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E-Newsletter of the Elder Law Section - October 2012 
In This Issue
Section Website
Better to Buy or Rent
How Doctors Choose to Die
Social Security Benefits
Arbitration Agreements
Social Media Accounts of the Deceased
Quarterly Estate Planning Workshops
NM Aid in Dying Litigation
Shafting Our Seniors
Annuities: Watch Out for Pitfalls

Quick Links
Elder Law Section Web Site

Board of Directors
Sara R. Traub, Chair 
Lynn McKeever, Secretary 
Mary Ann Green, Budget Officer

Shannon Broderick Bulman, Santa Fe  
Mary Ann R. Burmester, Albuquerque  
Jeanine R. Steffy, Albuquerque  
Richard D. Stoops, Albuquerque  
Fletcher R. Catron, Santa Fe  
Kevin D. Hammar, Albuquerque  
Laurie Ann Hedrich, Past Chair 
Monica A. Davis, Student Member
Kate Fitz Gibbon, YLD Liaison
Save the Date! 
The 3rd Annual
Fall Elder Law Institute: 
Practical Considerations in
Medicaid and Estate Planning
for the Elderly and Disabled
Friday, October 26, 2012 
State Bar of New Mexico
 Bar Center 
5121 Masthead NE 
Albuquerque, NM 87109 
For info call (505) 797-6020.
Elder Law Section Website is a Great Resource
Here's what
you can find on the Website: Elder Law Section Resources for Estate and Legal Financial Issues, Programs, Services, and Resources for Older Adults, Legal Issues Effecting Older Adults, Aging in Place, and Other Resources, including Links to organizations such as NAELA, ABA Commission on Law and Aging, Federal and State Government Agencies, Statutes, and Regulations, Meeting Notices, Listings of Officers and Members, Section Bylaws, and more.
New Provisions for Transfers on Death Deeds
The Uniform Laws Commissioners have adopted new Transfer on Death provisions that encompass transfer on death deeds. These provisions are comprehensive and are intended to replace the transfer on death provisions enacted in many states, including in New Mexico. The Elder Law Section welcomes your comments on these proposed provisions. Send your comments to Fletcher Catron at

Is It Better to
Buy or Rent?

Interactive Graphic - 
Whether renting is better than buying depends on many factors, including how fast prices rise and how long you will stay in your home. Compare the costs of buying and renting equivalent homes.

How Doctors  

Choose to Die

by Ken Murray

When faced with a terminal illness, medical professionals, who know the limits of modern medicine, often opt out of life-prolonging treatment. An American doctor explains why the best death can be the least medicated - and the art of dying peacefully, at home.

Online Tools Help Estimate Social Security Benefits
On May 1, Social Security launched a feature on its website, that allows you to view an online version of your Social Security earnings and benefits statements. The program also allows you to estimate your retirement, disability and survivors' benefits. Social Security used to mail workers an annual earnings statement, but suspended those mailings last year to save money. Starting in February, Social Security resumed mailing paper statements to workers 60 and older who aren't already receiving benefits. Later this year, it will mail paper statements to workers in the year they turn 25.

Arbitration Agreements in the Nursing Home Context

Submitted by Dusti Harvey
Harvey Law Firm, LLC 


Several years ago, many national and local nursing home chains realized that if they put mandatory arbitration clauses in the vast stack of admissions papers one has to sign to be admitted to a nursing home, they would save themselves a lot of exposure from lawsuits, and resist being held publicly accountable for their misconduct.


From Skilled Healthcare's 2008 Annual Report (p 26):


Risk Management

We have developed a risk management program designed to stabilize our insurance and professional liability costs. As part of this program, we have implemented an arbitration agreement system at each of our facilities under which, upon admission, patients are asked to execute an agreement that requires disputes to be arbitrated prior to filing a lawsuit. We believe that this has significantly reduced our liability exposure. 



All Federal Benefits Will Be Paid
Electronically By March 1, 2013 


Submitted by Laurie A. Hedrich,   


The US Department of the Treasury has announced that all federal benefits will be paid electronically. New enrollees and individuals receiving benefits must select an electronic payment method (direct deposit or prepaid debit card) by March 1, 2013. Programs affected by the change include Social Security, VA, Supplemental Security Income (SSI), Railroad Retirement Board, Department of Labor (Black Lung) and Office of Personnel Management benefit checks. People who do not choose an electronic payment option by March 1, 2013, or at the time they apply for federal benefits, will receive payments via the Direct Express® card so they will not experience any interruption in payment. People already receiving benefit payments electronically will continue to receive payment as usual on their payment date and do not need to take further action.


