Agent scams seniors out of more than $2 million

Department of Insurance asks additional victims to come forward 

PALM DESERT, Calif. – John Paul Slawinski, 59, was arrested at his home in Palm Desert on July 29, and is being arraigned on Friday, August 1, at 1:30 p.m. at the Riverside Hall of Justice, Department 411, 4100 Main St, Riverside. Slawinski is charged with five felony counts of financial elder abuse and five counts of burglary for allegedly ripping off five senior citizens for more than $2 million through the sale and surrender of investment annuity products. Bail is set at $2,000,000. 

An investigation was launched by the Department of Insurance after receiving complaints regarding Slawinski’s business practices involving the sale and surrender of annuity products. Investigators allege that Slawinski, a licensed insurance agent, convinced some victims to surrender annuities and investment products with the promise of higher returns through new investments and conned other victims into giving him money to invest for them. Slawinski did not purchase annuities or investment products, nor did he refund the victims’ money.

“I find it particularly appalling when people in the position of trust violate that trust and take advantage of vulnerable senior citizens,” said Commissioner Dave Jones. “Consumers should be able to trust their agent when making important insurance decisions. Consumers often rely on the advice of their agent when they are taken advantage of the result is often devastating.”

Slawinski concealed his theft by providing the victims with fraudulent financial statements, and by issuing minimum investment payments to lead them to believe their insurance investment and life savings were secure.

The Department of Insurance is looking for additional victims in this case and encourages anyone that may have done business with Slawinski and/or JPS Insurance Services to contact the Rancho Cucamonga Regional Office at (909) 919-2200.

The Riverside County District Attorney’s Office – Elder Abuse Unit is prosecuting the case. This case is being investigated and prosecuted under the Life and Annuity Consumer Protection Program (LACPP). LACPP provides grant funds to counties for the prosecution of financial abuse in life insurance and annuity product transactions.

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Not sure if you or a parent or relative have been victimized?  Contact Max Herr for assistance in evaluating the situation.  If a crime has occurred, Max will help you reach out to state or local investigators.

Medicare Advantage Open Enrollment Coming

Open enrollment for Medicare Advantage and Prescription Drug Plans will open on Wednesday, October 15, 2014, and continue through midnight Sunday, December 7, 2014.  During this 45-day period, all Medicare beneficiaries may enroll in, disenroll from, or change to a different Medicare Advantage plan.  All persons who are enrolled in both Medicare Part A and Part B are eligible to enroll in Medicare Advantage -- this includes persons who became eligible for Medicare due to disability prior to age 65 and have been receiving SSDI benefits for at least 24 consecutive months. 

And don't get scammed by persons trying to enroll you in Obamacare!! 

If you are enrolled in, or eligible to enroll in Medicare, you don't qualify for advanced tax credits and you don't need to buy health insurance through the Covered California health benefits exchange.   Report anyone trying to sell you health insurance not referred to as Medicare Advantage or Medicare Supplement insurance -- or asking you to write a check or give them cash to be enrolled in Obamacare -- to your local law enforcement agency immediately!  And don't talk to anyone who approaches you unannounced or uninvited -- they are prohibited from doing that. 

Medicare Advantage represents value!

Medicare Advantage (MA) HMOs and PPOs represent some of the best values for Medicare beneficiaries when it comes to obtaining health care services compared to "Original" Medicare, with or without a Medicare Supplement insurance plan.  Generally, MA participants enjoy a broader range of services, significantly lower out-of-pocket expenses, and access to established networks of physicians, surgeons, and other health care professionals who might not otherwise choose to treat Medicare patients.  Most MA plans also provide coverage for many of the things that Medicare excludes, such as "routine orthopedic care" of bones and joints, as well as vision (eye exams and prescription lenses) and dental benefits.

"MA-PD" plans also include a Prescription Drug Plan (PDP) that most Medicare beneficiaries are required to purchase if they do not have creditable coverage through an employer-sponsored plan or standalone PDP (if you are enrolling in most HMO or PPO plans, the plan must include the PDP, it is not an option).  Each MA plan that offers a PDP will have its own "formulary" -- a list of covered medications -- so it's very important to know whether your medications are included in a plan's coverage, and to what extent.

