A few weeks ago, I had the pleasure of going to sunny Florida where I attended the 2012 Special Needs Trusts Conference presented by Stetson University’s Center for Excellence in Elder Law. As I sat in the various courses getting up to date on a number of trust laws and issues that arise in an elder law practice, I overheard one of my colleagues discussing living trust scams and how we need to protect our clients.

First, let me define some of the terminology. A Grantor or Settlor is the person who creates the trust. A Trustee is the person who administers the trust and usually makes decisions about the trust assets. Generally, a living trust is an entity created during the grantor’s lifetime for the benefit of the grantor or another; is administered either by the grantor or another person; and is used to distribute the grantor’s property after his or her death. This type of trust may be revocable or irrevocable. If a revocable trust is created, then the trust terms can be changed and property may be removed from the trust. If an irrevocable trust is created, then the trust terms cannot be changed nor can property be removed from the trust. Probate is the process where a last will and testament is filed at the Register of Wills located in the county courthouse in order to ensure that a will is valid.

Trusts can be very useful for particular situations including, but not limited to, if you have a very large estate and are facing estate taxes or high probate fees; if you have a child with special needs; or if you have long term care issues and are trying to protect your assets. The revocable trust can reduce or eliminate estate taxes up to a certain point, depending on the situation. However, this is not currently relevant for most people because the Federal estate and gift tax exclusion is presently $5,120,000. This exclusion amount could change back to $1 million starting in January 2013, which would then make revocable trusts more viable as an option for some.

Trust scammers approach people and tell them the following general assertions that are not necessarily true: probate is very costly and time-consuming; living trusts are appropriate for all estates; this is the only way to protect yourself in the event of incapacity; living trusts eliminate or greatly reduce taxes now; your living trust will replace your will, etc. Scammers are doing this to sell these living trusts and reap large sales commissions. If approached, here are the legal facts you need to know. Probate can be very costly for very large estates; however, for an estate worth $200,000, the probate cost would be approximately $307.50 in Cumberland County. If your trust package costs $500 and your estate is worth $200,000, this would not be a very economical strategy for you, if your sole purpose in creating the trust is to avoid probate costs. In addition, if it is a simple smaller estate, then it should not take very long to get the notices and inheritance tax return filed. Someone cannot broadly claim that one plan is right for everyone because that is simply not true. In order to protect your assets from incapacity and the cost of long term care, you would need to create a complex irrevocable trust that is very different from what most of these trust package peddlers are selling. Make sure that you are getting what you need by seeking professional legal advice. As mentioned above, estate taxes may not even be an issue for most people, so you should not create a trust to avoid or lessen estate taxes when you would not be required to pay them anyway. Even with a living trust, you would still need a will for any assets that are not titled in the name of the trust at your death. Be wary when a sales person is pressuring you to buy a living trust package and is only giving you general statements as to why you need a living trust plan. Do not sign a document that you do not understand or that is not achieving your purpose for creating the document. Make sure you ask questions that are specific to your financial circumstances, and if the sales person cannot answer those questions, be leery of purchasing such a trust from this individual. Make sure you or your attorney can review the document prior to signing it. If the sales agent will not allow you to review the document prior to signing, then you should not sign the document. Trusts are not documents that you personally should be creating at home or purchasing online without extensive review. Consult an estate planning or elder law attorney in order to determine what trusts and other documents are appropriate for you based on your specific situation.

Jessica Fisher
Attorney