With so many Baby Boomers reaching retirement age, living trusts have become a hot topic. Do you need one? Minnesota Attorney General Lori Swanson has some advice: be careful.
“You should steer clear of 'living trust mills,' which hold themselves out as estate planning specialists but churn out boilerplate documents for a high fee, all to get their foot in the door to sell you annuities or insurance products later on that might not be suitable for your needs,” Swanson writes on her web site.
She says people pushing living trusts are often nothing more than insurance agents, or people working for insurance agents. They may charge you a lot of money for a boilerplate trust, but their real aim, Swanson says, is to make an even bigger sale later on.
A living trust is a legitimate estate planning tool. Like a will, it is created while you are still alive. It allows you to transfer assets to the trust and, if done properly, may transfer those assets to heirs without going through probate.
According to the American Bar Association, a living trust is revocable, which makes it very flexible. You, or someone you appoint, manages the assets in the trust. Assets may be bought or sold but always remain in the name of the trust.
Complex legal document
The problem, says Swanson, is that a living trust is a complex legal document and a one-size-fits-all approach won't work very well. To set up a living trust, she suggests working with an experienced attorney.
Unfortunately, that's not how many consumers get drawn into the process. Swanson says living trust mills work by usually making initial contact by phone or by mail.
The target may be invited to a “free dinner” to hear a presentation. At the event, the “expert” scares his audience with horror stories about what will happen if you die without a living trust.
Swanson says the expert will next try to book as many in-home appointments with audience members as possible. During those visits he will collect extensive financial information about his potential client, working to earn his or her trust.
Swanson says he may eventually try to sell an over-priced living trust, but she says that isn't the real objective. Once he has a complete financial picture of his potential client, then and only then does the real pitch emerge – an annuity or insurance policy.
A lot to consider
“Annuities are complex products,” Swanson says. “If you move your money from another product, you may have to pay fees or penalties. Some long-term annuities may lock up your money for more than ten years, subjecting you to penalties if you need to access your money for living expenses.”
She says annuities may also have complicated interest-crediting provisions. That, she says, could lead to confusion about benefits.
Swanson's advice? Avoid living trust mills and, if you are considering an annuity or insurance policy, take some time to think it over and discuss it with family, friends, or an experienced investment professional you trust.