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May 19, 2005
MORE SENIOR SCAMS
A client of mine recently brought in a postcard from the Senior Benefit Center. It told of the “2005 Important Elder Law Changes”. All you have to do is sign the card and provide your telephone number. Identical sales promotion materials have also been mailed by the American Senior Alliance and by the National Processing Center. These three different companies, who are mailing the same informational postcards, do not list their telephone number or their address. So who are these people and what do they want?
As many of you are aware, a couple years ago the “Do Not Call List” was started. This was a way of stopping those harassing phone calls from salesmen from coming into your home. By sending in this card with your phone number, you have taken your name off the Do Not Call List for whoever ends up with this card. Your name will come off the list and be available to whoever purchases the list.
You will start to receive telephone calls from various people. Some will want to sell you long term care insurance. Others will want to sell you living trusts or annuities. If you are interested in any of these options, my recommendation is that you find someone local, perhaps someone that has assisted friends of yours, to find out about long term care financing options and legal documents that can meet some of the goals indicated in these sales brochures.
Let’s take a look at some of their claims:
SENIORS MAY APPLY TO COMPLETELY REDUCE OR AVOID ALL PROBATE AND ESTATE TAXES. – This is what I would call a half-truth. Currently estates valued over 1.5 million dollars are subject to estate tax. With proper planning, married couples will pay estate tax when their assets are in excess of 3 million dollars. There is no such thing as a probate tax.
REDUCE OR AVOID ALL INCOME TAXES ON INVESTMENTS AND SOCIAL SECURITY - Here is another half-truth. Yes, you can avoid all income taxes on investments, if, you convert everything into a tax deferred annuity. These investments are generally not suitable for seniors because many are subject to stock market fluctuations and penalties for early withdrawal.
EXEMPT ASSETS FROM COLLECTION BY GOVERNMENT OR NURSING HOME IF ILL. – This is a true statement, but only if there is a husband and wife, and only if only one of them needs nursing home care. The procedure calls for the purchase of a Medicaid qualifying annuity and should only be purchased after one of the spouses has been institutionalized for long-term care.
PROTECTION FROM LOSS DUE TO MARKET VOLATILITY ON YOUR PRINCIPAL AND INTEREST – This is another way of enticing you to purchase an annuity. The president of ASA says that you will earn a high interest rate and protect your principal. The Massachusetts Attorney General says that your principal is not guaranteed, substantial early withdrawal penalties apply and that these are not appropriate investments form many seniors. Who are you going to believe?
EARN HIGH INTEREST WITHOUT MARKET RISK AND ENJOY RELEIF FROM CAPITAL GAINS AND FEDERAL ESTATE TAXES. – This is more of the same annuity sales language. High interest probably means that the annuity is tied into the stock market and subject to market risk. The promise of making 9% interest instead of the 3% that CD’s are paying is very attractive to those on fixed income. However, placing all of your money in an annuity that penalizes you for early withdrawals, and is subject to stock market volatility is clearly not the right thing to do. Purchasing an annuity does not relieve you from federal estate taxes; it sounds pretty good though.
The website SeniorJournal.com, as well as others, has written about these same postcards in December 2004 and January 2005. The December article advised seniors to not respond to these postcards. On January 27, 2005, the president of American Senior Alliance (ASA) responded by sending an email to SeniorJournal.com. He stated that “ASA is a not-for-profit corporation, whose sole purpose is senior education” and “ASA does not provide benefits or services to seniors”. Well, I checked with the Internal Revenue Service and ASA is not listed as a charitable organization.
THE BOTTOM LINE – Elders should think very carefully before investing money that has typically been held in certificates of deposit at banks. If you have a substantial amount of money, diversification is an important investment plan and perhaps using some of your money for an annuity makes sense. Consulting with a Certified Financial Planner (CFP), your attorney or Certified Public Accountant (CPA) is a good choice if you are unsure of what to do. There are too many qualified financial advisors in your vicinity to rely on advice given from someone who mailed you a postcard from Oklahoma! Good Luck.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds a masters in accounting and a masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org