This question popped up on one of my listserves and Jim Wood, a registered Legal Document Assistant ("LDA") in San Ramon, wrote an excellent response. With Jim's permission, I have re-posted it here.
Way to go, Jim!
The California Insurance Commissioner described a trust mill as "an unlawful marketing scheme designed to accomplish the sale of annuities..." Beginning well before the millenium, living trusts were peddled like products in order to ascertain whether or not the client was a prospect for an annuity sale. Clients "buying a living trust" [it was thought of as a product in those days] provided the salesperson with a detailed list of all assets needed to fund the trust, but that list was also available to see which customers had large CDs, deposit accounts, or other low yield (but highly liquid) financial products, and those purchasers were prime prospects for an annuity sale.
The State - through the Insurance Commmissioner, the Attorney General and other regulatory agencies - was primarily concerned with sales people or organizations whose primary income was from annuity sales, and who were using living trust sales as leads for insurance product sales. The poster child of trust mills was The Alliance for Mature Americans, but there have been several others more recently - such as Family First, Estate Preservation Inc. of El Segundo, etc.
Some of the annuities were abusive, in that they took seniors' savings and exchanged them with high-commission annuities that may not provide an income stream until the senior was well past their life expectancy. These are called 'deferred annuities' and have a use for certain taxpayers (typically those with high current earned income). Some of the annuities were legitimate and beneficial products, sold ethically by honest professionals. The concept is not unlike the reverse mortgage market today - neither all bad, nor all good, you really have to evaluate each one one its own merits.
Trust mills' trusts were not always low cost - even though the company was willing to lose money on trust sales because they made up for it with insurance commissions. They used direct mail, sending hundreds of thousands of post cards to seniors. Many times the cards quoted AARP's study of the high cost of Probate - which led many respondents to think that the trust mill was part of AARP. Trust salespeople were paid hefty commissions - up to $1000 or more per trust - so a trust that "sold" for $1,995 would probably not cover all the firm's costs (capable lawyers usually charge more than $995 for estate planning services). Trust quality ranged from atrocious to excellent, with more of the former than the latter.
The low-price trusts were usually sold using seminars - $495 for those who buy today!! [Imagine a flashing blue light in the back of the room). Those trusts were pretty much 'one size fits all,' for example, a distribution plan that consisted of a few words: "to my issue per stirpes." Usually an attorney spoke at the seminar, but did not prepare the trusts, which (in accordance with the advertisement preceding the seminar) "will be delivered by a licensed insurance agent." Sometimes attorneys prepared the trusts, sometimes not.
[These ads, by the way, continue today - PSM]
Today there are attorneys and non-attorneys selling trusts. Of the non-attorneys, some are registered Legal Document Assistants (LDA) who, they claim, are free to sell trusts to the public without an attorney supervising so long as they are using a form originally prepared by an attorney. Some know what they are doing, other don't. I believe that it is impossible to prepare a trust without practicing law, so even though my firm is a registered LDA, we do not sell to the public at all - and work only as contract paralegals for attorneys.
So - how do you know if it's a trust mill? If the trust is sold in order to provide information that will lead to a larger, more profitable sale, it is. It may be high or low cost; it may be a good document or bad. But if there is deception in the sale, it's a trust mill.
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