You've worked hard for
your money, and made every attempt to be
a conscientious saver. So it's only natural
that you want some control over what happens
to your assets in the event of your death.
At the very least, you probably want to
minimize or avoid potential hassles and
headaches for your loved ones.
Estate planning deals
with what happens to your assets after you
die. Even if you are a person of modest
means, you have an estate — and several
strategies to choose from to make sure that
your assets are distributed as you wish
and in a timely way. The right strategies
depend on your individual circumstances.
That is, what is best for your neighbor
might not make the most sense for you.
Misinformation and misunderstanding
about estate taxes and the length or complexity
of probate provide the perfect cover for
scam artists who have created an industry
out of older people's fears that their estates
could be eaten up by costs or that the distribution
of their assets could be delayed for years.
Some unscrupulous businesses are advertising
seminars on living trusts or sending postcards
inviting consumers to call for in-home appointments
to learn whether a living trust is right
for them. In these cases, it's not uncommon
for the salesperson to exaggerate the benefits
or the appropriateness of the living trust
and claim — falsely — that locally-licensed
lawyers will prepare the documents.
Other businesses are advertising
living trust "kits": consumers
send money for these do-it-yourself products,
but receive nothing in return. Stillother
businesses are using estate planning services
to gain access to consumers' financial information
and to sell them other financial products,
suchas insurance annuities.
What's a consumer to do?
It's true that for some people, a living
trust can be a useful and practical tool.
But for others, it can be a waste of money
and time. What is a living trust, anyway,
and how does it differ from a will? Who
should you trust when it comes to estate
planning? And how can you tell which tools
and strategies will work best for your particular
circumstances?
The Federal Trade Commission,
the government agency that works to prevent
fraud, deception and unfair business practices
in the marketplace, says that it helps to
learn the terms that are used in this aspect
of financial planning before you begin conversations
about it. For example:
Probate
is a legal process that usually involves
filing a deceased person's will with the
local probate court, taking an inventory
and getting appraisals of the deceased's
property, paying all legal debts, and eventually
distributing the remaining assets and property.
This process can be costly and time-consuming.
Many states have simplified probate for
estates below a certain amount, but that
amount varies among states. If an estate
meets the state's requirements for "expedited"
or "unsupervised" probate, the
process is faster and less costly.
A trust
is a legal arrangement where one person
(the "grantor") gives control
of his property to a trust, which is administered
by a "trustee" for the "beneficiary's"
benefit. The grantor, trustee and beneficiary
may be the same person. The grantor names
a successor trustee in the event of incapacitation
or death, as well as successor beneficiaries.
A living trust,
created while you're alive, lets you control
the distribution of your estate. You transfer
ownership of your property and your assets
into the trust. You can serve as the trustee
or you can select a person or an institution
to be the trustee. If you're the trustee,
you will have to name a successor trustee
to distribute the assets at your death.
The advantage of a living
trust? Properly drafted and executed, it
can avoid probate because the trust owns
the assets, not the deceased. Only property
in the deceased's name must go through probate.
The downside? Poorly drawn or unfunded trusts
can cost you money and endanger your best
intentions.
A will
is a legal document that dictates how to
distribute your property after your death.
If you don't have a will, you die intestate,
and the law of your state determines what
happens to your estate and your minor children.
The probate court governs this process.
A living trust
is different from a living will.
A living will expresses your wishes
about being kept alive if you're terminally
ill or seriously injured.
And, the FTC advises,
proceed with caution. Because state laws
and requirements vary, "cookie-cutter"
approaches to estate planning aren't always
the most efficient way to handle your affairs.
Before you sign any papers to create a will,
a living trust, or any other kind of trust:
- Explore all your options with an experienced
and licensed estate planning attorney
or financial advisor. Generally, state
law requires that an attorney draft the
trust.
- Avoid high-pressure sales tactics and
high-speed sales pitches by anyone who
is selling estate planning tools or arrangements.
- Avoid salespeople who give the impression
that AARP is selling or endorsing their
products. AARP does not endorse any living
trust product.
- Do your homework. Get information about
your local probate laws from the Clerk
(or Register) of Wills.
- If you opt for a living trust, make
sure it's properly funded — that
is, that the property has been transferred
from your name to the trust. If the transfers
aren't done properly, the trust will be
invalid and the state will determine who
inherits your property and serves as guardian
for your minor children.
- If someone tries to sell you a living
trust, ask if the seller is an attorney.
Some states limit the sale of living trust
services to attorneys.
- Remember the Cooling Off
Rule. If you buy a living
trust in your home or somewhere other
than the seller's permanent place of business
(say, at a hotel seminar), the seller
must give you a written statement of your
right to cancel the deal within three
business days.
The Cooling Off Rule
provides that during the sales transaction,
the salesperson must give you two copies
of a cancellation form (one for you
to keep and one to return to the company)
and a copy of your contract or receipt.
The contract or receipt must be dated,
show the name and address of the seller,
and explain your right to cancel. You
can write a letter and exercise your
right to cancel within three days, even
if you don't receive a cancellation
form. You do not have to give a reason
for canceling. Stopping payment on your
check if you do cancel in these circumstances
is a good idea. If you pay by credit
card and the seller does not credit
your account after you cancel, you can
dispute the charge with the credit card
issuer.
- Check out the organization with the
Better Business Bureau in your state or
the state where the organization is located
before you send any money for any product
or service. Although this is prudent,
it is not foolproof: there may be no record
of complaints if an organization is too
new or has changed its name.
