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.
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.
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.” Limits apply to such tax-free transfers: $2 million for 2006 until 2009; and $3.5 million in 2009. Current law states that the estate tax will be replaced in the year 2010, but reinstated in the year 2011. 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, trust 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.
Be cautious when you are told the following statements:
- Attorneys charge from 3 percent to 10 percent or more to probate your estate. This is false.
- Probate takes years to complete. This is 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.
- Probate requires excessive time and money. This is 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.
- Everyone should have a living trust. This is 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. This is false. If your goal is to avoid probate, there are several ways to do so. Joint tenancy with right 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 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–better yet, before you allow a salesperson in your home–remember:
- Always take sufficient time to make your decision.
- 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 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.
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.