Living Trusts: How to Avoid a Deceptive Deal
By Alan S. Kopit, The Today Show
as printed on March 5, 2002 on MSNBC.com.
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They can be an important estate-planning tool, however living trusts may not be the perfect plan for everyone
Even if you have a modest estate, a “living trust” can be an important estate-planning tool to give you control over your assets while you’re alive, and to allow you to transfer your assets to your heirs without going through the time and expense of probate. But there are many misconceptions about “living trusts,” and AARP (American Association of Retired Persons) reports since the first of the year, there has been an upsurge of deceptive telemarketing calls, mass mailings and newspaper ads designed to lure consumers into paying a lot of money for something they may not need.
WHAT IS A LIVING TRUST -- A “living trust” is simply a trust established during your lifetime. Under a living trust agreement, you select a trustee (often yourself) to hold your property for your benefit during your lifetime pursuant to the terms of a trust agreement.
You have full control over these assets because you retain the right to amend or revoke this trust agreement at any time. Upon your death, the property held by the trustee passes to the beneficiaries you designate in your trust agreement without passing through the probate court, thereby avoiding the delays, cost and public nature of probate.
THE ADVANTAGES OF A LIVING TRUST - Most important, assets funded into the trust avoid probate, and because assets distributed through a trust pass outside of the probate court, there is no public record of the distributions. Living trusts also can reduce estate taxes while providing for surviving spouse. In addition, in a living trust, you determine when income or principal will be distributed to the beneficiaries. You may set the ages and purposes (e.g., health, education, support) for which a trustee may distribute income or principal to a beneficiary. Moreover, a living trust can provide that assets pass to your children upon the death of your surviving spouse, making a living trust a particularly useful estate planning tool in a remarriage situation. Finally, living trusts can protect assets from a beneficiary’s creditors.
THE DISADVANTAGES OF A LIVING TRUST - There are several disadvantages, however, to living trusts. First, there is no one to supervise an inexperienced trustee. If he or she makes a mistake, no one may ever know about it. Second, to avoid probate, you must take the steps necessary to transfer your assets into your trust or change the beneficiary designations. It takes time to process the paperwork and expense to draft the trust agreement properly. Third, a living trust costs more than a simple Will to draft.
ESTATE PLANNING FRAUD - Companies that churn out “standard” living trusts sell their services in seminars, by direct mail, and by telemarketing. Without any concern for your overall estate plan, these companies often try to sell you a living trust in a “one-size-fits-all” package. This can have a detrimental affect on your estate plan and may result in the transfer of property to the wrong heirs, while costing you a great deal of money in preparing the living trust agreement.
In most cases, such companies purport to use the services of an attorney, but usually, the attorney is only a front man for the company and does not play any part in the creation of your estate plan or living trust. Also, such companies often make false claims about the benefits of a living trust, in particular, they exegerate the beneficial effect of a listing trust when it comes to asset protection, Medi-Cal and Medicare. If you have issues regarding asset protection, Medi-Cal or Medicare, you should consult with an attorney who understands such complicated issues.
Deceptive “living trust” companies can be spotted in a number of ways:
They often sell living trusts door-to-door, through seminars or through telemarketers, without giving you any way to check the credentials of the sales person or company.
Watch out for “sound alike” names confusing their services with legitimate non-profit organizations like AARP.
Be wary of companies trying to sell you self-help kits, which require that you transfer your assets without explaining the proper way of doing so and with no supervision.
The goal of these companies may very well be to steal your identity, or to gather other information about you to use for other purposes.
They may improperly tell you that without this device, all of your assets will be eaten up in an expensive probate proceeding.
They charge very small fees and offer discounts if you sign up immediately.
They use living trusts as an excuse to try and sell you annuities or insurance.
In all of these cases, high pressure tactics are used. Don’t make any decisions “under the gun” and be sure to consult with licensed estate planning professionals (like an attorney or financial advisor) before going down this road.
MISCONCEPTIONS ABOUT LIVING TRUSTS - There are several misconceptions about living trusts. Some think that living trusts are the best way to save estate taxes, yet a living trust is only one technique that helps people with large estates save taxes. In addition a living trust does not prevent your creditors from reaching your assets during your lifetime.
Another common misconception is that transferring your assets to a living trust will automatically allow you to qualify for Medicaid, yet it may not. Furthermore, a living trust does not prevent a beneficiary or heir from challenging the validity of your living trust by claiming that you were incompetent when it was written. Finally, a living trust will not save you income taxes, and after your death, the trustee must file a separate tax return each year the trust is in existence. This may add to the expense of the living trust.
FINAL WORDS OF ADVICE - A living trust should be created only after a thorough review of your tax, estate, and personal goals. You need to talk with your team of professionals (at least an attorney, and perhaps an accountant or financial advisor) to make an informed decision on whether to create a living trust. And a living trust does not obviate the need for a Will as you still need one since any assets not in the trust will be distributed according to your wishes in your Will. Be wary of advice on the Internet and “do-it-yourself” books and forms on living trusts. It is difficult to evaluate how good these sources are. Remember: After you’ve died, you can’t take it with you and you can’t change your mind.
Provided By - Richard H. Hallstrom, Esq.
For
Plan-My-Estate.com
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| In Memory Of Richard H. Hallstrom - 1969-2004 |
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