Direct deposit or a Direct Express® card eliminates the risk of stolen checks, helps protect people from financial crime, provides them more control over their money, and gives them immediate access to their funds from virtually anywhere.


For more information about the Go Direct Campaign, visit

Is It Time For New Mexico To Adopt
A Statute To Give Personal Representatives
The Power To Access, Administer,
Or Terminate The Online
Social Media
Accounts Of The Deceased?


Submitted by Laurie A. Hedrich,


Are you assisting your clients to make sure that someone can handle their digital assets (email, social media accounts, digital photos and online banking accounts and records) when they die? Are your clients leaving password and username information in a location accessible by their Personal Representative or Trustee?


Current laws have yet to catch up with the digital age, leaving families in a frustrating limbo. Only five states currently have estate laws that include digital assets -- Connecticut, Rhode Island, Oklahoma, Indiana and Idaho - and the laws vary among them. Some states' statutes, for instance, just relate to email, with only Oklahoma and Idaho clearly give personal representatives the power to access, administer, or terminate the online social media accounts of the deceased. Two other states -- Nebraska and Oregon -- are now considering similar laws.


Under Oklahoma's law, the personal representative automatically has the power to act on behalf of a deceased individual and access a Facebook, Twitter, or e-mail account. The personal representative does not have to go to court to get access to such accounts, including social networking and blogging, as part of an estate. Legally, it is unclear exactly what you can do under New Mexico law. In the absence of a law that addresses digital assets, Internet companies such as Google, Yahoo and Facebook have taken the position that the user had an expectation of privacy for the contents of his or her account and these companies have crafted user agreements that do not address post mortem access by the Estate's representative. For now, a court order is one of the few options families have to obtain access to a loved one's online account.


There are some websites that help people plan for these issues. For more information,



Quarterly Estate Planning Workshops  

Open to the Public


The Elder Law Section, in conjunction with the New Mexico State Bar Foundation sponsors quarterly Estate Planning Workshops open to the public.


Volunteer lawyers are needed to provide presentations and offer short private consultations. Lawyer-volunteers have reported that they often retain one or more full-service fee clients after these sessions.  

The workshops take place at the State Bar Center and at selected locations throughout the state. The next workshop is scheduled for November 14 in Las Cruces, with more workshops in 2013.  


The format of the two hour workshops provides for a one-hour general overview of the topic by an experienced practitioner. Depending on the preferences of the presenter, questions can be invited from the audience. Following the presentation, attendees may sign up to meet privately with an attorney for a private consult of 15-20 minutes. The attorney may make general recommendations regarding the types of estate planning vehicles the interviewee might wish to consider with an attorney retained for the purpose.  


After the workshops, for any cases which the volunteer attorneys choose not to accept, a Bar Foundation Program called the Lawyer Referral for the Elderly Program provides free or cost-reduced attorney referrals to those who qualify. A consulting attorney may also indicate that the interviewee needs a full service attorney. Consulting attorneys may establish attorney-client relationships with the attendees for later office consultations. All work done by lawyer-volunteers at the workshop is covered by the New Mexico State Bar Foundation's professional liability insurance.  


Recent workshops have been very well attended and the staff of the State Bar is working closely with members of the Elder Law Section to make sure volunteer attorneys are adequately prepared for the events. Elder Law Section Board Member Kevin Hammer is managing the volunteer process. He can be reached at 505-266-8787.


New Mexico Aid in Dying Litigation


Submitted by Laurie A Hedrich 


Morris v. New Mexico, D-202-CV-201202909, was filed in the Second Judicial District Court on March 22, 2012, seeking a ruling that physicians can provide aid in dying to a mentally-competent, terminally-ill individual with a prescription for medication that the patient may choose to take in order to bring about a peaceful death if the patient finds the dying process unbearable and in the professional judgment of a physician, a medically and ethically appropriate course of treatment. Two New Mexico physicians, Dr. Aroop Mangalik and Dr. Katherine Morris, joined by Aja Riggs, a Santa Fe woman with advanced uterine cancer, are plaintiffs in the case Kathryn Tucker, legal director of the national nonprofit Compassion & Choices, and Laura Ives, legal director of the American Civil Liberties Union (ACLU) of New Mexico, are serving as co-counsel in the case, with Albuquerque attorney, Maureen Sanders.


