#7. Trusts and estate planning scams

Scam artists play on the fears of senior citizens by using trusts and estate planning scams.

Ruth’s husband, Richard, was recovering from bypass surgery. Richard had worked hard all of his life and they recently began discussing retirement. However, Ruth tried to get Richard to write a will without much success. She saw an ad on television about a “living trust” and called the “800” number. The woman on the phone said that she would make an appointment for their “certified trust adviser” to come to their home. Ruth wasn’t sure she wanted a salesperson to come to her home, but the woman on the phone assured her that all of their representatives were estate planning experts.

Two days later, Ruth and Richard received a visit from the estate planner. He seemed nice but his presentation went on and on. After an hour, Ruth was feeling quite tired and wished he would leave. She was afraid of being rude so she continued to listen. The man explained the virtues of a living trust over a simple will. Finally, Ruth and Richard agreed to purchase the entire package. They signed the documents and the man left with their check. Ruth and Richard were certain that the man had told them that the trust would save them many times its cost and taxes alone, not to mention the savings in probate costs. Among the documents that they signed were some “powers of attorney.” Ruth distinctly remembered the man saying that the power of attorney would help her take care of her husband’s affairs if her husband became incapacitated.

A few months later, Richard ended up in the hospital on life-support. When Ruth tried to use the power of attorney to the hospital refuse to honor it. The hospital representative explained that it was the wrong kind of document and was not legal in their state. He told Ruth she need to talk to her attorney. Ruth took all of the documents and visited an attorney who specialized in estate planning. After reviewing the documents, the attorney told Ruth that she needed a special kind of power of attorney to continue to be effective since Richard was incapacitated. The power of attorney sold by the estate planning expert did not have the proper language to be effective in their state. In fact, none of the documents were effective. The attorney offered to redraft all of the documents for a price that turned out to be much less than the estate planning expert had charged them. However, the attorney explained that since Richard was already incapacitated, he could not sign of power of attorney. Ruth realized she had been severely damaged by the misrepresentations of the so-called “estate planning expert.”

Elements of the living trust scam:

• Complete estate planning packages for a set fee.
• Work to be done by “certified estate planners.”
• The so-called estate planners spend more time selling you the product than they do asking questions about what you really have and need.
• Representations of substantial tax savings from a “one size fits all” product.
• High pressure tactics to pay the fee and sign the documents without time to consult with business professionals.

Although a living trust can be a legitimate estate planning device, salespeople using scare tactics and misrepresentations target senior citizens with worthless or at best inadequate programs. These individuals often represent themselves as being “certified trust advisers” or “estate planning experts” when they may have no qualifications at all. There are no government agencies that “certify” estate planning experts. The bar associations of some states do certify attorneys as tax experts or experts in trust and estates or probate but any other references to “certification” should be suspect.

Living trust salespeople use high-pressure tactics to sell living trust packages costing $1,000 or more. Before purchasing such a package, the consumer would be well advised to consult with a qualified attorney. Tax laws, including estate tax laws, change constantly and the “one-size-fits-all” living trust package may do more harm than good. Unscrupulous salespeople may emphasize and over-inflate the cost of consulting an attorney, while at the same time extolling the virtues of their particular package in avoiding both legal and probate costs.

Many estate planning scams are based upon the premise that it is best to avoid probate at any cost. Probate is nothing more than the legal orderly way of transferring property from one generation to another. Historically, probate got a bad name from the practice of probate attorneys of charging a percentage of the overall value of the estate as a fee. This practice has mostly disappeared since the passing of the Uniform Probate Code beginning in the early 1970s. Under current probate code practice, attorneys are required to submit their requests for attorney’s fees for court approval before being paid by the estate. The other concern, which gave probate of bad name, was the fear of paying excessive estate taxes. The amount of an estate exempt from federal taxes has been increasing over the years. Before purchasing a living trust package or any other supposed estate planning device, it is very important to calculate your gross estate to determine whether it is subject to tax at all.

You should certainly check the credentials and qualifications of any supposed estate planner, including attorneys and insurance salesmen. It is important that an attorney be admitted to practice law in the state where you are located.

Beware that some trust preparers ask for fees in advance. You may not want to do business this way. Be sure and determine whether or not the estate planner has a refund policy. Make sure you get the refund policy in writing. Providing estate planning services may also serve as a “front” for sales of insurance or annuities.

Any estate plan should reflect your wishes and not those of an adviser or estate planning expert. You should also be aware that many states have strict laws concerning the validity of estate planning documents. Often the documents must be signed and notarized in a particular way to be valid. Make sure the person doing your estate planning understands your local requirements and follows the legal rules.

Protect yourself by:

• Getting competent legal and accounting advice before beginning an estate plan.
• Carefully checking the credentials and qualifications of any supposed estate planner.
• Raising questions when preparers ask for fees in advance.
• Getting a complete proposal in writing including any refund policy.
• Verifying all tax representations from a competent tax professional.