How to
Make Sure They're Trust-worthy
July 2000
You've worked hard for your money, and made
every attempt to be a conscientious saver. So it's only natural that
you want some control over what happens to your assets in the event of
your death. At the very least, you probably want to minimize or avoid
potential hassles and headaches for your loved ones.
Estate planning deals with what happens to your assets after you
die. Even if you are a person of modest means, you have an estate —
and several strategies to choose from to make sure that your assets
are distributed as you wish and in a timely way. The right strategies
depend on your individual circumstances. That is, what is best for
your neighbor might not make the most sense for you.
Misinformation and misunderstanding about estate taxes and the
length or complexity of probate provide the perfect cover for scam
artists who have created an industry out of older people's fears that
their estates could be eaten up by costs or that the distribution of
their assets could be delayed for years. Some unscrupulous businesses
are advertising seminars on living trusts or sending postcards
inviting consumers to call for in-home appointments to learn whether a
living trust is right for them. In these cases, it's not uncommon for
the salesperson to exaggerate the benefits or the appropriateness of
the living trust and claim — falsely — that locally-licensed
lawyers will prepare the documents.
Other businesses are advertising living trust "kits":
consumers send money for these do-it-yourself products, but receive
nothing in return. Still other businesses are using estate planning
services to gain access to consumers' financial information and to
sell them other financial products, such as insurance annuities.
What's a consumer to do? It's true that for some people, a living
trust can be a useful and practical tool. But for others, it can be a
waste of money and time. What is a living trust, anyway, and how does
it differ from a will? Who should you trust when it comes to estate
planning? And how can you tell which tools and strategies will work
best for your particular circumstances?
The Federal Trade Commission,
the government agency that works to prevent fraud, deception and
unfair business practices in the marketplace, says that it helps to
learn the terms that are used in this aspect of financial planning
before you begin conversations about it. For example:
Probate is a legal process that usually involves
filing a deceased person's will with the local probate court, taking
an inventory and getting appraisals of the deceased's property, paying
all legal debts, and eventually distributing the remaining assets and
property. This process can be costly and time-consuming. Many states
have simplified probate for estates below a certain amount, but that
amount varies among states. If an estate meets the state's
requirements for "expedited" or "unsupervised"
probate, the process is faster and less costly.
A trust is a legal arrangement where one person
(the "grantor") gives control of his property to a trust,
which is administered by a "trustee" for the
"beneficiary's" benefit. The grantor, trustee and
beneficiary may be the same person. The grantor names a successor
trustee in the event of incapacitation or death, as well as successor
beneficiaries.
A living trust, created while you're alive, lets
you control the distribution of your estate. You transfer ownership of
your property and your assets into the trust. You can serve as the
trustee or you can select a person or an institution to be the
trustee. If you're the trustee, you will have to name a successor
trustee to distribute the assets at your death.
The advantage of a living trust? Properly drafted and executed, it
can avoid probate because the trust owns the assets, not the deceased.
Only property in the deceased's name must go through probate. The
downside? Poorly drawn or unfunded trusts can cost you money and
endanger your best intentions.
A will is a legal document that dictates how to
distribute your property after your death. If you don't have a will,
you die intestate, and the law of your state determines what
happens to your estate and your minor children. The probate court
governs this process.
A living trust is different from a living will.
A living will expresses your wishes about being kept alive if
you're terminally ill or seriously injured.
And, the FTC advises, proceed with caution. Because state laws and
requirements vary, "cookie-cutter" approaches to estate
planning aren't always the most efficient way to handle your affairs.
Before you sign any papers to create a will, a living trust, or any
other kind of trust:
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Explore all your options with an experienced and
licensed estate planning attorney or financial advisor. Generally,
state law requires that an attorney draft the trust.
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Avoid high-pressure sales tactics and high-speed
sales pitches by anyone who is selling estate planning tools or
arrangements.
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Avoid salespeople who give the impression that
AARP is selling or endorsing their products. AARP does not endorse
any living trust product.
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Do your homework. Get information about your
local probate laws from the Clerk (or Register) of Wills.
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If you opt for a living trust, make sure it's
properly funded — that is, that the property has been
transferred from your name to the trust. If the transfers aren't
done properly, the trust will be invalid and the state will
determine who inherits your property and serves as guardian for
your minor children.
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If someone tries to sell you a living trust, ask
if the seller is an attorney. Some states limit the sale of living
trust services to attorneys.
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Remember the Cooling Off Rule.
If you buy a living trust in your home or somewhere other than the
seller's permanent place of business (say, at a hotel seminar),
the seller must give you a written statement of your right to
cancel the deal within three business days.
The Cooling Off Rule provides that during the sales transaction,
the salesperson must give you two copies of a cancellation form
(one for you to keep and one to return to the company) and a copy
of your contract or receipt. The contract or receipt must be
dated, show the name and address of the seller, and explain your
right to cancel. You can write a letter and exercise your right to
cancel within three days, even if you don't receive a cancellation
form. You do not have to give a reason for canceling. Stopping
payment on your check if you do cancel in these circumstances is a
good idea. If you pay by credit card and the seller does not
credit your account after you cancel, you can dispute the charge
with the credit card issuer.
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Check out the organization with the Better
Business Bureau in your state or the state where the
organization is located before you send any money for any product
or service. Although this is prudent, it is not foolproof: there
may be no record of complaints if an organization is too new or
has changed its name.
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For More Information
To learn more about estate planning strategies, talk with an
experienced estate planning attorney or financial advisor, and check
out the following resources:
AARP: 1-800-424-3410; www.aarp.org.
Ask for a copy of Product Report: Wills & Living Trusts.
AARP does not sell or endorse living trust products.
The American Bar Association, Service Center, 541
N. Fairbanks Ct., Chicago, IL. 60611; 312-988-5522; www.abanet.org/publiced/publicpubs.html
Council of Better Business Bureaus, Inc., 4200
Wilson Blvd., Suite 800, Arlington, VA 22203-1838; 703-276-0100; http://www.bbb.org/
The National Academy of Elder Law Attorneys, Inc.,
1604 North Country Club Rd., Tucson, AZ 85716; 520-881-4005; http://www.naela.org/
The National Consumer Law Center, Inc., 18
Tremont St., Ste. 400, Boston, MA 02108-2336; 617-523-8010; http://www.consumerlaw.org/
Where to Complain
The FTC works for the consumer to prevent fraudulent, deceptive
and unfair business practices in the marketplace and to provide
information to help consumers spot, stop and avoid them. To file a
complaint, or to get free information on any of 150
consumer topics, call toll-free, 1-877-FTC-HELP
(1-877-382-4357), or use the online
complaint form. The FTC enters Internet, telemarketing, and other
fraud-related complaints into Consumer
Sentinel, a secure, online database available to hundreds of
civil and criminal law enforcement agencies in the U.S. and abroad.
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