New Mexico, like many states, has passed a version of the Uniform Health-Care Decisions Act, which empowers patients to direct their end-of-life care, even when such decisions may advance the time of death. The Uniform Health-Care Decisions Act reflects a public policy in favor of patient autonomy. However, if a terminally ill patients asks a physician to prescribe a lethal medication, which the patient can take to bring about a peaceful death, there is a conflict between the Uniform Health-Care Decisions Act's patient vested autonomy in end-of-life decisions and the threat of prosecution of a prescribing physician under New Mexico's Assisted Suicide Statute, NMSA 1978 § 30-2-4, which provides: "Assisting suicide consists of deliberately aiding another in the taking of his own life. Whoever commits assisting suicide is guilty of a fourth degree felony."


Dr. Morris and Dr. Mangalik are cancer specialists who regularly care for terminally-ill patients. They are seeking a ruling to clarify that when physicians provide aid in dying, they do not violate New Mexico's Assisted Suicide, as the conduct of a New Mexico licensed physician providing aid in dying to a mentally-competent, terminally-ill individual who has requested such aid (1) does not constitute "deliberately aiding another in taking his own life," and (2) if it did, the Assisted Suicide Statute would violate multiple provisions of New Mexico's Constitution. They argue that "aid in dying" is a recognized term of art for the medical practice of providing a mentally-competent, terminally-ill patient with a prescription for medication that the patient may choose to take in order to bring about a peaceful death if the patient finds his dying process unbearable. They seek court clarification that legally the cause of death of a patient choosing aid in dying is the underlying terminal illness.



New Mexico's Assisted Suicide Statute Does Not Provide A Valid Statutory Basis To Prosecute Any Licensed Physician For Providing Aid In Dying. Plaintiffs argue that New Mexico's Assisted Suicide Statute does not provide a valid statutory basis to prosecute any licensed physician for providing aid in dying because the choice of a mentally competent terminally ill individual for a peaceful death as an alternative to enduring a dying process the patient finds unbearable does not constitute "suicide" within the meaning of NMSA 1978 § 30-2-4 when that physician concludes that the patient's choice of a peaceful death is among the reasonable medical alternatives. Furthermore, the existence and potential application of New Mexico's Assisted Suicide Statute impedes a physician from discussing and/or providing access to aid in dying and thereby prevents a physician from offering medical care which, in that physician's professional judgment, would otherwise be appropriate under the circumstances.


If providing aid in dying by a licensed physician constitutes "deliberately aiding another in taking his own life," then the Assisted Suicide Statute violates multiple provisions of the New Mexico Constitution. If the term "suicide," as used in the Assisted Suicide Statute, is interpreted to include the actions of a physician who provides aid in dying, then Plaintiffs argue that:

  1. The statute does not allow individuals of ordinary intelligence a fair opportunity to determine whether their conduct is prohibited; permits police officers, prosecutors, judges, or juries to engage in arbitrary and discriminatory enforcement of the statute; and, therefore, deprives the Plaintiffs and their patients due process of law in violation of the Due Process Clause of the New Mexico Constitution.
  2. The statute violates Plaintiffs' rights (and the rights of their patients) to privacy and other fundamental liberties without due process of law in violation of the Due Process Clause of the New Mexico Constitution.
  3. The statute discriminates against Plaintiffs' terminally ill patients who cannot direct that their life sustaining treatment be withdrawn to hasten death or are ineligible for or do not want terminal sedation, but seek aid in dying, and deprives those patients' who seek physician aid in dying equal protection in violation of the New Mexico Constitution.
  4. The prohibition against Plaintiffs communicating what they believe to be an ethically and medically appropriate option of physician aid in dying to terminally ill patients constitutes a deprivation of the freedom of speech guaranteed in the New Mexico Constitution.
  5.  The statute deprives patients of the inherent and inalienable right to seek safety and happiness in violation of the New Mexico Constitution.

If the court rules in the Plaintiffs' favor, and holds that aid in dying is not prohibited by New Mexico law, physicians in New Mexico will be able to provide this intervention without fear of sanction. In such a case, New Mexico would stand on the forefront with voters in Oregon and Washington who have passed "right to die" laws, and Montana, where its Supreme Court ruled that the practice of physicians aiding terminally-ill patients in dying could be considered part of medical treatment. The court ruling recognized that it is the public policy of Montana to protect the choice of competent dying patients to choose aid in dying, and makes clear that there is no basis to prosecute physicians who provide it.  

Resources of Interest


Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers.  

From the ABA Commission on Law and Aging and the American Psychological Association. This book offers ideas and makes suggestions for attorneys who wish to balance the competing goals of autonomy and protection as they confront the difficult challenges of working with older adults with problems in decision-making capacity. 2005, reprinted 2007 80 pp $25 


* * * * *


Nine Ways to Reduce Elder Abuse Through Enactment of the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act  - By Lori A Stiegel, JD, Senior Attorney, and Erica F Wood, Assistant Director, American Bar Association Commission on Law and Aging. 


