None of us wants to believe that we or our loved ones could fall victim to a scam that could rob us of our hard-earned money. But according to the AARP, the Federal Trade Commission (FTC), and a number of state attorneys general, around this time of year, deceitful companies step up their efforts to market costly living trusts to older Americans – an arrangement that may actually undermine the buyer’s financial security.
These high-pressure con artists, who often pose as affiliates of AARP, have built an industry around older people’s fears that their estates could be eaten up by probate costs or taxes, or that the distribution of their assets could be delayed for years. The solution, they claim, is a living trust.
The living trust is an estate planning device that eliminates the need for probate of the individual’s estate at his death (a process known as a succession in Louisiana). Assets are held in the trust and then distributed outside of probate at the time of death.
There is nothing wrong with a living trust or with trying to avoid probate. Attorneys often recommend a living trust as an estate planning device for clients – but only where it is appropriate for their particular needs. However, salespeople masquerading as professional estate planners have been found trying to convince older Americans that such trusts are for everyone. Going door-to-door or using phone solicitation, they often greatly exaggerate the costs and delays of probate and are unlikely to mention that the vast majority of estates are not subject to federal or state estate taxes. Their products are “cookie-cutter” living trusts, sometimes in the form of living trust kits.
The problem is that many people don’t need a living trust, a trust from a kit may not meet a particular client’s needs, and more times than not, these companies charge more than the service is worth. In addition, according to the FTC, some companies are using the living trust concept merely as a way to gain access to consumers’ financial information and sell them other financial products, such as insurance annuities.
Among the dangers of “one-size-fits-all” living trusts is that in many cases they won’t make the grantor and spouse eligible for Medicaid reimbursement of nursing home costs. In addition, some trusts improperly instruct the trustee to distribute property to beneficiaries immediately upon the death of the grantor. If creditors make a claim against the trust after asset distribution, the trustee becomes personally liable for any valid claims against the trust.
According to an AARP study published in 2000, about four million people older than 50 with less than $25,000 in annual income may have purchased costly, unnecessary, and potentially dangerous living trusts as a result of high-pressure sales tactics by firms masquerading as AARP affiliates. In fact, AARP is not associated with and does not endorse any company that markets or sells living trusts.
The Federal Trade Commission also reminds consumers of the “Cooling-Off Rule,” which provides that if you buy a living trust in your home or somewhere other than the seller’s permanent place of business (say, at a hotel seminar), the seller must give you a written statement of your right to cancel the deal within three business days.
Needless to say, if you are considering exploring strategies that will help you avoid probate, seek the advice of a qualified estate attorney before signing anything. And for additional resources for older adults and their families to make better decisions about annuities, the Healthcare and Elder Law Programs Corporation (H.E.L.P.) has created annuitytruth.org.