June 21, 2000
Consumer advocates are alarmed over the skyrocketing sale of living trusts to older Americans of modest means. High-pressure salesmen, Web sites and telemarketers are playing on the fears of older persons that their life savings will be swept away by taxes upon their death.

The current debate in Congress over eliminating the estate tax is adding fuel to the fire.

In fact, living trusts are almost never appropriate for lower- or middle-income persons who live small estates. Unless an estate exceeds $675,000, there is no federal "death tax" and there is thus no need for most individuals to be concerned with taxes eating up a major portion of their bequest to their loved ones. (The exemption rises to $1 million in 2006).

Yet, a study by AARP, the advocacy organization for older persons found a 125 percent increase in the number of people 50 and over with annual incomes under $25,000 who own living trusts. AARP was outraged to learn that some of those peddling the plans have said they were endorsed by AARP.

In fact, AARP does not endorse any company that sells living trusts, the organization said.

Who Qualifies?
Living trusts, also called irrevocable trusts, are a valid tool for more affluent individuals, including those who have small businesses or real estate, including farms. But in general, they are not needed by couples whose assets do not exceed $1.35 million.

In fact, not only are trusts not needed by most people, they are expense and dangerous and can cause major problems for those who enter into them without competent legal and financial advice from an attorney and experienced financial planner.

For one thing, moving assets into a trust can result in severe penalties if an individual applies for Medicaid within five years of establishing the trust. Also, if a personal residence is placed in a trust, it is no longer exempt from the estate tax, thus completely negating the reason for establishing the trust in the first place.

Finally, and perhaps most alarmingly, the high-pressure salesmen who are selling living trust plans are gathering extensive information about their clients' finances, information they can use to sell more financial products.

The bottom line, consumer organizations say, is that older persons wanting to ensure that they leave an orderly estate to their heirs should consult an attorney or other licensed professional whose practice includes estate planning. They should never buy financial services from telemarketers, in-home salespeople or Web sites.

A financial planner responds