Are Living Trusts a Scam?

Are Living Trusts a Scam?

If you rely on "Google" for legal advice, you may have seen articles saying living trusts are "scams" and you don't need one because you can avoid probate by adding beneficiary designations. Many of these articles were written in the early 2000's and have serious information gaps. Here are three common problems with these articles and why you need to talk to an estate planning attorney to decide what's right for you.

1. Consider the context. In the late nineties and early 2000's there were problems with non-attorney "advisors" who sold financial products, including trusts. These unscrupulous "advisors" targeted the elderly and churned out generic trusts at lower prices than legitimate legal documents from attorneys. These businesses became known as "trust mills" and the "trusts" they produced were frequently bait to sell other products like annuities. The majority of these trusts were never properly explained to the purchasers, never funded, and not customized for the purchaser. Many of these trust mills were closed down but you should still avoid any trust from a non-attorney advisor. Drafting a trust is the practice of law and all trusts should be drafted by an attorney licensed in your state.

2. Not all property can be transferred with a beneficiary designation. Many of the articles about scam trusts have trust mills in mind and oversimplify complicated issues. For example, these articles may state you can add a beneficiary designation and convert probate property to non-probate property, therefore you don't need a trust. That is true for some types of property. However, not all types of property can be converted to non-probate property with a beneficiary designation or a pay-on-death ("POD") designation. Additionally, a beneficiary designation or a POD designation may accidentally disinherit your intended beneficiaries. If you are relying on one of your children who is a POD beneficiary on your checking account to divide the money with siblings when you are gone, then you need to consider that, once added, your designated beneficiary or POD child is under no legal obligation to share the money. Moreover, your child's creditors and divorcing spouse can claim the money before it ever gets to your other children. Even if your child does distribute it to his or siblings, he or she will have to file a gift tax return for any payment to a sibling that is over $15,000 dollars.

3. Unintended consequences. Adding a child's name to a deed while you are alive may cause you to: 1) literally lose the roof over your head by losing your home to your child's creditors during your lifetime;  or 2) be unable able to sell your home later if you need the money to pay living expenses. You could also end up sharing ownership of your home with your child's spouse if your child pre-deceases you. That is probably not something you want.  The scam trust articles do not discuss these problems and like the former trust mills they criticize, they overgeneralize and create a false sense of confidence in DIY estate planning using beneficiary designations. Do yourself a favor and get the facts before you decide what is best for your situation.  

3 Reasons Why A Living Trust Designed For You By Your Estate Planning Attorney is Different

* Your estate planning attorney has a legal duty to act in your best interest. A non-attorney advisor does not. (Neither does Google.)

* Your estate planning attorney will base the recommendation for a trust on your specific circumstances and the state you live in.

* Your estate planning attorney knows the probate laws in your state that apply to different types of property.

Bottom Line: Living trusts are popular because they work! You should avoid trust mills but not living trusts. Trusts have been used successfully for years to simplify the transfer of property to loved ones while avoiding government intrusion into a family's personal finances and private life. The wealthy have known the benefits of trusts for decades and now the secret is out. Buying and selling property in a living trust is just as easy as buying and selling property in your name. A funded living trust avoids the delays and costs of probate. A living trust protects your privacy, avoids the court intrusion of probate, and provides incapacity planning. If you value these things and want to create a smooth transition for your spouse and other loved ones when you are gone, talk to an estate planning attorney about whether a trust is right for you.  

For more great information, take a look at our valuable estate planning book and articles. Our materials are full of tips and advice. All materials are written by us and provide detailed North and South Carolina specific information designed to help anyone with estate planning questions. You can download your free copy of our book here.


Nancy Roberts
Connect with me
Handling All of Your Family's Estate Planning Needs
Be the first to comment!
Post a Comment