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.