Required certification for 2015 Medicare Advantage

Enrolling in a Medicare Advantage plan can be accomplished by visiting the official Medicare website -- use the link to Medicare.gov at the bottom of this paragraph -- by contacting any of the insurance companies which offer Medicare Advantage plans, or licensed insurance producers who are certified by those insurance companies to enroll persons in Medicare Advantage plans.  In order to be certified, each of us must complete an annual training program, take a series of exams, and pass the final exams with a score of 90% or better (on the first, second, or third attempt).  All insurance producers must also be "appointed" as an agent of the insurance company.

Get official information about your Medicare benefits and options directly from Medicare! Click on the logo above.

Help fight fraud, waste, and abuse in Medicare.  Click on this link to the official HHS website.

And you don't pay anyone for advice either!

Seeking the services and advice of an experienced insurance producer does not cost a Medicare beneficiary anything.  One of the particular advantages enjoyed here in California is that in most areas of the state, MA plans are available with no additional premium expense out of pocket -- a benefit of our population demographics and good, old-fashioned competition.  When a person enrolls in a MA plan, the US Government pays that insurance company a monthly fee which it uses to defray the cost of providing care to its enrollees.  You don't even have to write a check to enroll! 

The benefit of using a licensed insurance producer cannot be downplayed.  He or she will be able to explain how Medicare Advantage works in comparison to Original Medicare (with or without a companion Medicare Supplement (or "Medigap") insurance policy), and how you may save money by choosing one of the available plans in your area.  There are a variety of MA plans other than HMOs and PPOs, such as Private-Fee-For-Service (PFFS), Medicare Savings Accounts (MSA), and Cost Plans (low cost care inside the HMO network, and Original Medicare coverage outside the network when using Medicare-approved providers), as well as Special Needs Plans (SNP) for persons with certain chronic health conditions.  For some low income persons, there may also be Medicare Advantage-Medicaid hybrid plans available. Trying to figure out the differences and what they mean to you (or a parent or grandparent) can be a genuine challenge.  You don't have to try to figure it out on your own. 

Insurance professionals cannot charge anyone for their services, and you cannot be given any "gifts" to encourage your enrollment in any plan.  We are paid a commission by the insurance companies with whom we place your business, and the amount of compensation is strictly limited by the Centers for Medicare and Medicaid Services ("CMS"), and regulated under federal and state laws.  Generally, all insurers and their Medicare Advantage plans offer agents the maximum commission available, so agents do not have an incentive to "sell" you one plan compared to another.  In fact, agents MUST disclose their compensation as part of the enrollment process.

Our responsibility to you is to make sure you select a plan that meets your needs, provides the benefits that will be most important to you, include the doctors and other health care professionals you are already using in their network, and how well its past performance has been rated by Medicare. 

Most importantly, federal marketing rules for Medicare Advantage and Medicare Supplement insurance ABSOLUTELY PROHIBIT "cold-call" solicitations by agents -- those annoying phone calls that you did not invite.  In fact, agents cannot even approach you to offer you information about Medicare Advantage or Medicare Supplement insurance plans.  We can set up a stand at a hospital or pharmacy, but have to wait for you to approach us.  We cannot send you emails if you haven't given the insurance companies we represent permission to do so in advance.  Everything must start with you!  You must ask for the information, you must ask for the agent to visit you in your home.  

When the agent comes to meet with you, unless you ask about other health-related insurance products that were not listed on the "Scope of Appointment" notice you must be given AT LEAST 24 HOURS IN ADVANCE of that meeting, he or she cannot discuss any other types of insurance with you at that time . . . ABSOLUTELY no discussions of life insurance, annuities, homeowners, or auto insurance, mutual funds, stocks, or bonds . . . and no sales of laundry detergent or other consumer products or services. 

You can also obtain information at no cost from the Health Insurance Counseling and Advocacy Program office nearest to you.  Click on the link below to open a window to that website operated in conjunction with the State of California's Department of Aging.   Be sure to download the Medicare Fraud Toolkit on their publications page.

Click the HICAP logo to visit the California Department of Aging and get information about this no-cost program for seniors and their family members.

Beware of Life Insurance Being Marketed as Annuity Death Tax Protection

An advertisement for insurance agents showed up in my email the other day touting a way to help people avoid the "Annuity Death Tax."  It promises agents a 15% commission on the initial premium aid with the application.

ut what this ad was promoting was selling folks a "Modified Endowment Contract" ("MEC") -- nothing related to an annuity at all.    A person under age 59-1/2 would NEVER want a life insurance contract such as this.  And, truth be told, most folks over age 59-1/2 don't want this either.  So what's it all about?

