When Trust Requires Too Much Information

Q. I am in the process of helping my in-laws get revocable trusts and in the process the financial planner of course starts to make suggestions. One of them is the Master Dex 5 Annuity issued by ####.

They definitely will not need the money for 10 years and their current return is in the 3-4% range due to their conservative nature could this not make sense?

A. I think you need to be very watchful here. Is the financial planner assisting in getting the trusts?

Did you or the in-laws go to the planner or did the planner seek you/them out (seminar or otherwise)?

Regardless, it throws up all sorts of red flags when you seek help with one issue and receive investment recommendations along the way. Many financial planners (and banks and wirehouses) use the estate planning/living trust process as a means to find out about all of your assets and to gain your trust through the process. They then take that information and try to generate additional commissions on the investment side.

In fact, it is widely taught that when going through the living trust process it is easy for an 'advisor' to get the 'prospect' to divulge all of the information regarding their investments. Few people know that the advisor really doesn't need to know that information to provide assistance with a living trust. Besides, the advisor can't make the determination that you need a living trust anyway--it must be done by an attorney.

When dealing with trust issues, all that the advisor and/or attorney needs to know is the total value of the estate and what portion of that is in pre-tax qualified money (company retirement programs, IRAs, etc.). If they are asking you for any additional information it is because they have another agenda. That agenda is to sell you an investment.

This coupled with the fact that one of the highest commission products is being recommended would greatly concern me. Regardless of whether they will need the money or not for ten years, there are better investments available that don't force them to stick with it for a set number of years. The only reason there is a surrender penalty on annuities, anyway, is so the insurance company can get back the money they paid the agent in commission.

You can look at the first year's surrender penalty and get a good idea of what the agents commission is. It wouldn't surprise me if the commission on the #### Master Dex 5 was close to 10%. Such a high commission creates a tremendous conflict of interest. Did the advisor mention how much he/she will make on that suggestion?

There are several articles on my website under annuities that talk about EIAs and why you should be concerned.

If you have any other questions, just let me know.

Your posted comments on this and other questions are welcome.
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