By Greg Wright,
MBA, CFE, CFP®, CLU, ChFCCertified Financial Planner™
Certified Fraud Examiner
This fraud is marketed to the Christian community and may be described as a “Christian Approach to Estate Planning.” These fraudsters target Christians, know their audience and can quote the Bible chapter and verse. The con appeals both to the church pastor and his non-suspecting congregation. Millions of dollars have been lost to this scam.
Their weapon is not a gun, but a life insurance policy.
The fraudsters convince the church pastor to propose to his congregation that the members purchase life insurance policies in an irrevocable life insurance trust (ILIT) with the church being a 10% beneficiary. This would represent their “Final Tithe.”
Insurance trusts can be excellent estate planning tools if handled by ethical financial planners and administered by a qualified trustee.
In this type of arrangement, the insurance trust is both the owner and beneficiary of the life insurance policy. The trustee receives money from the insured, pays the policy premium and, upon the death of the insured, administers the trust for one or more beneficiaries. In the church-sponsored plans, one of those beneficiaries is the church.
Proper ownership of life insurance is important if the insurance proceeds are to escape estate taxation. For example, If the policy is owned by the insured, the death benefit can be subject to estate tax. One way to avoid estate taxation is to name another beneficiary as the owner of the policy.
Estate regulations provide the underlying justification for the insurance trust. It so happens that the fraudsters also control the insurance trust. Therefore, the fraudster receives the premiums. The usual practice is to use an unsuspecting insurance company to underwrite and issue insurance policies listing the trust as owner and beneficiary.
Trust companies are poorly regulated in Indiana. It is easy to establish a corporation with an appropriate name. You could do it in ten minutes over the internet. One recently established in Carmel, IN by a former insurance agent is Guardians Trustee LLC.
Whack a Mole
These ILIT insurance scam frequently reappears using similar names and with a similar cast of characters. These scams have found their way from Virginia to Indiana to Texas and back again. Some of the fraudsters lose their insurance license along the way. That does not deter them. Since few consumers check to if the salesperson actually has a license, they don’t feel the need to have one. In one Hamilton County case, the fraudster stole the identity of a licensed agent and set up an agency so that he could get an insurance company to issue policies to their trust.
After the policies had been issued, they continued receiving premium checks until someone has died. If they run out of money and cannot pay out the death benefits, they walk away and start another trust. To improve their cash flow, the fraudsters often include in the trust agreement the “spend-thrift” provision of paying out the death benefit over 18 years. The trust can then operate much like a Ponzi scheme.
Some of these programs have used the names of “Freedom 7 Program,” “Christian Family Net Worth,” “My Benefits America,” “Genesis Asset Management,” “Exousia Foundation LTD” and “Stewards of Estates.” These programs are often marketed to Pentecostal and smaller independent churches. If you were to do an internet search (Google), you might find the same individuals associated with ILIT church programs all over the Bible Belt.
Check Them Out
Have you or an independent organization checked out your insurance agent or financial advisor? Is he on the up and up? Make sure you are working with a licensed professional. Has he or she been fined by the regulators, cited for misconduct, have a string of customer complaints, or had his/her licenses suspended or revoked? Make sure the trust company is substantial, long established, and not owned or controlled by the insurance agent.
Attend one of my free seminars that instructs seniors and others how to do this research. The seminar is called “Is your financial advisor a crook?”