If you are age 50 or older, you should take special care when buying
living trusts. Your age group is often a special target of salespersons
whose goal is to sell you something without carefully analyzing your needs.
It is easy enough to become a victim. Living trust sales are a growing
area of consumer fraud. Con artists make millions of dollars every year
selling unnecessary trusts. Each year thousands of consumers lose from $500
to $5,000 through the purchases of living trusts. Often families face potentially
greater costs after the consumer's death, resulting from problems associated
with the trusts.
To protect yourself, follow these guidelines:
- Take time when making your decision. Do not fall victim
to high-pressure, "act immediately" sales tactics.
- Seek the advice of someone trustworthy and knowledgeable.
Contact your accountant, estate planning attorney, banker or financial advisor.
- If you conclude that a trust may be right for you, deal
directly with a licensed Texas attorney who has substantial expertise in
estate planning. If the attorney is board certified in estate planning and
probate law by the Texas Board of Legal Specialization, he or she is presumed
to have this expertise (though an attorney does not need to have this designation
to be qualified to do your estate planning work).
Con artists promote their business by making false or incomplete
statements about the probate process, guardianships and the taxation of
estates. Such statements include:
- Living trusts save taxes. Your estate can be reduced
by a 55 percent death tax.
Misleading. Most Texans' estates will face no death taxation at all.
If your estate is taxable, a will can accomplish exactly the same tax savings
as a trust at a much cheaper cost.
Each person may transfer assets of a certain amount "tax
free." The limits apply to such tax-free transfers: $1,000,000 until 2004;
$1,500,000 in 2004 and 2005; $2,000,000 from 2006 until 2009; and $3,500,000
in 2009. Current law, states that the estate tax will be repealed in the
year 2010, but reinstated in the year 2011. The value of property that can
be transferred tax free will be $1,000,000 at that time.
If the value of your assets could exceed the applicable
limitation (or if a husband's and wife's combined assets could exceed the
amount), you should see an estate planning attorney to minimize your potential
estate tax liability regardless of who receives your property. However,
a living trust is not required to take advantage of other techniques to
minimize estate tax liability.
- Living trusts will help you qualify for public assistance
benefits.
False. A living trust will not help you qualify for public assistance
benefits, particularly nursing home Medicaid benefits.
- Living trusts help you avoid contested wills.
Misleading. Because a "trust" and a "will" are separate legal concepts,
a trust is not subject to a will contest. However, trusts just like wills
are subject to attack on the basis of lack of capacity, undue influence,
and fraud.
- Living trusts help you avoid your creditors.
False. During your lifetime, assets in a living trust are subject
to the claims of your creditors. After death, these assets are subject to
the claims of your estate's creditors.
- Living trusts avoid the expense of a guardianship.
Misleading. A living trust is helpful to avoid the expense of a guardianship
in case of your future incapacity. In some circumstances, a durable power
of attorney is a simpler and less costly way to achieve the same goal. However,
you should choose between a living trust and a power of attorney after you
have considered the advantages and disadvantages of each.
Back to Top
- Attorneys charge from 3 percent to 10 percent or more
to probate your estate.
False. If your family wished to hire the services of an attorney,
his or her fee may be based upon an hourly charge or upon a percentage of
your estate and rarely do attorneys charge as much as 3 percent. In fact,
most attorneys do not charge a percentage of the estate but instead charge
an hourly rate for their work.
- Probate takes years to complete.
Misleading and Very Unlikely. Nontaxable probate estates generally
only take a year or less to complete. There are rare circumstances where
families and/or the IRS fight for an extended period after a death. Such
disputes can cause delays in the administration of either a probate or a
living trust. In most circumstances the administration of a living trust
is no more time efficient than the administration of a will in probate.
- Probate requires excessive time and money.
False. Texas has adopted a simplified probate process under the Texas
Probate Code. These independent administrations, which account for more
than 80 percent of Texas probates, involve only one court hearing and the
filing of an inventory. Independent administrations can be accomplished
through a properly drafted will. It is not usually available if there is
no will.
- Everyone should have a living trust.
False. While a living trust is appropriate for some people, the cost
of creating, funding and administering a living trust outweighs the benefits
for many people. It is important to decide what your needs are before creating
a living trust. For example, the living trust can be an important device
to enable a person to obtain assistance in managing assets. Many persons
lack the capacity to manage their assets, or have lost that ability through
ill health. For persons who own out-of-state property, the living trust
can help avoid the need to probate their will in that state. If neither
of these goals are your objectives, however, a living trust may not be an
appropriate document for you.
- The living trust is the only way to avoid probate.
False. If your goal is to avoid probate, there are several ways to do
so. Joint tenancy with rights of survivorship and multiple party accounts
with financial institutions are common and inexpensive methods of avoiding
probate. However, always consult with an attorney before proceeding with
these options, as they may likely conflict with your current estate planning.
Back to Top
What You Can Do to Protect Yourself
It is very difficult to get your money back if you are cheated
in a living trust scam. So before you buy, and better yet, before you allow
a salesperson in your home, remember:
- Always take sufficient time to make your decision.
- Legitimate advisors understand when you want more information
about their services or products.
- Be sure to talk with someone knowledgeable whose advice
you value when considering a trust.
- Never respond to an offer you do not thoroughly understand.
- Avoid buying on impulse or succumbing to sales pressure
to "act now."
- If you conclude that a trust may be right for you, deal
directly with a licensed Texas attorney who has substantial expertise in
estate planning.
-
Be sure you are working with someone with the necessary training and
education.
-
If a trust is right for you, an attorney with knowledge of Texas law
should draft it. The laws that apply to trusts vary from state to state.
Forms, kits or computer software programs may not be tailored to the requirements
of Texas law. A licensed Texas attorney with expertise in estate planning
should prepare, or at least review, your living trust. Also, a trust prepared
by an attorney will generally cost less than the prices charged by trust
salespersons.
Back to Top
How People Become Victims of Living Trust Scams
Con artists make false and misleading statements to older
people through:
- telemarketing and mail solicitations;
- door-to-door sales;
- "free" seminars and workshops, and
- advertisements.
Often con artists attempt to meet in your home through offers of a free
living will, a free power of attorney, or a free estate analysis. Many also
offer unnecessary partnerships, limited partnerships, family partnerships,
and limited liability companies.
If you feel that you have been a victim of a con artist, a living trust
salesperson, or an unethical attorney, please contact the State Bar of Texas.
While non-attorneys are not subject to State Bar rules, they may be practicing
law without a license.
Back to Top
Revised 2002
This information is not intended to be a substitute for the legal
advice of a licensed attorney. If you have any questions regarding a particular
issue or topic we suggest you seek legal counsel.
The above information is adapted from the brochure "Living Trust Scams
and the Senior Consumer" prepared by the Texas Young Lawyers Association
and published by the State Bar of Texas. Contact Tammi
Sweet at the State Bar of Texas at 1-800-204-2222 ext. 2610 for a copy
of the publication
|