* * * * *


Legal Guide for the Seriously Ill  - American Bar Association Commission on Law and Aging for the National Hospice and Palliative Care Organization Guide provides critical tools to help understand options, make informed decisions, and minimize some of the anxiety about financial and legal affairs at this stage of life.

From "Shafting Our Seniors," Boston Herald, March 8, 2010


"The average nursing home claim amount in the United States shrank from $261,000 in 1998 to an estimated $116,000 in 2008, during a period when tort reform and arbitration increased, according to a 2009 Aon Corp study for the American Health Care Association, which represents 11,000 senior living and rehabilitation centers.


Part of the decline is attributed to the arbitration agreements.

'Settlements are less costly,' with arbitration, said Chris Coleianne, an actuary with Aon.


A 2009 Aon analysis of data from 2004 to 2008, based on responses from 11 providers, representing about 5 percent of nursing home beds in the country, found:


** The average payment in arbitrated cases was $91,000, compared to $138,000 in nonarbitrated cases, about 35 percent less.


** The nursing homes' legal costs were about $33,000, compared to $56,000 in nonarbitrated cases, about 41 percent less."


Typically, when a resident is admitted to a nursing home in New Mexico, she or a family member will be given between 40-80 pages of paperwork to review and sign. This paperwork includes such diverse things as consents for treatment; do not resuscitate orders; Medicare or Medicaid payment authorization forms; decisions about whether the facility or the family will do the resident's laundry; authorizations to release medical records, if necessary; decisions about whether or not the resident may be photographed; information about the facility's HIPAA policy; and what the actual contract between the nursing home and the resident entails: payment for meals, housing, and medical care, and the terms on which that contract may be terminated.


More commonly now, stuck in amongst these volumes of documents, are arbitration "agreements," where the resident or her family member "agrees" to binding arbitration to resolve any disputes of negligent care, including wrongful death or other personal injury suits.


It is very important to pay attention to the particular circumstances and particular language of the arbitration clause that is at issue in your case, because the defenses vary greatly. For example, sometimes the "arbitration agreements" are just single-paragraph clauses in the admission contract; other times, they are stand-alone, multi-page documents. Some are mandatory: required to be signed for the resident to be admitted to the nursing home. Others are "optional," with an opt-out provision or a statement that they can be rescinded within a period of time-for example, 30 days.


Sometimes the resident or family member signs the arbitration agreement while she is still hospitalized, before she has even been transported to the nursing home (At one local chain, it was the practice that a nurse liaison would go to the hospital and get the resident to sign three documents before she could be admitted: the consent for treatment, the Medicaid/Medicare Reimbursement form, and the arbitration agreement).


If the paperwork has not been completed before the resident is admitted, it may be signed at the same time the resident is admitted. Sometimes, however, it will not be signed until a few days later. Some admissions coordinators sit with the resident or family member while she is reviewing the paperwork, either reading it word-for-word or offering descriptions of each document. Others are performing other duties at the same time, coming in and out of the room. Others still just point to the specific places where the resident or her family member must sign. It is vitally important to know what circumstances your resident or her family members were in when they were presented with the arbitration clause.


Sometimes the admissions coordinator has a basic understanding of what arbitration is, and has had training on how to discuss arbitration agreements with family members or residents. Other times, the admissions coordinator-and often his or her supervisor-has no idea about the differences between arbitration and mediation, or the differences between arbitration and trial by jury. These are important things for you to know.


Rivera and Adkins highlight how vital a well-developed record is. Do everything you can to preserve your right to take discovery on these issues, and have an evidentiary hearing, if needed. In Rivera, Plaintiff's counsel requested the opportunity to conduct discovery and to have an evidentiary hearing, but the trial court denied that request. Unfortunately, that left him with virtually no record on procedural unconscionability, and the Court of Appeals used that as a basis to deny that argument. In contrast, in Adkins, the court allowed an evidentiary hearing on the issue of procedural unconscionability; when confronted with such an overwhelming record, the Court of Appeals affirmed the trial court's ruling.


There are eight defenses to arbitration clauses that are currently pending on appeal in the New Mexico Court of Appeals:


1  Lack of authority of the person signing the arbitration agreement

If the resident did not sign the arbitration agreement, who did? Does this person have a power of attorney or other designation of authority? What kind of POA is it? Is it only for healthcare decisions? Does it specifically grant the authority to litigate or make decisions regarding the resolution of disputes?


