LIVING TRUST SCAMS
AND THE SENIOR CONSUMER
The following is provided for informational purposes only and is not, nor should it be construed as legal advice.
This article is a duplication of a pamphlet originally published by the State Bar of Texas and the Texas Young Lawyers Association. The text of that pamphlet has been reproduced by permission in its entirety.
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:
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 an attorney 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 may transfer assets of a certain amount “tax free.” The following limits apply [sic] 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. Under current law, the estate tax will be repealed in the year 2010, but the estate tax will be reinstated in 2011 and the value of property which can be transferred tax free will become $1,000,000 at that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 that 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.
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 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.
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. 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.
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 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.
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 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.
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 do not 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, 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.
HOW PEOPLE BECOME VICTIMS OF LIVING TRUST SCAMS
Con artists make false and misleading statements to older people through:
1. telemarketing and mail solicitations;
2. door-to-door sales;
3. “free” seminars and workshops; and
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.
James Bright is admitted to practice before the Federal Courts for the Southern District of Texas and Eastern District of Texas as well as all of the Justice Courts, Probate Courts, County Courts at Law, District Courts, Courts of Appeal and Supreme Court for the State of Texas. He maintains an office in Houston and by appointment another at208 McCown Street
in the heart of historic Montgomery. Contact may be made by telephone (936) 449-4455 or (281) 586-8277. For more information about wills or probate in Texas, please see- www.houstontxprobate.com