During the last several years, Revocable Living Trusts have been increasingly marketed, often by out of town salesmen. Many retired citizens have been inundated by telephone solicitations, newspaper advertisements, direct mail fliers and even door to door sales calls. The pitch is usually an invitation to a neutral sounding location, such as the local public library community room or maybe the chamber of commerce meeting room or some other place with a name implying credibility and neutrality. Some invitations even include a free meal. So what is a Living Trust, do you need one and what is the harm that could come from responding to this unsolicited invitation?
A Revocable Living Trust is basically a three party contract between the Grantor, Trustee and Beneficiary of the trust. Usually, the person who sets up the trust (you) starts out in all three positions; you are initially the trustee and beneficiary as well as the grantor. The grantor is the person who arranges to have the trust drafted and conveys the property to the trust. Note that the grantor must convey his property to the trust.
The family home and other real estate are placed into the trust by a deed. The investment accounts, certificates of deposit, etc. are funded into the trust by opening a new trust account at the institution where the account is held and then transferring the funds to the new account. The trust agreement defines how the assets will be invested, who will benefit, and when the trust terminates.
Trusts and Probate
The trustee is the person or corporate trustee who agrees to manage the assets in accordance with the trust agreement. If the trustee becomes ill, mentally incapacitated or otherwise unable to serve, the trust agreement should name a successor trustee to take over management of the trust assets. If the beneficiary dies, the trust agreement typically requires the trustee to distribute the trust assets to the grantor’s children. In this way, trusts often serve as a substitute for a Will. The property in the trust is not subject to probate at the grantor’s death because the trust owns the property instead of the grantor. If the deceased grantor owned no property (because it was all owned by the trust), there is no need for a probate, thereby saving the costs of probate.
A properly funded and drafted Revocable Living Trust offers worthwhile advantages. Possibly the most significant advantage is that the transfer of the grantor’s property to his eventual heirs is planned far in advance of the grantor’s death, often while he is still healthy and active. After all, the grantor is more familiar with the location, description and title of his various assets.
After the grantor’s death, the bereaved surviving spouse and/or children are very relieved and thankful that they do not have to worry with probating the estate while they are grieving. The grantor has thoughtfully provided for everything. In addition, the existence and value of the family’s assets are kept private when probate is avoided. The county probate records, including the required probate inventory of the estate, are public record. In this day and age of the Internet, it will soon be possible for a financial products salesman to go online from the comfort of his office and identify estates holding investment assets and then call the widow or widower and attempt to sell a high commission investment.
Drawbacks of a Revocable Living Trust
Many salesmen who market living trusts will tout the above advantages of privacy, thoughtfulness toward relatives and avoiding probate. While these advantages are legitimate, salesmen often list additional “advantages” of a living trust that will not pan out. For example, salesmen will claim that avoiding probate will result in cost savings. However, the out of pocket cost of two wills and two future probates for a married couple may be approximately equal to the cost of drafting and funding a joint living trust. Salesmen have also claimed that a living trust will somehow protect assets in the event the grantor must enter a nursing home. That is absolutely incorrect. While there are some types of trusts that can be used to protect assets, a revocable living trust is not one of them.
The primary use of a living trust in a financial product salesman’s marketing scheme comes during the process of funding the grantor’s property into the trust. At that point, the salesman has earned the trust of the grantor and has an apparent need to ask the grantor about all of his assets. Once the salesman has learned the details of the grantor’s investments, the salesman is in position to sell the grantor a high commission investment. The salesman is already in the grantor’s life and can exert the required amount of pressure to close the sale and get his commission. The commission is usually far greater than the advertised cost of the trust.
How to Protect Yourself and Your Money
The best way to protect against this marketing strategy is to refuse to answer the flier, advertisement or solicitation. If you are interested in having your estate planned or you are investigating a living trust, ask a friend, banker, or CPA for a referral to an attorney who specializes in estate planning. More and more attorneys are specializing and limiting their practice to a single area of the law. The quality of work delivered by a specialist is usually superior to that delivered by a general practitioner who tries to handle family law, personal injury, criminal defense, etc. as well as probate and estate planning. Best of all, your attorney will not try to sell you a high commission investment when you are placing your assets into the trust. Responding to that free lunch living trust seminar ad could be hazardous to your wealth.This article was written by Craig W. Watson, Attroney