In Corum v Roswell Senior Living, Ct App No 28,314,[1] the resident's husband, who was not her power of attorney, signed the arbitration clause. The district court ruled that this was not a "health-care decision" as contemplated by the New Mexico Uniform Health-Care Decisions Act. In Barron v Evangelical Lutheran Good Samaritan Society, Ct App No 29, 707,[2] the resident said that her granddaughter could sign her admission "papers," but there was no evidence that the resident ever had any idea that an arbitration clause was contained in the papers. The district court ruled that the granddaughter's authority to admit her grandmother to the nursing home did not extend to signing an optional arbitration clause. The Court of Appeals proposed summary reversal, on the basis that authority to sign the "admission papers" necessarily extended to the authority to sign an optional arbitration clause. This case is now on the general calendar.


2   Procedural unconscionability

This defense is most often available when the resident herself signed the arbitration agreement, but the fact that someone else may have signed it does not necessarily mean that you cannot raise this defense. Often in these cases, there will be issues regarding the person's health, mental status, level of education, medications, etc. (See Adkins)-Neither Cordova and Fiser actually addressed procedural unconscionability, but both helped establish a continuum of unconscionability. In Coca v Vida Encantada, Ct App No 29,824[3], there was a nine-hour evidentiary hearing, including expert witness testimony, on an arbitration clause signed by a resident who was experiencing a significant cognitive decline, and was admitted to the nursing home directly from the hospital. The district court determined that the circumstances surrounding the signing of the contract were procedurally unconscionable. In Strausberg v Laurel Healthcare Providers, Ct App No 29,238,[4] the district court determined that an arbitration clause signed by a woman who had a master's degree and worked for the Air Force, while hospitalized on pain medications, was not procedurally unconscionable.


3  Substantive unconscionability

Cordova broadened the definition and explicitly overturned the language from Guthmann characterizing an unconscionable contract as one 'such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other'".  Cordova, 2009-NMSC-021, ¶ 31 Rivera, of course, attempts to narrow it.


In nursing home arbitration clauses, it is fairly common to see language about the resident having to litigate disputes related to care, but the facility retains the right to sue over collections. We have argued that this is substantively unconscionable under Cordova. This issue is on appeal in two cases, both of which have the same language: Strausberg (decided pre-Cordova), and Chavez v Laurel, Ct App No ____(decided post-Cordova)


Another aspect of unconscionability relates to the terms of the procedure required for arbitration: how much does it cost? What limitations, if any, are there on the discovery? Limitations on the right to appeal? Are there limitations on the award? Many nursing home arbitration clauses specify the AHLA, which can cost approximately $40,000 for just a one-week arbitration hearing-to get the privilege of a defense attorney hearing your case and deciding what, if anything, you should be compensated. This issue is on appeal in Zuckerman v Valle Norte, Ct App No _____,[5] where the district court determined that the AHLA procedures and costs rendered the arbitration clause substantively unconscionable.


4   Consideration

The CMS and NM DOH have said that a nursing home may not discharge a resident for not signing an arbitration agreement. This raises two questions: (1) what is the consideration for the agreement to arbitrate? and (2) does the nursing home have a duty to tell this to the resident's family? Often, the family believes that signing it is required, whether or not the facility would actually go through with discharging their family member if it is not signed. This is an issue raised and briefly addressed in Corum, but not used as a basis for the district court's ruling.


5   Wrongful death beneficiaries bound?

We have also argued that the wrongful death beneficiaries cannot be bound to the contract signed before the person died, because the wrongful death beneficiaries could not be in existence or cognizable while the person was still alive. In Lawrence v Beverly Manor, 273 SW2d 525 (Miss 2009),the Missouri Supreme Court determined that a nursing home admission arbitration clause could not be enforced against the nursing home resident's wrongful death beneficiaries, holding that "the decedent's daughter was an agent for the purpose of securing residential treatment for the decedent during her lifetime, and nothing in the arbitration agreement can be construed to extend to new and independent causes of action[T]herefore[,]...Ms. Lawrence could not bind or limit any person who had a right of action arising by reason of her death at some point in the future." Lawrence, 273 SW3d at 526-27, internal quotation marks and punctuation omitted; emphasis added.  


New Mexico courts have consistently held that our Wrongful Death Act's purpose is to "compensate the statutory beneficiaries and to deter negligent conduct." Romero v Byers, 117 NM 422, 427, 872 P2d 840, 845 (1994). The Act "provides a cause of action for the benefit of the statutory beneficiaries to sue a tortfeasor for the damages ..." Id. at428, 846 (emphasis added and internal citations omitted).