An annuity has cash value, like a whole life or universal life insurance policy.  Most annuities are "nonqualified" contracts -- which simply means you don't get a tax deduction for the money you pay into the contract.  When you eventually take that money out, you won't pay tax on it again.  But any interest you earn along the way will be taxable as income when you take it out.  And if you just want to take some of the money out for your own use, the IRS makes you take the taxable interest out before you take out the tax-free portion.  If you touch the money before you are age 59-1./2, then, like touching retirement account money, you will also be hit with a 10% penalty tax. 

Annuities have a "death benefit" for a beneficiary if the contract has not been converted into the payout phase (called "annuitization").  It is the greater of the contract value or the original funding amount (less any withdrawals).  But the interest portion of the payment is a taxable event for the beneficiary.  Depending on the amount of interest accumulated, it could amount to several thousand dollars in income tax due.  That's what's being referred to as the "Annuity Death Tax" -- nothing more than the income tax that is payable if the annuitant dies before annuitizing the contract.

ell, life insurance is also paid for with after-tax money.  But the death benefit is paid to your beneficiary free of any income tax.  The IRS knows your beneficiary will save, invest, or spend that money, and it will eventually generate income and other tax revenue.  You can also "borrow" money from the insurance company, using your life insurance cash value as collateral for the loan.  You either pay the money (plus interest) back to the insurance company, or they take it from the death benefit before the beneficiary is paid.

n the 1980s, when President Reagan and Congress "reformed" our Internal Revenue Code to "simplify" it, they also created an entirely new "thing" called a "Modified Endowment Contract."  A MEC was not something you could get from an insurance company.  But it was what your life insurance policy could become if you paid too much money into it in the early years, and would cause it to reach its maturity prior to your age 95. 

When a life insurance policy becomes a MEC, it loses its "definition" of life insurance in the Internal Revenue Code.  And it suddenly looks a lot like an annuity or a retirement account.  Everything except the death benefit paid to the beneficiary.  That is still paid income tax free.  Any other touching of the money by the policyowner results in a taxable event (and a 10% penalty tax if the policyowner is under age 59-1/2). 

niversal life insurance policies are the most likely candidates to become MECs.  But actual endowment policies (which usually reach maturity at age 65 or 70 or 75) are automatically considered MECs (an unintended consequence of the law).  So, too, are some single premium life insurance policies.  And that's what this "Annuity Death Tax" business is all about.

You might have a retirement account that has built up to several hundred thousand dollars, perhaps even a million dollars or more.  But you are worried that the stock market, that once reduced your savings by 40% or more just a few years ago, could do that same thing again, and it makes you nervous to think about it.  You could put that money in an annuity (even a variable annuity, but they are very high cost products) and guarantee that the value for the beneficiary would never decline on its own.

You don't take any medical exams, you could even be dying, and you can purchase an annuity as long as you have the money.  The longer it stays in the annuity, the more it will grow -- but not necessarily very fast.  Most annuities with interest rate guarantees only guarantee about 3% annual interest.  Not very much, but still better than you can get at the bank today. 

ou can take money out of your annuity, but some or all of your withdrawal (called a "partial surrender") could be subject to a surrender charge.  And most or all of the money you take out could be taxable as income because of the Internal Revenue Code. 

single-premium MEC life insurance policy looks almost exactly like an annuity.  Except that it would have a somewhat higher death benefit (the ad said up to 50% higher).  But unlike non-MEC life insurance, you have lost the right to take a loan against the policy, any partial surrender is a fully taxable event, until all the interest has been paid out.   The product being advertised is not something I would recommend to very many people, if any.  Once a policy becomes a MEC, it's a done deal.  It cannot be changed . . . . ever -- unless you can get the IRS to agree that you did not intentionally cause that to happen.  These policies being advertised are intentionally MECd, so forget about asking the IRS for a do-over. 

ut when a person drops $1,000,000 into one of these policies . . .  the agent pockets a cool $150,000 commission.  The beneficiary could be in line for a $1,500,000 payout.  But the policyowner, if they needed some cash for an emergency, would be heavily penalized by the insurance company and the IRS.  And that's where I think these products, if they become widely promoted, will get people into trouble. 

see this as the tip of the iceberg in future insurance litigation.  People will be misled by inexperienced agents who are mostly concerned about their own incomes, not that of their clients.  There is much potential for misrepresentation and/or concealment on the part of agents in the marketing of these policies.  And much of it could be centered on taxation issues the agents do not understand.  

