It is an unfortunate fact that immoral estate advisors prey upon elders and their families and can bilk thousands if not millions of hard-earned dollars, but it is a fact that must be dealt with. As Florida estate appraiser Franchise Kent says, “ Death brings out the worst in people.” Arming yourself with knowledge of what kind of fraud and scamming goes on in the estate planning world is the best way to avoid the headache for you and your family.
What is Estate Planning?
Although estate planning may sound like a grand term that is reserved for the ultra-wealthy, the reality is that it is a good and necessary means of transferring wealth for people of all financial situations. In basic terms, estate planning is the management and preservation of an individual’s assets as well as how they are distributed after one dies (it can also describe the management of someone’s assets in terms of financial obligations if they become unwell enough to not do so themselves). Moreover, the term “estate” is fairly broad, and along with cold, hard cash, can include stocks, property, life insurance, paintings, pensions can account for expenses such as court fees, debt, probate expenses and many others. An important part of estate planning is minimizing the amount of taxes paid on your estate since federal estate tax can add a significant tax liability, and many states even have their own estate tax laws.
Most people know that at some point in their life, they will need to draft some sort of estate plan to leave their assets to their chosen beneficiaries. Unfortunately, as in all financial matters, schemers and fraudsters always discover new ways to rob families of their hard earned money. Below are some of the most prominent schemes surrounding estate planning.
Living Trust Scams
Living trust scams are perhaps the most pervasive in the field, so much so that The National Consumer Law Center released an informational pamphlet detailing the risks involved. In fact, even the Federal Trade Commision and nonprofit association AARP (American Association of Retired Persons) have issued warnings. Dishonest salesmen use fear and “high-pressure tactics and deceptive claims” about probate attorneys as well as government threats to drive elders to invest in a sham living trust.
The difference between a trust (a legal arrangement where a person controls the assets of another person for a future beneficiary) and a living trust is that latter (living trust) takes effect while the person is still alive. The clear downside of living trust scams is that elders are coerced into wasting money on something that is inessential and selling other types of frivolous products like illegitimate insurances and other financial products.
Here are some things to lookout for with living trust scams:
Be wary of market living trusts that use estate planning as a pretext to learn about a consumer’s assets. They seek to find rich customers and sell them products including annuities and life insurance. This can easily drain a retired person’s savings and further, can affect eligibility for social benefits or tie up money that cannot be used for medical expenses if such a need arises.
Avoid companies that use names that sound similar to the names of legitimate nonprofits like AARP, who do not sell or encourage living trusts.
Avoid buying “self-help living trust kits”, which are not advised for individual situations and often require clients to transfer assets on their own.
Constitutional Trusts (Tax-free trusts)
This series of trusts has many names and variations, including “business trust”, “equipment trust”, “residence trust”, and the “final trust.” In most of these trusts, the client is told that they will not have to pay any income tax or federal estate tax because the income will shift from trust to trust and the IRS will not be able to pinpoint where the income went. Moreover, a “final trust” could receive income from the other trusts on account of it being formed in a foreign country. The crux of the issue is that tax dodging of this nature is completely illegal and violates federal and state tax laws. The IRS has managed to convict both sellers and buyers of this type of scheme in the past and continues to discourage the public from falling victim to this scam. A further note of discouragement is that this costs significantly more than a regular attorney would charge.
Trust Mills: Taking Legal Advice from Unqualified Advisors
In this type of estate planning scheme, unqualified sales people aggressively sell trusts and claim to take care of paperwork while earning a huge commission. Trust mills get their namesake from being veritable factories for producing estate planning documents, but the catch is that clients never meet an attorney in real life; they are constantly sold the notion that an attorney has reviewed the documents. Even more so, the bill is often higher than an actual attorney’s and documents are often disorganized and can even be of no value.
How to Avoid Estate Planning Scams:
There are many techniques to avoid such scams, but here are a few that are universal:
Always ask yourself a few basic questions before going ahead with a plan. The question “Is it too good to be true?” is a good start, which can help in examples like a salesman pitching completely tax-free trusts. A second question is “Do I ever get to talk to a real attorney?” This is most pertinent to living trust scams and trust mills, who almost always use salesmen exclusively. Finally, a third question to ask yourself is “Do I always get what I want exactly when I want it?” We all know that legal processes can be arduous and frustrating, which means that an “attorney” promising that you will get your way every time is suspicious and a likely indicator of a trust mill.
This old adage proves useful here: if you don’t understand what you’re signing, don’t sign it.
If you suspect that a company you want to work with (or have started working with) is scamming you, you can do some research to clarify:
1) Check with the BBB (Better Business Bureau)
2) Google the company name with the word “scam”
3) If an attorney is with the company in question, call the state bar association and check for complaints
4) Check with the FTC (Federal Trade Commission)
Finally, working with an experienced and trustworthy estate planning attorney is the best option to avoid drama and scams. The price justifies the end result and can often be less expensive than some of the current popular estate planning scams. If you or a loved one are looking to draft an estate plan, consult with a licensed estate attorney who can guide you through the waters of making sure your assets are smoothly transferred to your heirs when the time comes.