Investor abuse: What keeps me up at night |

Investor abuse: What keeps me up at night

One morning in July, we received a call regarding the updates done on an estate plan through a qualified estate planning attorney. The call received was shocking … a rude testamentary to how widespread the wings of professional elder abuse potentially reach.

These investors, a decorated multi-war pilot veteran, aged 91, and his 87-year-old wife, were found to have out-of-date estate planning during our routine annual full financial review. That means some of their basic documentation, such as wills, trusts, durable financial powers of attorney or directives to physicians, might be lacking in most current legal terminology, trust assets exceed current federal guidelines for estate tax exclusion, assets that should be titled in the trusts are not, individuals mentioned in the documents are “of age,” divorced, deceased or no longer wished for designated roles need to be amended, etc.

As a matter of our professional review, it was recommended that all of their estate planning needs be reviewed by a qualified estate planning attorney.

The assignment to them seemed simple enough. They called the three attorneys we recommended, didn’t get an immediate call-back and scheduled an appointment with an attorney who had an ad in the paper. This attorney reviewed their estate planning documents and made minor changes to these documents. What happened next is nothing less than professionally shocking.

The spouse (wife) for whom the variable annuity was originally intended … unwittingly transferred this benefit to her children instead.

The attorney, who also is California insurance licensed, reviewed the investments and discovered a jointly owned no-load (i.e. no commission charged to the investors) variable annuity with no back-end surrender charge. Like some variable annuities, this annuity had grown through the years, tax-deferred (i.e. the current profit had yet to be taxed), the principal was guaranteed upon death, and the current market value including profit was immediately available to these investors free of any penalty, charges or back-end commissions.

It was the investors’ understanding that the attorney suggested they sell this annuity to “facilitate their estate planning,” and they did and added another $90,000 out of their bank account in a “moment of excitement.”

This seemingly simple transaction had several ramifications:

— The sale of the original jointly held variable annuity caused the clients to pay immediate income taxes on the profits they had deferred, a complete surprise to them.

— The higher-than-original death benefit of the original variable annuity was lost to the beneficiaries through the sale of the original variable annuity.

— The attorney who received a commission “up-front” left the investors with a new annuity with a severe “back-end surrender charge,” meaning the original 100 percent access to their money without penalty was now gone.

— The spouse (wife) for whom the variable annuity was originally intended in case of an emergency had now unwittingly transferred this benefit to her children instead.

— The investors’ basic understanding of the new “indexed” variable annuity was absent. They thought they understood that “if the stock market goes up, you will make profit, and if the stock market goes down, you lose nothing.” While not entirely true, this was certainly not an age-appropriate investment for 87- and 91-year-olds.

Should you suspect elder abuse of any kind, immediately contact the complaint departments at the securities/insurance firm involved and the complaint departments at the Department of Insurance, County Elder Abuse Council, and State Bar Association, as appropriate. Fo information, visit the California Senior Gateway website at

Allen Ostrofe, MBA CFP® is president of Ostrofe Financial Consultants, Inc., a fee-based Registered Investment Advisor. Contact him at (530) 273-4425, or

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