Many seniors worry about what will happen to their property after they pass
away. This is a very important decision. Unfortunately, it can also be very
confusing.
One of the most critical choices you will face is whether to get a living trust,
will, or both. There are many unscrupulous companies that will try to convince
you that a living trust is the best way to go. This may be true for some. But
for many, a living trust will simply be a waste of precious resources.
This fact sheet will give you basic information about living trusts and wills,
and describes some of the most common scams.
UNDERSTANDING THE TERMS
TRUST
A trust is a legal arrangement where one person (known as the "trustee")
controls property given by another person (known as the "grantor"
or "trustor") for the benefit of someone else (known as a "beneficiary").
Although it is not a requirement, with most living trusts, the grantors are
also the trustees during their lifetimes, as long as they remain competent.
LIVING TRUST
The term "living" refers to the fact that these trusts take effect
while the grantor is still alive. In order for this to happen, grantors must
transfer their property and assets into the trust. Under most living trust
arrangements, grantors, while still competent, are free to change the terms
of the trust. A living trust is different from a living will. Living wills
are documents that express your wishes about being kept alive if you become
terminally ill or seriously incapacitated.
WILL
A will is a legal document that gives direction about how you want to distribute
your property after death. It does not take effect until your death.
PROBATE
Probate is the legal process that usually involves filing a deceased person's
will with the local probate court, taking inventory of the person's property,
paying all legal debts, and eventually distributing the remaining assets and
property. If the person died without a will (this is called intestacy), the
estate still must be probated and property will be distributed according to
state law.
LIVING TRUSTS VS. WILLS: WHATS THE DIFFERENCE?
Living trusts and wills allow you to choose how your property will be distributed
after death. Although there are other issues to consider, the primary advantage
of a living trust is that it can make it easier to avoid probate. Property transferred
into a living trust before death does not go through probate. However, this
may not matter to you because you may not have to worry about probate in any
case.
It is important to understand that:
A living trust is not the only way to avoid probate. The rules about probate
and avoiding probate are often different in different states. It is best to
check with a lawyer to find out more information.
Most states have rules that allow small estates to be administered outside
of probate or through an "expedited" probate process. These rules
are different in each state. You can find out more from the Clerk (or Register)
of Wills or from a local attorney.
MAKING CAREFUL DECISIONS
Deciding whether to purchase a living trust is difficult. You will need to
weigh the likelihood that your estate will be probated after your death against
the cost of purchasing a living trust now. Try to stick to the facts and be
wary of the exaggerated and often outrageous claims that living trust companies
make about their products. Claims to look out for include:
False Claims About the Probate Process.
Many companies use advertising slogans such as "The Choice is Yours:
Sacrifice Money to the State or Protect Your Loved Ones." These companies
are usually exaggerating the costs and hassles of probate. In any case, you
may be able to avoid probate in other ways.
False Claims About Tax Benefits.
Many companies advertise the tax benefits of living trusts. The truth is that
a simple living trust (as opposed to a more expensive and complicated tax-saving
living trust) has no effect on taxes.
False Claims That Living Trusts Will Shelter You From Creditors.
A living trust will not automatically protect your assets and property from
creditors.
False Claims About the Cost of Setting Up A Living Trust.
Living trusts can be expensive. Lawyers often charge five or six times the
cost of a will. Depending on the size of your estate, the costs of a living
trust may be much higher than the cost of probate.
False Claims About How Much Time it Takes to Set Up A Living Trust.
It can take a lot of time to set up a trust properly. Most important, writing
up the document is not enough. The trust will not be valid until property
is transferred from your name to the trust. This is called "funding the
trust."
False Claims That You Don't Need a Will If You Have A Living Trust.
Even if you decide to buy a living trust, it is still a good idea to have
a will as a back-up.
If you decide you want to go ahead and find out more about setting up a living
trust, keep these basic rules in mind:
Consult a lawyer if possible. Make sure the lawyer has experience
in estate planning issues. It is also important to ask about how a living
trust may affect your eligibility for Medicaid nursing home benefits later
on.
Find out more about the company that is selling the trust. One way
to do this is by contacting your local Better Business Bureau. You might also
want to check with your Attorney General or local consumer protection agency
to find out whether complaints have been filed against this company.
Beware of companies that use names that sound a lot like legitimate organizations
such as AARP. Companies will often try to use these names to make you
think that they are affiliated with AARP or other senior rights organizations.
Beware of self-help living trust kits. These kits are usually not
a good idea because they are not designed for your unique needs. There are
a few high quality products available, but many are rip-offs. Be careful.
Avoid giving out private information when you're shopping around. Many
companies will use the living trust as an excuse to find out more about your
assets and then try to sell you other products such as annuities or life insurance.
If someone is trying to sell you a living trust, ask if the seller is
an attorney. Some states require that only attorney sell living trusts.
In any case, it is against the law if the seller is not an attorney but tells
you that he is.
WHERE DO I GO FOR HELP?
The following is a selected list of publications and organizations that can
help you decide what works best for you:
AARP, "A Consumer's Guide to Living Trusts and Wills", stock #D14535.
For more information, contact AARP at 1-800-424-3410; http://www.aarp.org.
American Bar Association (ABA), "Guide to Wills and Estates" (ISBN
08129-2536-X). For more information, contact the ABA at 1-800-285-2221; http://www.abanet.org.
Council of Better Business Bureaus, inc., 4200 Wilson Blvd., Suite 800, Arlington,
VA 22203-1838; 703-276-0100; http://www.bbb.org.
Complaints about particular companies or salespeople can be filed with state
and local consumer protection agencies as well as the Federal Trade Commission
(1-877-FTC-HELP; http://www.ftc.gov).
This brochure was supported in part by a grant from the
Administration on Aging, Department of Health and Human Services, Washington,
D.C. 20201. Grantees undertaking projects under government sponsorship are encouraged
to express freely their findings and conclusions. Points of views or opinions
do not, therefore, necessarily represent official Administration on Aging policy.
and NCLC