This is an issue raised and briefly addressed in Corum, but it did not form the basis for the district court's ruling.


6   Capacity

This defense must be used carefully, because it is a higher burden of proof than the other defenses, and Defendants will always use it to attempt to make it easier to uphold the arbitration clause. Its factual basis is often intertwined with the issues of procedural unconscionability. In Coca, the court found that Plaintiff had established, by clear and convincing evidence, that the nursing home resident was suffering from a long-standing cognitive deficit, and the Defendants failed to show that she was experiencing a period of lucidity when she signed the arbitration clause.


7  Unavailability of arbitral forum

Often, the arbitration clause will name a particular arbitral forum-the NAF, the AAA, the AHLA. Recently, many of these organizations have said that they will not arbitrate these kinds of disputes. In July, 2009, the NAF was shut down by the Minnesota AG and no longer arbitrates consumer disputes. The AAA has also said it will not arbitrate them under its Consumer Arbitration rules. The AHLA will only arbitrate personal injury disputes if there is a post-dispute agreement to arbitrate, or if a judge orders them to do so.


We argue that this means that the choice of arbitrator was integral to the agreement, and the court cannot reform the parties' agreement. This issue is being briefed in Barron, but arose after the district court issued its ruling It was also raised in the petition for rehearing in Rivera, which the Court of Appeals denied.


8  Waiver

If a party does not invoke an arbitration clause until litigation is fully underway, it can be deemed to have waived any right to compel arbitration. In Zuckerman v Valle Norte, Ct App No _____, the district court determined that the Defendants had waived their right to compel arbitration when they waited until 5 months after the suit was filed, participated in the Rule 16 scheduling conference, and discovery was well under way.


Other issues

Defendants often attempt to argue that certain defenses must be heard by the arbitrator, and not the court. A recent memorandum opinion from the Court of Appeals, referencing an earlier case, Murken v Deutsche Morgan Grenfell, 2006-NMCA-080, reaffirms that in most cases, this is not correct. In Tafoya, the district court granted the Defendants' motion to compel arbitration, and included the following statement:

"The arbitrator will decide whether or not the agreement to arbitrate is enforceable."


The Court of Appeals proposed Summary Reversal. In its Memorandum Opinion, the Court reiterated that "New Mexico law dictates that the court, not the arbitrator, shall determine whether an arbitration clause is valid."


[1]  This case is on the general calendar It has been fully briefed and is awaiting a ruling

[2] This case is not yet been fully briefed

[3] This case is on the General Calendar It has been fully briefed and is awaiting panel assignment

[4] This case is on the General Calendar It has been fully briefed and is awaiting panel assignment

[5] This case has just been appealed, and does not yet have a calendar assignment

Annuities: Watch-Out for the Pitfalls

Submitted by Johanna A. Pickel, Justitia Law Firm, LLC 


Many individuals of the baby boom generation and their parents were hit hard by the tumble of the stock market. After seeing their investments cut in half, the search for a safer investment tool has brought many seniors to buy into annuities. Insurance agents and banks have created a variety of different annuity contracts, which could make even a tax attorney's head spin, that are usually attached to high commission rates. [1] Traversing through the potential annuity land mines is leaving our elderly population susceptible to financial abuse.


Annuity Primer

Annuities are usually contracts between an investor and an insurance company. Annuities have four basic parties including: 1) the issuer, which is generally an insurance company; 2) the owner, who is the person that controls the annuity; 3) the annuitant, who is the person receiving the benefits of the annuity; and 4) the beneficiary, the person who receives the benefit of the annuity after the death of the owner [2] The historical type of annuity was an investment, which would pay the investor a set amount of money every year or month. [3] Now, annuities can take several forms and have various levels of complexity.


The two basic types of annuities are immediate annuities or deferred annuities. With immediate annuities, the issuant pays the annuitant immediately in regular payments. [4] A deferred annuity pays the annuitant regular payments after a period of years, usually 7, 10 or even 15 years from purchasing the annuity. [5] Generally, the deferred annuity is not suitable investment tool for individuals over 65. [6] The deferred annuity may be fixed or variable. A fixed annuity pays a set rate of return; whereas, a variable annuity will pay-out based on the investment used to fund the annuity. [7] One type of a fixed annuity is the equity-indexed annuity (EIA). [8] An EIA provides a rate of return based on the performance of the index. [9] The EIAs are usually sold based on a promise that the annuitant will keep the gains of the investment, but never realize the loss of the investment. [10] EIAs have one of the steepest surrender fees and longest surrender terms. [16]1 


