How People Become Victims of Living Trust Scams

Con artists make false and misleading statements to older people through:

  1. telemarketing and mail solicitations;
  2. door-to-door sales;
  3. “free” seminars and workshops, and
  4. advertisements

Often can artists attempt to meet in your home through offers of a free living will, a free power of attorney, or a free estate analysis. Many also offer unnecessary partnerships, and limited liability companies.

The State Bar of Texas has issued an advisory opinion for attorneys regarding advertising and promoting living trusts. Attorneys are not supposed to advocate a living trust over a will or vice-versa. They should give you the pros and cons of both documents.

If you feel that you have been a victim of a con artist, a living trust salesperson, or an unethical attorney, please contact the State Bar of Texas. While non-attorneys are not subject to State Bar rules, they may be practicing law without a license.

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, and better yet, before you allow a salesperson in your home, remember:

  1. Always take sufficient time to make your decision.
    • Legitimate advisors understand when you want more information about their services or products.
    • Be sure to talk with someone knowledgeable whose advice you value when considering a trust.
    • Never respond to an offer you do not thoroughly understand.
    • Avoid buying on impulse or succumbing to sales pressure to “act now”.
  2. 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.
    • Be sure you are working with someone with the necessary training and education.
    • 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 and attorney will generally cost less than the prices charged by trust salespersons.

Fraudulent and Misleading Statements Used in Living Trust Scams

Con artists promote their business by making false or incomplete statements about the probate process, guardianships and the taxation of estates. Such statements include:

  1. 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 is allowed $650,000 by the IRS, which will pass “tax free.” If your estate exceeds $650.000 (or if a husband’s and wife’s combined estates exceed this much), no matter who the beneficiary is, you should see an estate planning attorney. The amount of the “tax free” portion of the estate increases through the year 2006 when it will be $1,000,000.
  2. 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.
  3. 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, trusts just like wills are subject to attack on the basis of lack of capacity, undue, influence and fraud.
  4. Living trusts help you avoid your creditors.
    False. During you 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.
  5. 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.
  6. Attorneys charge from 3 percent to 10 percent or more to probate your estate.
    False. If your family wished to hire the service of an attorney, his or her fee may be based upon an hourly charge or upon a percentage or your estate and rarely do attorneys charge as much as 3 percent. In fact, most attorneys do not charge a percentage of the estate but instead charge an hourly rate for their work.
  7. Probate takes years to complete.
    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 administrations of either a probate or a living trust. In most circumstances the administration of a living trust is no more time efficient then the administration of a will in probate.
  8. Probate requires excessive time and money.
    False. Texas has adopted a simplified probate process under the Texas Probate Code. These independent administrations, which account for more the 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. It is not usually available if there is no will.
  9. Everyone should have a living trust.
    False. While a living trust is appropriate for some people, the cost of creation, 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.
  10. The living trust is the only way to avoid probate.
    False. If your goal is to avoid probate, there are several ways to do so. Joint tenancy with rights 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 likely conflict with your current estate planning.

Living Trust Scams

If you are age 50 or older, you should take special care when buying living trusts. Your are group is often a special target of salespersons whose goal is to sell you something without carefully analyzing you needs.

It is easy enough to become a victim. Living trust sales are a growing area of consumer fraud. Con artists make millions of dollars every year selling unnecessary trusts. Each year thousands of consumers lose from $500 to $5,000 through the purchases of living trusts. Often families face potentially greater costs after the consumer’s death, resulting from problems associated with the trusts.

To protect yourself, follow these guidelines:

  1. Take time when making your decision. Do not fall victim to high-pressure, “act immediately” sales tactics.
  2. Seek the advice of someone trustworthy and knowledgeable. Contact your accountant, estate planning attorney, banker or financial advisor.
  3. 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 the attorney is board certified in estate planning and probate law by the Texas Board of Legal Specialization, he or she is presumed to have this expertise (though an attorney does not need to have this designation to be qualified to do your estate planning work).

Where Should I Keep My Durable Power Of Attorney?

It should be kept where you keep your most important papers.

Where Can I Get A Durable Power Of Attorney?

An attorney knowledgeable about wills and estate planning should be able to prepare this document at a very reasonable cost.

Once I Give The Durable Power Of Attorney-what Happens If I Later Change My Mind?

If you recorded the power of attorney, you may revoke the Durable Power of Attorney at any time by recording a Notice of Revocation with the Country Clerk where you filed it. In any case, it would also be important to notify the attorney in fact and any third parties who had been dealing with your attorney in fact that you had revoked the Durable Power of Attorney.

Can I Have A Durable Power Of Attorney That Does Not Become Effective Unless And Until I Become Incompetent?

Yes. Texas law permits a Durable Power of Attorney to be a “springing” power of attorney which does not become effective unless and until you become incompetent.

Does The Durable Power Of Attorney Have To Be Recorded?

Although the Durable Power of Attorney must be notarized and it can be recorded at the County Clerk’s office, it does not have to be recorded to be effective. However, if real estate transactions are undertaken by the attorney in fact, the Durable Power of Attorney will need to be recorded in the County Clerk’s office of the County where the land is located.

