Living Trusts

LIVING TRUSTS VS. WILLS: HOW TO DECIDE?

Prepared by the National Consumer Law Center. For more information on this and other topics, visit their website at www.nclc.org.

Seniors are bombarded with advertisements, phone calls and door-to-door salespeople insisting that living trusts work best for everyone. For some, a living trust can be a useful estate planning tool. For others, buying a living trust can be a waste of limited resources.
Although there are other issues to consider, the primary advantage of a living trust is that it can be a way to avoid probate. Low-income seniors, however, should understand that: 

1. Probate can be avoided in many other ways. These methods vary from state to state. An example is property held in joint tenancy with a right of survivorship, where property passes after death to surviving joint tenants. This does not necessarily mean that advocates should advise clients to place property in joint tenancy just to avoid probate. It is merely another option to consider. 
   
2. Most small estates are administered outside of probate. The dollar limit for using this expedited administration process varies from state to state. In most cases, the property of low-income seniors will be distributed through these procedures and not through probate. 

1. Companies that use names that sound a lot like the names of legitimate non-profit organizations.1[2] This is usually a marketing ploy to confuse consumers. 
   

2. Companies that sell "self-help living trust kits." These kits are usually not a good idea because they are not tailored to individual needs. They often require consumers to transfer assets on their own. Sometimes the kits fail to even inform consumers that assets must be transferred. 
   

3. Companies that use the living trust as an excuse to find out more information about a consumer's assets, and then try to sell additional products such as annuities or life insurance. 
   Challenging Living Trust Scams
   

   1. State Unfair and Deceptive Acts and Practices Statutes (UDAP)
      Probably the best approach to challenge a fraudulent sale of a living trust is through a state UDAP action.2[3] UDAP statutes may be used to challenge unfair, deceptive or fraudulent practices. Possible UDAP claims against unscrupulous living trust companies or salespeople include:3[4]
      Deceptive and/or excessive pricing.
      
      Overstatement of the length and cost of probate. 
      
      This is a common tactic used by many companies playing on seniors' fears that without a living trust, they will be sacrificing a major portion of their life earnings to attorneys and the government.4[5] Companies use slogans such as "The Choice is Yours: Sacrifice Money to the State or Protect Your Loved Ones."
      
      Misrepresentations as to endorsements or approvals.
      Companies have commonly misrepresented that they are connected with the American Association of Retired Persons (AARP). Others have falsely claimed endorsements by state Attorneys General.
      Misrepresentations as to tax advantages. 
      
      Failure to disclose important information. 
      
      The message from the living trust mills is that living trusts are for everyone. As discussed above, this is simply not true. The decision whether to create a living trust is often complex.
      False claims that salespeople are attorneys.5[6] 
      
      
      High pressure sales tactics.
      Many states have separate regulations specifically prohibiting false, deceptive and misleading advertising. 
      

   2. State Unauthorized Practice of Law Statutes 
      Most states prohibit independent nonattorneys from practicing law.6[7] State unauthorized practice of law (UPL) statutes usually do not provide for separate civil causes of action. Violations, however, can be brought as per se UDAP violations, or by prosecutors in criminal actions.7[8]
      The following are examples of possible UPL violations by nonattorneys selling living trusts: 
      

      • The sale of self-help kits may violate UPL statutes. These self-help kits are commonly sold by living trust companies and usually include basic information about wills and living trusts and in many cases, forms for consumers to fill out on their own.8[9] 
        

      • Nonattorneys falsely claiming to be licensed attorneys may violate UPL statutes. 
        

   3. Door-to-Door Sales Acts9 [10] 
      In many cases, living trusts will be sold door-to-door. Because of the history of high pressure sales tactics in door-to-door sales, the states and the federal government have enacted regulations that protect consumers who buy products this way. These laws provide a three day cooling off period for door-to-door sales, allowing consumers the opportunity to reevaluate their purchases and to cancel the entire transaction within the prescribed time period.10[11] The primary federal law in this area is the FTC Trade Regulation Rule for Door-to-Door Sales.11[12] 
      Although there is no direct right of action under the FTC rule, violations of the Rule can be the basis of UDAP claims. All states have also enacted door-to-door sales statutes that are generally similar to the FTC rule.12[13] State statutes often provide an explicit private remedy either in the statute itself or by making it an automatic UDAP violation. 
      

   4. Common Law Fraud, Breach of Contract and Breach of Fiduciary Duty
      These causes of action should also be considered in challenging living trust sales.
      

   5. Criminal Prosecution
      Advocates should also work with law enforcement officials to encourage them to criminally prosecute unscrupulous salespeople. Most UPL statutes and UDAP statutes provide for criminal penalties.13[14]
      

   PREVENTING FRAUD
   Consumer education and legal assistance are critical to help seniors understand their estate planning options and resist the high pressure sales tactics of living trust companies. Education is important for seniors of all income levels. Concern about property distribution after death is an issue that crosses class lines. The amount of worry does not necessarily correspond to the size of the estate. The stakes are simply higher in most cases for low-income seniors who are too often persuaded to dip into limited funds in order to purchase a product that does not meet their needs.
   
   ADDITIONAL RESOURCES
   "Living Trust or Living Nightmare?" Senior Consumer Alert, American Association of Retired Persons (Winter 1993/94).
   "Product Report: Wills & Living Trusts," American Association of Retired Persons (1997).
   Stiegel, Norrgard and Talbert, "Scams in the Marketing and Sale of Living Trusts: A New Fraud for the 1990s," 26 Clearinghouse Review 609 (October 1992).
   National Consumer Law Center, Unfair and Deceptive Acts and Practices, (4th Ed. 1997).
   
   About NCLC
   In 1992, NCLC received funding from AoA to launch a National Legal Resource Initiative for Financially Distressed Older Americans, intended to improve access to and the quality of consumer representation for older Americans.
   
   Since 1969, NCLC has been providing legal advocates with technical and expert assistance, training and publications that cover all major topics in consumer law. NCLC has established itself as the nation's consumer law specialist, making its legal expertise available to low income clients and their attorneys. These services are now available to advocates representing older Americans.
   
   The attorneys and policy analysts on NCLC's staff are all specialists in aspects of consumer law. The Center's comprehensive library of consumer law is updated continuously as attorneys conduct research on behalf of clients and revise NCLC legal practice publications.
   
   Making Use of Consumer Law
   Consumer law is powerful but complex. In any given transaction, several defenses may exist against creditor or seller claims, but detailed research and calculations are required in order to spot defenses. With financially burdened clients, it is important to recognize that the emotional stress caused by indebtedness can impair decision making or lead to other difficulties beyond the debt crisis. This recognition can help head off other legal problems that could quickly develop.
   NCLC is available to consult with legal advocates for the elderly on a wide range of consumer issues, providing leading and local case law, analyzing contract documents for federal and state law compliance, defining factual and legal issues, identifying experts and legal resources to strengthen cases and training attorneys in consumer law.
   NCLC works with lawyers and others on consumer issues affecting low- and moderate-income Americans. This brochure was supported, in part, by a grant, number 95-AM-2041, from the Administration on Aging, Department of Health and Human Services, Washington, DC 20201. Grantees undertaking projects under government sponsorship are encouraged to express freely their findings and conclusions. Points of view or opinions do not, therefore, necessarily represent official Administration on Aging policy. Special thanks to Bet Tzedek Legal Services, Los Angeles, CA, whose valuable contribution to this pamphlet was supported by a grant from the Entertainment Industry Foundation. 
   
   NOTE: This Consumer Concerns reflects the current law only. There are likely to be changes after this publication that advocates should keep careful track of.

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