rate of 35%.

So by claiming the lottery winnings as a family partnership, a winner can claim that they are not making a taxable gift, because it was a family investment. This could save millions in gift taxes.

The problem is that in most cases, the IRS knows that it's baloney. While it's certainly possible to have agreements among family members (or friends, or co-workers) to enter into a lottery pool, the IRS will not look to kindly on post winning shams. If audited, they will ask for the partnership agreement that existed prior to ticket buying. They will ask when the family members contributed the money. They will ask your history of buying tickets as a family, etc.

Lesson? If you are planning on sharing the lottery with other people, make sure that there is some sort of agreement beforehand.

Or, take the winnings for yourself and flee to Tahiti.

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Posted on March 16, 2012 by David Shulman

Israel Debates Enacting an Estate Tax

America isn't the only place where the imposition of an estate tax is being debated. Israel is currently considering whether to impose one. The proposed exemption amount, that is the amount over which the tax would be imposed, is 15 million NIS (New Israeli Shekels) or a little less than $4 million at today's exchange rates.

For more, see Haaretz - Shelly is right (to impose an estate tax).

 

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Posted on March 15, 2012 by David Shulman

Columnist in one of New York's Poorest Counties Sees the Estate Tax as a "Major Issue"

Hi Y'all. I'm back. Sorry for the big break in posting. I'll try to do better.

In this election year, I haven't heard that much talk about the estate tax - or as the Republicans like to call it, the "Death Tax." As I've written about before, the estate tax is imposed upon your death on any property that you own over the lifetime exemption amount. That amount is currently $5,000,000 a person, or $10,000,000 a married couple. That means that unless a husband and wife have over ten million dollars in total assets, the estate tax will not apply to them. There will be no (federal) tax at all upon their deaths.

Which is why I found this column, "Estate tax is a major issue," in the Dunkirk, NY Observer so curious. After waxing philosophical about death and taxes, the columnist writes, "Of the political candidates currently running for president, besides the incumbent, there was only one candidate who spoke of removal or lessening of the estate tax. If this gentleman withdraws from the political race as a leader of the free world, so be it. If he "in for the long haul" as he says, he'll have my vote and I'll encourage all those who have a disability or know of someone who has a disabled family member to vote for this candidate."

I hadn't heard of Dunkirk, NY, but reading this column I assumed that it was a wealthy suburb of New York - somewhere where the 0.1% live. But according to Wikipedia, "The median income for a household in the city was $28,313, and the median income for a family was $35,058. Males had a median income of $29,462 versus $21,682 for females. The per capita income for the city was $15,482. About 18.5% of families and 22.3% of the population were below the poverty line, including 38.0% of those under age 18 and 11.1% of those age 65 or over."

I doubt there is a single person in the city who would be subject to the federal estate tax. I doubt the letter writer even knows anyone who would be subject to it. And yet, it's a "major issue."

I find the politics of the estate tax odd. It's interesting how the rich segment of the Republicans have convinced the poor segment of the Republicans that the "death tax" is something that they should be concerned about, as much as they should about the economy, and jobs, and social services, and national security.

If you're interested in reading more about this political battle, I recommend you read Death by A Thousand Cuts: The Fight over Taxing Inherited Wealth, by Michael Graetz.

 

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Posted on December 12, 2011 by David Shulman

Final (?) Update on Lottery Winners - I was right the first time

On November 29, I wrote a blog post about 3 Connecticut wealth managers winning $254 million in the Powerball lottery. At the time, I found it curious that all three of them were accepting the prize through a trust, known as the Putnam Avenue Family Trust.

I speculated that the "Putnam Avenue Family Trust is merely a temporary holding entity. After the trust collects the funds, it will then shortly thereafter distribute the shares among the three winners (or their newly formed legal entities)."

Then, responding to media speculation, I asked in a subsequent post whether or not they were using the trust to hide a fourth or real winner. 

Now, it looks like I was right the first time.