Can My “agent” Or “attorney In Fact” Make Medical Treatment Decisions For Me?

No. Medical treatment decisions are governed by another type of power of attorney called a “Medical Power of Attorney.”

Who Can I Designate To Act For Me Under A Durable Power Of Attorney?

The person that you name (your “attorney in fact” or “agent”) can be any person capable of transaction business. He or she need not be a licensed attorney at law. Quite often a person who is married will name his or her spouse as the “attorney in fact” and , if the spouse for whatever reason can not serve, an adult child is named as the alternate. The person you name should be someone in whom you have complete trust and confidence.

What Can A Durable Power Of Attorney Do For Me?

It permits you to appoint someone to manage your affairs:

Management of Your Assets
The person you have designated in your Durable Power of Attorney can be given the power to manage your assets which could include such things as to:

a. Write checks on your bank account and make deposits
b. Pay your bills
c. Have access to your safe deposit box
d. Sign your tax return
e. Make important decisions about your retirement plans – IRA’s (eg: Rollover decisions)
f. Make important decisions about your insurance (eg: borrow against the cash surrender value of a life insurance policy)
g. Buy or sell stocks, bonds, mutual funds and other securities
h. Buy or sell real estate; enter into, terminate or modify lease agreements
i. Continue to operate or windup your business (pay employee’s salaries, etc.)

Arrangement For Your Personal Needs
The person you have designated in your Durable Power of Attorney can be given the power to arrange for your personal needs which could include such things as to:

a. Provide for you a residence (nursing home; private residence, etc.)
b. Provide you with nursing care (employ nurses & physicians, etc.)
c. Provide for your recreational needs (arrange for travel, etc.)
d. Provide for the care and custody of your personal effects
e. Provide arrangements for the care and custody of your pets
f. Make pre-arranged funeral plans
g. Provide for your religious needs consistent with your beliefs
h. Take custody of your important personal papers (Will; Insurance papers; Certificates of Deposit; Stock certificates)
i. Have access to your medical records

Why Do I Need A Durable Power Of Attorney?

If you become disabled due to an accident or illness and you are deemed mentally incompetent, your business and personal affairs will more than likely have to be administered by a court-appointed guardian. The guardian may or may not be someone whom you would have chosen to attend to your needs. In fact, he may be a complete stranger! Plus, a guardianship can be expensive. The guardian will have to post a bond equal in value to your estate, and the premium for this bond will have to be paid out of your estate. The guardian will have to go to Court for permission to transact virtually any type of business transaction and he will have to demonstrate to the Court why the action which he desires to take is necessary and desirable. The guardian will also have to file annual accountings. Guardianships, then, are expensive, time-consuming and cumbersome; a very inefficient way to take care of your business and your personal needs when disability occurs.

The solution to this problem is the Durable Power of Attorney. With a valid, well-written Durable Power of Attorney your business and personal needs can be taken care of in an efficient manner at minimal expense.

What is a Medical Power of Attorney?

The Texas Legislature passed a law permitting you to sign a Medical Power of Attorney. This medical power of attorney allows you to designate someone else, who is called your “agent” to make health care decisions if you become incapable of making those decisions. Your agent could be your spouse or some other adult in whom you have confidence.

What are some examples of health care decisions which might need to be made if I become incapable of making them?

Practically any kind of medical diagnostic or treatment decision could be made. Examples would include the decisions as to whether or not to consent to surgery or whether or not to use chemotherapy. The enabling legislation defines “Health Care or Treatment Decision” as “consent, refusal to consent, or withdrawal of consent to health care, treatment, service, or procedure to maintain, diagnose or treat an individual’s physical or mental condition”. Your agent also would have the power, unless you stated otherwise, to make decisions about withdrawing or withholding life-sustaining treatment.

Are there any restrictions or limitations on my agent?

Yes. First, your agent cannot act at all unless and until your attending physician certifies in writing that you lack the capacity to make health care decisions for yourself. Secondly, if you object to your agent’s decisions and your physician knows of your objection, your physician must not implement the treatment specified by your agent. Finally, your agent, in making decisions for you is required to make them according to his knowledge of your wishes including your religious and moral beliefs. And in any event, your agent may not consent to: voluntary inpatient mental health service; convulsive treatment; psychosurgery; abortion; or the omission of care intended for your comfort.

Several technical requirements must be met for the Medical Power of Attorney to be effective. There are restrictions as to who can serve as your agent. For example, your physician could not be your agent. Before signing the Medical Power of Attorney you must sign a Disclosure Statement. Your signature on the Medical Power of Attorney must be witnessed by two (2) persons who must meet certain criteria.

Once I sign the Medical Power of Attorney, can I later change my mind?

Yes. The law allows you to revoke it at any time.

What about the Living Will – doesn’t the Medical Power of Attorney overlap with my Living Will?

Perhaps it may, but not necessarily. The “Living Will” (Advanced Directive under the “Advanced Directives Act”) is a document which you sign that directs your physician not to use life support systems if you have been diagnosed as having a terminal condition and where death is imminent. However, the Medical Power of Attorney is designed to permit your agent to make health care decisions whether or not you are suffering from a terminal condition.

