Unfortunately, there are unscrupulous people in the world who will take advantage of and exploit the more vulnerable members of our society for their personal gain. One of the more recent (and more deplorable) scams involves convincing seniors to establish living trusts of dubious legality, usually as a means of selling them annuities.
Living trusts (also known as revocable living trusts) are legitimate legal instruments, which serve a valid, though somewhat limited purpose. A trust is a legal document that confers control of an individual’s property to an appointed trustee, who must hold and manage that trust for the benefit of its beneficiaries. A living trust is simply a trust that is created and funded while the original owner of the property is still alive.
Unlike a will, a living trust does not need to go through the probate process, which can save time, and, since it is not required to be reviewed by the court and does not become part of the public record, a living trust does offer a certain amount of privacy. A living trust can be a useful tool in some circumstances, (for instance, when dealing with out-of-state real estate ownership), but there are other types of documents that may be more effective for most people.
Some purveyors of these trusts, working for companies called Trust Mills, make all sorts of exaggerated claims about the purpose and benefits of the living trust. They may exaggerate the amount of time it saves in probate, claim that living trusts can shield you from taxation, or state that a living trust replaces a conventional will.
Attorneys General of several states, including California and Pennsylvania, have issued warnings about these kinds of con artists. The AARP has also warned its members, saying that, “the greatest growth in sales of living trusts is to people who are least likely to need one. Living trusts are not the solution that salespeople make them out to be.” And the Federal Trade Commission recently unearthed a particularly deplorable variation on these practices targeting veterans.
Trust Mills use direct mail, ads, telemarketing and estate planning seminars to foist unreliable and often unnecessary legal documents onto unsuspecting seniors. Too often, the worthlessness of these documents is not discovered until the individual who signed them dies, leaving a mess to be cleaned up by their executors.
If you are faced with someone trying to sell you a living trust, always ask for their qualifications. If they are an insurance agent, rather than a lawyer, the legality of the documents they want you to sign should be immediately called into question, as should their motives in proposing this legal instrument to you.
Beware of high pressure sales techniques, such as offering limited-time ‘seminar discounts’ to encourage you to sign on the dotted line right away. Always ask for time to review the documents with your attorney before signing anything. If they balk at that, you should walk away.
Never purchase pre-printed documents. They often leave out essential provisions or ignore important points of law. Fill-in-the-blanks living trusts are almost certain to contain errors that may render them null and void in the eyes of the law. Though companies that sell these trusts may purport to have attorneys on staff to review such documents, the reality is that they are often being completed by individuals with no legal training whatsoever. As such, they are unlikely to hold up in court.
Although they are often marketed as tax-sheltering devices, living trusts do not shield you from taxes. In fact, certain types of trusts, often called pure trusts, common law trusts, or constitutional trusts are outright illegal. The IRS has issued warnings about this, and has successfully prosecuted both buyers and sellers of these products for tax fraud.
Also, living trusts are not a substitute for a proper will. At very least you would need some form of ‘pour-over will’ to protect assets not mentioned in your living trust.
But while living trusts are sometimes used by unscrupulous people with no regard for their victim’s well-being, there are legitimate instances, such as the mental incapacity of a senior, which may call for some form of legal guardianship. Not all living trusts are scams, by any stretch of the imagination.
Guardianship is a legal proceeding whereby an individual is chosen to act as guardian for a mentally incapacitated person (known as a ward) because of that person’s demonstrated inability to manage their own affairs. While establishing guardianship is often more complicated than creating a living trust, it has the benefit of a careful and impartial consideration of the ward’s rights, interests and capabilities. Beyond just managing the ward’s finances, the legal guardian assumes a host of other important duties, including making decisions about medical treatment, determining place of residence, and arranging appropriate care.
There are advantages and disadvantages to the use of a living trust. While the establishment of a such a trust may be the right course of action for some people, don’t buy in to slick salesmen who try to convince you to sign on the dotted line of illegitimate, ineffectual, or even harmful ‘legal documents’. Consult your attorney before entering into any such arrangements, and find out what legal instrument is appropriate to your specific needs.
For a free consultation about your legal matter, call us at (856) 227-7888, or contact us at [email protected]. We have locations in Camden, Burlington, and Gloucester counties, and are happy to discuss your options.
The above is not specific legal advice nor does it create a lawyer-client relationship. Do not rely upon it without consulting an attorney to see how the information presented fits your unique circumstances.