This sales tactic has great potential to become a scam on consumers.  f someone tries to market such a product to you . . . please contact me before you sign any applications.  I will provide you with a complete analysis of the proposal at no cost whatsoever.  I don't want to have to represent you as an expert witness, if I can prevent it in the first place. 

Life Insurance for Estate Planning

With the changes Congress has made to the Internal Revenue Code (IRC) as a result of the American Taxpayer Relief Act of 2012, some of the uncertainty concerning estate taxes has been eliminated.  Congress enacted significant changes to the IRC in 2001, with a "sunset provision" that would return everything back to where things were on January 1, 2001, unless a future session of Congress made some or all of the changes permanent before December 31, 2010. 

For the better part of the next ten years, Congress largely ignored this.  Along the way, they did manage to make permanent the retirement plan provisions that increased contributions to all of the various types of individual and company-sponsored retirement plans.  But that's all they did in ten years.  Until the closing hours of 2010, when the impending sunset was about to occur.  Strangely, there was no real talk of a "fiscal cliff" in the days and weeks leading to December 31, 2010.

As a result of the mid-term Congressional elections in 2010,  the Republican party would once again have the majority of votes in the House of Representatives.  The spectre of any automatic reversions still loomed, but now it was going to be up to Congress to either do nothing and raise taxes (on income, dividends, capital gains, and gifts & estates) for all Americans, or do something.  Unwilling to work out a real solution, in true bipartisan fashion, Congress merely "kicked the can down the road two years."  To December 31, 2012. 

Suddenly, after two years of partisan sniping at one another, Democrats accusing Republicans of deliberately stalling, Republicans accusing Democrats of not wanting to compromise, Congress was once again faced with having to make some decisions they could have made at any time between 2001 and 2010.  Except for the "poison pill" that was inserted into the legislation in the wee hours of a late-December morning in 2010 . . . massive spending cuts virtually across the spectrum of US Budget expenditure line items.  As December 31, 2012 neared, the President petitioned Congress to pass his proposed changes, centered largely on an increase in the top marginal tax rate to 39.6% for persons with adjusted gross incomes of $250,001 or more.  Republican House Majority Leader John Boehner stood his ground, taking shots from all quarters, and refused to do anything before the Senate acted on the House Budget resolution.

The two sides stood around with their hands in their pockets, accusing each other of holding America and Americans hostage.  Politics as usual.  Senate Majority Leader Harry Reed decided he was giving up on the whole thing . . . let the law expire and blame the Republicans for the mess.  So Boehner and Senate Minority Leader Mitch McConnell bypassed Reed and went to VP Joseph Biden (the President of the Senate) and began negotiating, coming closer to a working solution as each day passed. 

There was still a lot of posturing taking place, but in the end, somewhat cooler heads prevailed, and each side made some concessions to each other.  And, as usual, each side was excoriated for having caved in to the other.  The nation did not run headlong over any precipice.

The top marginal income tax rate was increased to 39.6%, but for married persons with AGIs of more than $450,000 ($400,000 for single persons, and $425,000 for heads of household filers), while the other six "Bush Era" tax rates were made permanent, long term capital gains tax rates would increase from 15% to 20% for most taxpayers, and the estate tax was also made "permanent", with an increase in the top tax rate from 35% to 40%, for estates valued at more than $5,000,000 after December 31, 2012 (in reality, $5,325,000, thanks to indexing for inflation).  The Alternative Minimum Tax is still with us, with only some minor revisions to the income triggers.

The one change that has the most import for taxpayers is the estate tax.  At $5,000,000, the tax will not affect all taxpayers.  But it will have an impact nevertheless.  Congress just couldn't bring itself to make the "unlimited" exemption permanent.  In fact, they retroactively rolled back the "unlimited exemption" in late 2010, after George Steinbrenner and a few other wealthy Americans chose the perfect year in which to die.  The estates that were not supposed to pay any estate tax at all got clobbered by a Congress looking for every last cent of tax revenue they could, and even that wasn't enough. 

