The Texas Bar Association, like those of many other states, warns consumers about living trust scams that victimize thousands of people each year. The Association states that many of the victims are age 50 or older and that losses range from $500 to $5,000 per victim. The families of buyers of problematic living trusts face additional costs after the death of the trust owner. Potential victims can help protect themselves through knowledge and reliance on licensed professionals.
Defiinition of Living Trust
A living trust is a document you draw up while you’re still alive, directing the distribution of trust assets after your inevitable demise. You transfer assets to your living trust, but unless the trust is irrevocable, you can change your mind later. Living trusts have several benefits. They avoid probate -- a court proceeding that identifies and distributes your property after you die. Probate costs can eat into your estate and can drag on for a while, so avoiding the procedure makes a lot of sense. On the downside, living trusts can be expensive to draw up and do not handle property outside the trust. If you want to make provisions for all of your assets without enumerating them in a living trust, you need a will. A simple living trust does not reduce estate taxes.
According to the Pennsylvania Attorney General’s Office, the con artists that fraudulently sell living trusts frequently dispense misleading information. The scammers use tactics like telling their marks that without a living trust, their property will languish for years in probate court and will encounter heavy taxes - both untrue and misleading. The Texas Bar Association enumerates more untrue come-ons, such as that a living trust facilitates public assistance, avoids contested wills and protects you from creditors. The con artists apply high-pressure sales tactics, such as creating artificial signing deadlines for various documents. The hucksters often use unfamiliar terms and grossly overstate the risks of not establishing a living trust before death.
In December 2008, California nailed the Alliance for Mature Americans for $200 million to settle charges of living trust fraud. One tactic revealed in this case was the use of “smoke sheets” -- questionnaires that smoke out a victim’s savings and retirement accounts. The salespersons would then aggressively pressure people to transfer their assets to high-fee accounts. Additionally, the salespeople would send phony letters of instruction to brokers, banks and financial institutions authorizing such transfers. The National Consumer Law Center describes other warning signs, such as attempting to sell high-priced self-help living trust kits that contain misleading information or invoking the names of respected organizations, such as the AARP, which doesn’t even sell living trusts. Other tip-offs include documents in which your name has been cut and pasted, required attendance at high-pressure "seminars," and credentials that you cannot verify with state authorities.
Protection and Assistance
Federal law contains various anti-fraud statutes, but probate and trust law is regulated at the state level. As of this writing, 25 states have adopted the Uniform Trust Code that regulates living trusts. The California State Bar urges consumers to rely on qualified estate planning lawyers to draw up living trusts. Even if your state does not require licensing of living trust salespersons, you can insist on dealing with only licensed professionals such as lawyers, certified financial planners and certified public accountants. Potential and actual victims of living trust scams can also contact state and federal agencies for help. A good place to start is the National Adult Protective Services Association, which can refer you to the appropriate local organization. The Women’s Institute for a Secure Retirement provides a list of public agencies that can help, including the National Center on Elder Abuse and the Consumer Financial Protection Bureau. If you suspect you are being scammed, you might want to contact these agencies before signing any documents or turning over any confidential information.
- Nolo: Living Trust FAQ
- Pennsylvania Attorney General: Beware of Living Trust Scams
- CBS News: Beware Living of Trust Scams
- The People’s Lawyer: Living Trust Scams and the Senior Consumer
- Texas Bar Association: Living Trust Scams and the Senior Citizen
- State Bar of California: Do I Need a Living Trust?
- National Adult Protective Services Association: Get Help
- Women’s Institute for a Secure Retirement: Annuity and Living Trust Scams
- The American College of Trust and Estate Counsel: Summary of States that Adopted the Uniform Trust Code and those States’ Treatment of Exception Creditors*
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