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Living Trust Scams and the Senior Consumer

If you're 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's 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 purchase 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:

  1. Take time when making your decision. Do not fall victim to high-pressure "act immediately" sales tactics.
  2. Seek the advice of someone trustworthy and knowledgeable. Contact your accountant, estate planning attorney, banker or financial advisor.
  3. 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, he or she does not need to have this designation to be qualified to do your estate planning work.

Fraudulent and Misleading Statements Used in Living Trust Scams

Con artists promote their business by making false or incomplete statements about the probate process, guardianships and the taxation of estates. Such statements include:

  1. 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 is allowed $650,000 by the IRS which will pass "tax free". If your estate exceeds $650,000 (or if a husband and wife's combined estates exceed this much), no matter who the beneficiary is, you should see an estate planning attorney. The amount of the "tax free" portion of the estate increases through the year 2006 when it will be $1,000,000.

    It is true that unplanned estates over $3,000,000 in value can face federal estate taxes at a marginal tax rate of 55 percent. However, a living trust is not required to take advantage of other techniques to minimize estate tax liability.
  2. 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.
  3. Living trust 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, trust just like wills are subject to attack on the basis of lack of capacity, undue influences, and fraud.
  4. 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.
  5. 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.
  6. 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.
  7. Probate takes years to complete.

    Misleading and Very Unlikely. Non-taxable 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.
  8. 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.
  9. 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 their assets. Many of these persons lack the capacity to manage their assets, or have lost that ability through ill health. For other persons who own out-of-state property, the living trust can help avoid the need to probate their will in that state. However, if neither of these goals are your objectives, it may not be an appropriate document for you.
  10. 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 right so 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 frequently conflict with your current estate planning.

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:

    1. 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 don’t thoroughly understand.
        • Avoid buying on impulse or succumbing to sales pressure to "act now."

    2. 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, it should be drafted by an attorney with knowledge of Texas law. The laws which 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 priced charged by trust salespersons.

How People Become Victims of Living Trust Scams

Con artists make false and misleading statements to people through:

    1. telemarketing and mail solicitations;
    2. door-to-door sales;
    3. "free" seminars and workshops, and
    4. 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.

The State Bar of Texas has issued an advisory opinion regarding advertising and promoting living trusts for attorneys. Attorneys are not supposed to advocate a living trust over a will or vice-versa. They should give you the pros and cons of both documents.

If you feel that you have been a victim of a con artist or 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.