Living Trust Scams

Many of us have seen advertisements touting the benefits of a living trust. Salespersons who promote living trusts claim they can reduce taxes, protect assets from creditors, and reduce the time and expense of probate, seemingly suggesting that other forms of estate planning cannot achieve those goals.

According to the State Bar of Texas, sales of living trusts are a growing area of consumer fraud perpetuated by various myths.  Among them are:

  1. MYTH: Living Trusts Save Taxes.
    FACT: In 2014, only estates worth more than $5.34 million will subject to federal estate taxes. That means that the vast majority of Texans’ estates will not face estate taxes whatsoever. Certain estate planning techniques can minimize estate taxes for those whose estates are valued at over $5.34 million; however, it is not necessary to utilize a living trust to take advantage of these techniques.
  2. MYTH: Living Trusts Protect Assets from creditors.
    FACT: A living trusts also cannot protect your assets from your creditors.  Even if there is an independent trustee, a living trust is revocable, meaning that the Grantor can terminate the trust and have the assets returned at any time.  In Texas, if a grantor of a trust has full access to the trust assets then creditors will have that same access.
  3. MYTH: Probate is Costly and Time-Consuming.
    FACT: Unlike some other states, which have a slow and costly probate system, Texas has adopted a simplified probate system which allows for “independent administration” of an estate.  This means that once the will is proved valid, an executor is appointed, and an inventory of assets passing under the will (or an affidavit in lieu of inventory) is filed with the Court, the executor can act independent of court supervision. For example, the executor would not need approval from the Court to sell property, distribute assets, pay expenses, or do anything else that might arise in the regular administration of an estate. This saves time and money.

There are occasions when living trusts are the best option. However, you should be leery of salespeople using high-pressure sales tactics. Before purchasing any living trust, the State Bar of Texas recommends that you seek counsel from someone knowledgeable and trustworthy, such as an attorney, an accountant or a financial advisor.

You can learn more about how you can protect yourself from living trust scams with this State Bar of Texas publication (pdf).

Leave a Comment

If you would like to add your perspective to this post or have a general question, please leave a comment. However, if you have a fact-specific legal question, please email me, or communicate with me through my secure client area. To do so, simply login if you are an existing client, or request an introductory conference if you are interested in becoming a new client.