The estate tax could have reverted to the $1,000,000 level it was scheduled to reach in 2007.  So at least there is good news in this.  But $5,000,000 is not beyond the reach of many families in America.  When you consider balances held in IRAs and Roth IRAs, 401(k)s and 403(b)s, the assorted other retirement plans, and then add the value of the family home, perhaps a second residence, business property of sole proprietors (or a partner's interest in a business), not to mention stocks, bonds, mutual funds and ETFs, and other securities, there are plenty of households that are now exposed to the estate tax when the surviving spouse dies.   

So what happens?  Is there a way to avoid this?  What are my options?

Estate tax returns must be filed within 9 months of the date of death. Taxes must be paid, or severe penalties and interest will be imposed.  Where will the money to pay the tax come from? 

The heirs of small business owners, farmers, and others often have to take over management of estate assets, and may be forced to sell off estate assets to amass the proceeds needed to pay the tax due.  The so-called "estate sale" becomes a means to the end.  Homes are sometimes sold and below market value because the housing market is cyclical, and yesterday might have been a better day to sell.  Bank accounts are liquidated or otherwise looted to pay taxes.  Things can get ugly quickly. 

Life insurance is commonly used to pay the estate tax due upon death as a means to avoid selling estate assets.  But it can be both a blessing and a headache.  The life insurance proceeds are normally payable tax-fee (in most instances), but if the decedent were also the policyowner, then the value of the death benefit in excess of the premiums paid must be included in the value of the estate.  It doesn't matter to whom the life insurance proceeds were paid.

In the coming months, there is going to be a large amount of advertising by both insurance companies and agents directed at consumers concerning the estate tax and life insurance.  Consumers may be disturbed by their lack of understanding about this subject and end up purchasing life insurance they do not need, or possibly the wrong kind of life insurance to meet their need.  Most agents do not intentionally mislead their clients when it comes to providing products and services, but many agents fail to fully understand the products they are marketing, and this frequently results in persons purchasing a product based on a faulty explanation and a misunderstanding of the product they subsequently own and pay premiums for. 

The most heavily marketed type of life insurance today, and for the foreseeable future, is called Universal Life Insurance, sometimes referred to a Flexible Premium Adjustable Life Insurance.  And the most commonly marketed products in this category are called Indexed Universal Life Insurance, or "IUL", and Guaranteed or Secondary Guarantee Universal Life Insurance, or "SGUL" for short, and also Variable Universal Life Insurance, or "VUL", as it is known in the industry (which is also a securities product regulated by both the state Department of Insurance and the Securities and Exchange Commission).. 

These products are frequently presented by agents as equivalent to "Buy Term and Invest the Difference" -- a combination of term life insurance and a savings or investment account.  But that's not entirely accurate, because the cash accumulation in Universal Life insurance is wrapped up inside the insurance contract, not sitting separately inside a bank or mutual fund company and apart from the life insurance company (the cash value in a VUL policy is held in a "separate account" owned by the insurance company, but it is not independent of the insurance contract). 

Agents will point to the tax-deferred growth of principal in life insurance, which is accurate, but sometimes mislead folks by changing the words to "tax-free" and also describe a way to have "tax-free income" from the insurance policy in retirement. At the same time, they may fail to mention that the income is actually a loan from the insurance company based on using the life insurance cash value as collateral.

Such discussions should not occur when the purpose of the life insurance is to pay the estate tax due in the future.  A policy intended to pay taxes or other expenses at death should not be "tinkered" with along the way.  The SGUL policies may be a very good choice for covering the estate tax needs.  They are designed with minimum premiums, thus conserving current capital.  The hard part might be one's ability to pay the premiums at some point in the future.  Missing just one premium payment in some contracts is all it takes to lose the no-lapse guarantee, and cause the owner to have to pay significantly higher premiums to keep the policy in force or risk losing the policy altogether. 

I don't want this to happen to you, your parents, or anyone else.  If you have been sold any form of UL policy, you would probably benefit from a policy analysis -- to find out if your policy is on track or not -- and especially so if you've had your policy more than 5 to 7 years.  If it is not on track, I can show you how to correct for that now in order to avoid the risk of unaffordable premiums in the future.  And I can teach you how to monitor your policy's performance going forward so that you can stay on top of any changes that need to be made as you get older.

Use the Contact page to get more information about a policy analysis.  Or give me a call.  We'll get together and I'll take a look at your situation.  If changes need to be made, I'll show you how to make them.  If everything is on course, I'll tell you that, too..