Perhaps a person is suffering from Alzheimer’s Disease, but death is not imminent. In this case the Living Will would not apply. Nevertheless, health care decisions would need to be made, and the Medical Power of Attorney would allow the agent to make those decisions.

I already have a Durable Power of Attorney won’t that be sufficient?

No. The “regular” durable power of attorney is primarily designed to enable someone else to make decisions about property; not to make health care decisions. Furthermore, the Legislature has specifically prescribed the only method for creating a Medical Power of Attorney. The Legislature has also specified the particular type of Disclosure Statement that must be executed in order for it to be valid.

What Happens When I Die

What Does Probate Involve?

Unlike most states, Texas allows you to have an independent administration. But you get this only if you have a properly drawn Will. With an independent administration the person you have named as your independent executor (the representative of your estate) will usually hire an attorney. The attorney will prepare an application to probate the Will. The executor will accompany the attorney to court and will testify as to the fact that the person has died; that the Will was signed when the testator was of sound mind; that the Will is his last Will and was never revoked; and that the executor desires to be appointed as the executor of the estate. If the judge finds everything in order, he will order the Will admitted to probate and will order that “letters testamentary” be issued to the independent executor. The independent executor will then publish in a local newspaper a “Notice to Creditors” advising any creditors to present their claims; he will also file an Inventory, Appraisement and List of Claims (basically a list of the assets of the deceased and their fair market value). The independent executor will then be free to “administer” the estate — that is, he will gather the assets of the deceased; pay any debts of the deceased in a specific order; and then distribute the assets to the persons named in the Will.

If I Have A Will, Must I Leave Any Portion Of My Estate To Any Particular Person?

No. Texas, unlike other states, does not have “forced heirship”. This means with a properly drawn Will you can leave your property to whomever you choose. As a matter of fact, by having a Will, you can remember your favorite charity, your church or synagogue or special friend.

Whom Should I Name As My Independent Executor?

Quite often a married person will name his or her spouse. Another possibility is an adult child. In any case, the person you name should be someone in whom you have complete trust and confidence — someone you believe is a good business manager because he or she will have complete responsibility for your financial affairs until your assets are distributed and your estate closed. You might want to give serious consideration to naming a bank which has a trust department as the executor because they have people especially trained to do this work.

How Much Does A Will Cost?

Surprisingly little for an uncomplicated Will — probably no more than what an attorney would charge for making one appearance in the probate court. But if you die without a Will, your spouse’s attorney (or the attorney for the court-appointed administrator) will more than likely have to make many such appearances.

Who Should Prepare My Will?

An attorney knowledgeable about Wills and Estate Planning.

Who Can Make A Will?

  1. Anyone who is of sound mind and
  2. Is 18 years of age (or is now or has been lawfully married) or
  3. Is in the armed forces, reserves or in wartime service.

What Happens To My Property

If I Die Without A Will?

It passes according to the laws of the State of Texas (what lawyers call the “law of intestate succession”). If you are married and have community property (generally property which you and your spouse accumulated during your marriage), each spouse owns an undivided 1/2 interest in that property. If the deceased spouse’s children are also the children of the surviving spouse, then the deceased spouse’s community property will pass to the surviving spouse. However, if all of the children of the deceased spouse are not children of the surviving spouse, then the deceased spouse’s community property will pass to his children–not to the surviving spouse.

If the deceased spouse had separate property (property that he or she owned before marriage or which, while married, was received as a gift or as an inheritance) the law of intestate succession requires that separate real property (eg: house and lot; family farm or ranch, etc.) go 2/3 fee simple to the decedent’s children with the surviving spouse receiving only a 1/3 life estate — the 1/3 remainder interest at the spouse’s death going to the children. In case of separate personal property, the decendent’s children receive 2/3 and the surviving spouse receives only 1/3.

What If I Have Minor Children – What Can A Will Do For Them?

It can provide a tremendous degree of security for them and peace of mind for you! With a Will you can provide, if both you and your spouse are deceased, that your estate will be held in trust (with a trustee you name) for their maintenance, support and education until they are old enough and mature enough to handle the property — rather than simply turning it over to them when they turn eighteen (18) which the law, otherwise, requires.

Why Do I Need A Will?

A. Because, without a properly drawn Will, you will not get the chance to say where your property goes -instead the State of Texas will make this decision for you!

B. Because, without a properly drawn Will, if you have minor children, you forfeit the right to name the person you would want as their guardian and you leave the decision to a judge.

C. Because, without a properly drawn Will, you forfeit the right to have your estate administered by a person you would have chosen and instead a judge will apoint whomever he believes is qualified — which could be a creditor!

D. Because, without a properly drawn Will, you forfeit the right to an efficient, cost saving independent administration and instead a court-supervised dependent administration may be required which is expensive, time consuming and burdensome.

E. Because, without a properly drawn Will, you forfeit the right to take advantage of estate tax saving opportunities, thereby exposing your estate to significant estate and inheritance taxes.