In a New York Times Article titled, "It's Official: 3 Asset Managers Will Share Huge Jackpot,"  it is revealed that the beneficiary of the Putnam Avenue Family Trust "has been revealed as a second entity, called the Western Putnam Avenue Trust" and the "three men have stated in an affidavit that they are the only beneficiaries of that trust, which will receive all the assets held by the first trust when it expires on Nov. 22, 2012."

Their lawyer stated what I initially thought, that "his three clients were not hiding anything, and that the trust structure was intended for privacy and to give the trustees certain options for planning their estates."

No conspiracy, just smart planning.

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Posted on December 4, 2011 by David Shulman

Update: Connecticut Lottery Winners Give $1 Million to Veterans' Organizations

 I have previously written about the already rich Connecticut money managers who won $254 Million in the Powerball Lottery, and joined in the speculation as to whether or not there was a hidden fourth winner. 

I'm still not entirely sure as to why they chose to accept their winnings in a single trust, but I'm glad to see that they are starting to do some good.

According to the Wall Street Journal, they have given $1 million to various veterans' service organizations. 

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Posted on November 30, 2011 by David Shulman

Update on the Lottery Winning Money Managers - Are They Hiding the Real Winner?

In my last post, I wrote about some very already rich bankers who won $254 Million in the Powerball Lottery. I expressed my confusion though, as to why three unrelated people were accepting their winnings in a single trust, instead of having the lottery split it for them. I hypothesized that the Putnam Family Trust was only a temporary holding entity, that would then subdivide the proceeds among entities of the three families.

Now, the Daily Mail, a British tabloid, has another theory.

In an article titled, Could they lose the fortune? Rich bankers who 'posed as a front for mystery client' could forfeit $254m Powerball jackpot, the Daily Mail alleges that the three bankers were not the real winers, and that they were collecting it for one of their clients who wanted to avoid the publicity.

Stay tuned.

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Posted on November 29, 2011 by David Shulman

Some Guys Have All the Luck: Greenwich Wealth Managers Win $254 Million Powerball Lottery

I saw this story this morning that made me shake my head in wonder, and in a little bit of jealousy. Apparently, three money managers from Greenwich, Connecticut won $254 million in the Powerball lottery. If you don't know, Greenwich is a New York City suburb and one of the richest in the country. Apparently, the three money managers are the founder and employees at an $82 million wealth management firm. So these aren't the typical lottery winners - a 63 year old married couple from Des Moines where he insists that he is not going to quit his job at the tractor factory.

According to the story, the winning numbers were drawn on November 2, but the three men didn't come forward until yesterday. Also, “the three men will accept an after-tax payment for their winnings of about $104 million and collect it through an entity that they formed called the Putnam Avenue Family Trust.”

The Putnam Avenue family trust? What the heck is that? And why did he wait so long to come forward?

Aha! An estate planning angle.

There are a number of reasons that lottery winners should elect to be paid through an entity such as an LLC or Partnership. Generally, instead of having one individual win the lottery, their entire family claims it through a partnership that they formed, with family members having varying interests in the entity. This allows for there to be lower income taxes, because each person gets to take advantage of their lower marginal rate first. Also, it can help effectuate estate planning by reducing the number of intergenerational transfers and locking up the assets in a creditor protected entity.

But there are a few things about this case that I don't know. It is a bit unusual to collect the winnings in a trust and not a limited partnership or limited liability company. A self-settled trust generally does not really provide any layer of asset protection. Furthermore, there are three separate families here. Why did all three of them have the funds distributed to one trust instead of dividing it equally between them beforehand? You would think that each person would want to have their own share for their family. Again, each of the three of them shouldn't have collected the money directly, but each through a family entity.

Here is what I suspect though, and it's actually pretty smart on their lawyer's part. I would guess that the Putnam Avenue Family Trust is merely a temporary holding entity. After the trust collects the funds, it will then shortly thereafter distribute the shares among the three winners (or their newly formed legal entities). What are the names of these new entities? Where were they formed? What do they provide? We don't know, and that's the point.

Smart planning.

Lucky bastards.

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