For tax purposes, the income from annuities is treated just as regular income.[12] When an annuitant withdraws early from a deferred payment contract, a 10% tax is imposed unless the annuitant is over 59 ½ or disabled.[13] Section 1035 of the US tax code allows owners of annuities to exchange their annuity for a different annuity without penalty. [14] The annuitant must be aware that such an exchange may result in the loss of any death benefit afforded him through this original annuity.[15] 


The Dangers of an Annuity for the Elderly Client 

Many banks, insurance companies, and brokers will try to sell a client on annuities, claiming they are one of the best investment tools available. [16] Unfortunately, many of these sellers are motivated by the high commission rates associated with the sale, anywhere from 10% to 17%. [17] When a bank is selling the annuity, a client may believe the annuity is FDIC insured, or the bank is more reliable than an insurance company. [18] However, the bank may be motivated by the same high commission rate as an independent broker, and the annuity may not be in the best interest of the client's estate plan. [19] 


For most elderly clients, deferred annuities are the most unsuitable. [20] Although the deferred annuity may offer some tax advantages and usually have higher rates of return, the deferred payment period may range from five to even thirty years. [21] Clearly, an 80 year-old client would likely realize little to no benefit during his lifetime from such an investment. Many of these of these annuities are also sold on the advertised benefit of a high teaser rate, but usually these rates are only in effect for the first year. [22]   After the first year, the interest rate is comparable if not less than what a person could receive from their savings account. [23] But unlike a saving account, the owner will face huge penalties for withdrawing from the annuity before the deferred period.[24] Although some annuities will provide waivers to the annuitant when payment is needed for health care, the waiver does not apply to pay for the health care of a spouse.[25] Further, the deferred annuity is considered an asset under Medicaid and must be spent down before an individual can qualify for Medicaid.[26] 


The variable deferred annuity has a plethora of pitfalls, which are not readily apparent. The variable annuity is usually all or partially based on stock performance. [27] The various fees associated with variable annuities are generally much higher than what an investor would pay investing directly with a mutual fund.[28] The selling point on the variable annuity is the death benefit associated with the annuity. [29] The death benefit provides an insurance to the owner that the beneficiary will receive the highest value the account achieved before the death of the owner; as long as, there was no lifetime withdrawal. [30] However, in order to obtain the death benefit associated with variable annuity, the client has to pay a fee. The fees associated with the variable annuity are only second to those imposed by indexed annuities. [31] Besides the high cost of fees associated with running such an account, an owner can lose the death benefit if he moves the annuity to another type of investment; thus, realizing a loss on the principal. [32] 


One of the most common schemes used to lure seniors into buying unsuitable annuities are called the "free-lunch seminars." [33] The sellers advertise a free financial planning seminar that includes a lunch at an exclusive location. [34] The seller often baits the senior by offering to provide a low cost living trust, provided by non-lawyers, then tries to sell the senior on the variable annuities. [35] The scheme is viewed as an aggressive bait and switch tactic, which states are trying to curtail. [36] Many insurance companies ignore improper or misleading sales practices conducted by their agents and brokers, because of the lucrative sales from variable annuities.[37] 


Generally, the EIAs are the most criticized type of annuity, because of their capped returns, tax disadvantages, and high commissions provided the issuant. [38] Although they remain one of the most popular types of annuities, the popularity of EIAs is not based on the fact that EIA's are a good product; but rather, the high-pressure sales tactics used to sell them, and the high fees and commissions provided to the brokers and insurance companies that sell them. [39] Another disadvantage of EIAs is the high surrender fees. The surrender fees for EIAs may be as high as 15 to 20%, and usually have a surrender period lasting at least seven years. [40] Also, the rates of return on many EIAs are capped, which means that even if "S&P 500 has a big 25% year [the investor's return may be] no more than a 10% return." [41] With the high fees, high surrender fees, and long surrender period, EIAs are almost never advisable for the elderly client.


Generally, immediate annuities are the safest investment plan for an elderly client; however, immediate annuities have their own detractions. [42] Immediate annuities do not provide the tax advantages that deferred annuities do. [43] They also do not have the high rate of returns that deferred annuities promise. [44] The other disadvantage to immediate annuities is that they are irrevocable; so, a client will not have access to a lump sum of their funds. [45] Although there are many drawbacks to all of the various annuities, sometimes the purchase of an annuity may be a prudent investment. In limited situations, annuities may be prudent tools for estate planning. With the wide variety of annuity contracts and the high pressure sales tactics used by brokers and insurance agents, attorneys must warn their clients about investing into an annuity without first closely analyzing the contract and weighing both the benefits and the dangers of that investment.


