Living Trusts - a Scam?

[HealthGuy]

True Story: I have an uncle in North Carolina who won't talk about his business because he deems it "ultra competitive" He wont even tell me the brand of annities he sells...Let me tell the Forum what I know and maybe somebody can help me figure out what he is actually doing...Being in the insurance business I am naturally curious. From what I am know he sends out some type of a mailer on a "living trust"...After he is in the home he sets this living trust up, whatever a living trust is, finds out the assets of the household and then crosssells mortgage term and annuities to avoid "probate".
What exactly is going on here...? His sales cycle somehow goes from living trusts to mortage term protection, to asset finding to maybe an annuity sale to avoid probate...Call me an amateur, but I don't understand. Can someone help me with the pieces of this puzzle?

 

[padthaiforlunch]

Sorry. Too much competition out there to share this on a message board.

 

[HealthGuy]

????

 

[djs]

Trusts, by and large, are used to help avoid a probate issue. Okay, there are other uses, but that's probably the biggest one.

It's a decent plan, approach someone about helping them avoid probate, move things into a trust account, with a living trust back to themselves (remember, there are problems here for a lot of people, you have to give up ownership of your stuff, or it won't work). The mortgage insurance is probably paid to the trust, to pay off the mortgage (may not be the brightest idea due to tax issues), and the annuity is setup to provide them income.

Lots of potential problems. Most people don't execute a living trust correctly, unless they have professional guidance. It ends up causing some problems at some point. Setup correctly, they can be very beneficial.

Also, avoiding probate, by itself, does not avoid taxes. It does avoid probate and the probate fees. As such, a good will solves most of the same problems.

Trusts also have lookback rules, you need to be familiar with.

Not sure what your Uncle is trying to keep a secret. Any decent estate planning book will cover all of this. He probably has some approach that gets peoples attention, but then, how can you keep that a secret and still use it?

Dan
- - - - - - - - - - - - - - - - - -
I should add, a lot of this depends on the net worth of his prospects. People that face estate taxes are much more receptive to this and have a much larger need than the average person living on a regular retirement with maybe a few hundred thousand dollars of net worth.

Dan

 

[HealthGuy]

Great reply, thanks DJS!

 

[patch36]

Trust Mills are what we call them in the business. Insurance agents running appts under false pretenses sell Revocable Living Trusts that are put together by out of town and state lawyers. The purpose is to get a look at your money and sell other products. Is it a scam ? In my opinion it is a bad idea to buy a trust from an insurance agent. I have seen many, and most are inadequate and/or unneeded, depending on the laws of the state your client resides.

 

[Winter_123]

Trusts, by and large, are used to help avoid a probate issue. Okay, there are other uses, but that's probably the biggest one.

It's a decent plan, approach someone about helping them avoid probate, move things into a trust account, with a living trust back to themselves (remember, there are problems here for a lot of people, you have to give up ownership of your stuff, or it won't work).

Dan
- - - - - - - - - - - - - - - - - -

Giving up ownership is relative. The nature of a "living trust" is that it is revocable as long as the person is living but becomes irrevocable after that. So if something is titled to the trust but the person is still trustee they can title it back in their lifetime (tax issues aside).

Problem with living trusts, as you noted, is that you are either on board and working with an attorney and everything is set up in a smart and disciplined way or else it is a complete mess. There is no way that an insurance agent can do all that needs to be done without practicing law.

The agent gets his products and stuff into a living trust based on some document he got from a website. Meanwhile, the client has a camp on the lake and a $25,000 car that was never titled over to the trust. So he has to go through probate anyway.

The question was "are living trusts a scam." The answer is absolutely not, anymore than having a will is a scam. However if you got your will from a website and then printed it off then it is a scam for anyone to suggest to you that your estate is in order as a result. Same with a living trust. You will only complicate things by putting a little of this and a little of that in the living trust.

Winter

 

[insuranceexec]

I personally have an Elder-law attorney who works on my staff, that takes care of all of my and my agents clients. By doing this I do not have to worry about another attorney getting in the door and tyring to refer his/her buddy to the household to sell insurance and investments.

I also required that the attorney have a life and health and a series 7 license, so that on the initial visit he could discuss their insurance and investments with them knowledgeably, and then recommend to them that he will be bringing me out on the next visit. Works like a charm.

 

[somarco]

You would do well to read and understand the advice given so far on living trusts. Yes, they can help avoid probate, blah, blah but many are poorly drafted, including some by attorneys. The fill-in-the-blank forms are mostly worthless.

Even a properly executed trust is a waste of money & effort if it is never funded. This is as much the issue as anything.

The trust is created, the individual is given the paper work to transfer ownership to the trust but never follows through. The one who assisted in preparing the trust doesn't follow up to see if the assets have been placed in trust.

If you have a separate life insurance trust you can assign ownership of the existing policy to the trust but it is usually much cleaner to start with a new policy and have the trust as the owner. You also need to place assets in the trust to pay the premium in order for it all to work.

The end result is the trust fails to perform the task it was designed to do.

The trust itself and the concept is not a scam. But when an agent is merely using the trust as a way to sell products the process is a major ripoff.

 

[Crabcake Johnny]

Consumers - Living Trust Mills - California Dept. of Justice - Office of the Attorney General