Protecting an Estate from Investment Scams

The record of trust fund fraud is extensive. When retirement investment accounts are considered, the number grow exponentially. Trust and retirement account management is an ethical and legal obligation extended to trustees, finance professionals, and investment advisers. Federal law provides that all financial professionals, including estate trustees, are fiduciaries with obligation to perform ethically and lawfully where administrative management of an account is concerned. Estate lawyers are subject to similar rules first adopted by the American Bar Association House of Delegates, the Model Rules for Lawyers’ Funds for Client Protection enacted August 9, 1989, amendment of the Bar’s 1981 due diligence guidelines. The failure to uphold prudential rules to best practices in account management, can lead to both putative and financial penalties.

ERISA Prudential Rules for Fiduciaries

The reform of Employee Retirement Income Security Act of 1974 (ERISA) rules in 2017, extended protections to the management of estate trusts and their assets. The change in ERISA fiduciary rules expanded prudential protections for managed investment accounts, thus promoting a new era of transparency and accountability in fund management. ERISA rules now cover managed retirement plans and welfare benefit plans which are part of nearly 44 percent of retirement benefit plans, and 59 percent of insurance benefits associated with those plans. ERISA rules for fiduciaries were instituted for protection of estate trusts from asset seizure by creditors. Probate court ordered attachment of debt to estates by creditors is now subject to fiduciary bonding agreements of nondisclosure.

Rule Consistency Matters

The record of legal matters alleging fraud violations by “living trust mills,” is a convincing point of departure for discussing the perils of trust and retirement account infringements by professional estate advisory services. ERISA reform put more comprehensive prudential rules into place for protection of accounts from fraud. State rules, like New York legislation, New York Code – Article 7, Part 1 Rules to Governing Trusts specify rules for the formation and management of trust funds. Previously, there was some question about the consistency of fiduciary rule enforcement across service segments of financial and legal practice involved in estate and retirement fund advisory. Therefore, clients had valid concerns related to the transfer or hard-earned retirement funds to annuities or other convertible investment products requiring a proverbial change of hands.

Due Diligence is Best Practice

When it comes to investment scams, due diligence is simply a best practices rule. ERISA reforms imposed a framework for investigation and administration of managed fund assets by financial and legal advisers at all levels. The contiguity in service provision has been the answer to client questions about “what happens with my investment funds when they are transferred?” Due diligence was always assumed, yet policy did not enforce equal responsibility for managed funds risk. The transfer or risk responsibility to all individuals involved in account administration and management, protects clients that might otherwise be confronted with a range of unwanted issues, everything from contract frustration to criminal fraud. From the standpoint of professionals working with fund clients, the net of protection reducing the risk of malpractice liability has widened.

Planned giving specialists involved in the planning of nonprofit charitable giving, estate, or retirement investment planning advisory, are subject to ERISA ethical best practices.

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