Remedies Available to Clients Sold Unsuitable Annuities

The avenues an attorney may take to assist a client sold an unsuitable annuity are either regulatory or non-regulatory remedies. Although some states consider certain annuities to be securities, New Mexico does not consider an annuity a security due to the exclusionary language in the variable contract law. [46] In New Mexico, the superintendent of insurance under the New Mexico Public Regulation Commission has the sole authority to regulate the issuance and sale of variable contracts. [47] Several states and federal agencies have taken action against insurance companies, security agents, and banks for selling unsuitable annuities.


Other than regulatory avenues, non-regulatory remedies may also be pursued. When faced with a client that has been sold an unsuitable annuity, the first step would be to call the agency or agent that sold the annuity.[49] Many of the companies do not want bad publicity and will likely work with a client in renegotiating the terms of the annuity. Almost all annuities are sold with a pre-dispute arbitration clause. [50] Therefore, most investors must go through an arbitration forum in order to recover anything. [51] Both private actions and class actions may be pursued, but are difficult avenues to pursue.[52] Various claims alleging unsuitable sales of annuities base the claims on several theories including: consumer protection laws, right to rescind laws, insurance codes, negligence, elder abuse, fraud, constructive fraud, breach of fiduciary duty, racketeering claims, and federal claims under the Securities Act of 1933.[53] 



In limited situations, annuities may be prudent tools for estate planning. With the wide variety of annuity contracts and the high pressure sales tactics used by brokers and insurance agents, attorneys must warn their clients about investing into an annuity without first closely analyzing the contract and weighing both the benefits and the dangers of that investment.



[1] Rosevear, John Are Annuities Ever Not Stupid? June 12, 2008 (accessed March 20, 2012)

[2] Krause, Dale "The Use of Annuities in Medicaid Planning; The Past ,Present and Future" The Wisconsin Chapter of the National Academy of Elder Law Attorneys, (June 2008), at 6

[3] NAELA, supra note 11, at 79

[4] Kreiner, Margaret, and Deanna Durbin Ohio Elder Law Eagan, MN: West, Chapter 19, (2011), at 9

[5] NAELA, supra note 11, at 94

[6] Kreiner & Dublin, supra note 15

[7] Id

[8] NAELA, supra note 11, at 82-84

[9] Rosevear, supra note 12

[10] Kreiner & Dublin, supra note 15

[11] NAELA, supra note 11, at 84

[12] Kreiner & Dublin, supra note 15

[13] Id

[14] Id

[15] Id

[16] Hurmer, supra note 10, at 370

[17] Kreiner & Dublin, supra note 15

[18] Id

[19] Id

[20] Brown, Melissa, and Lawerance Frolik Advising the Elderly or Disabled Client Thomson/RIA, 2011

[21] Kreiner & Dublin, supra note 15

[23] Brown & Frolik, supra note 31

[28] Kreiner & Dublin, supra note 15

[24] Id

[25] Brown & Frolik, supra note 31

[26] Kreiner & Dublin, supra note 15

[27] NAELA, supra note 11, at 84

[28] Hurmer, supra note 10, at 376

[29] NAELA, supra note 11, at 84

[30] Id

[31] Rosevear, supra note 12

[32] NAELA, supra note 11, at 84

[33] Kreiner & Dublin, supra note 15

[34] Hurmer, supra note 10, at 389

[35] Id

[36] Id

[37] Id at 390

[38] Rosevear, supra note 12

[39] Rosevear, supra note 12; See Also, NAELA, supra note 11, at 84

[40] Hurmer, supra note 10, at 379

[41] Rosevear, supra note 12

[42] Brown & Frolik, supra note 31; See Also, NAELA, supra note 11, at 81

[43] NAELA, supra note 11, at 89

[44] Id

[45] Id

[46] See Hurmer, supra note 10

[47] NM Stat Ann § 59A-20-30(C)-(E) (2011)

[48] See Hurmer, supra note 10

[49] See Hurmer, supra note 10

[50] See Hurmer, supra note 10

[51] See Hurmer, supra note 10

[52] See Hurmer, supra note 10

[53] See Hurmer, supra note 10

This e-mail newsletter is a publication for the members of the Elder Law Section of the State Bar of New Mexico. The content of this newsletter does not reflect the opinions of the members of the board of directors of the Elder Law Section or the Board of Bar Commissioners of the State Bar of New Mexico. The source of content obtained from the Internet is, when possible, attributed to the original source. The content may be time dated, and references to Internet sites may change. This newsletter is informational only, does not constitute legal advice.