Living Trust Offers
How to Make Sure
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
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
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
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
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
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
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.
For More Information
To learn more about estate planning strategies, talk with
an experienced estate planning attorney or financial advisor,
and check out the following resources:
AARP: 1-800-424-3410; www.aarp.org.
Ask for a copy of Product Report: Wills & Living Trusts.
AARP does not sell or endorse living trust products.
The American Bar Association, Service Center,
541 N. Fairbanks Ct., Chicago, IL. 60611; 312-988-5522; www.abanet.org/publiced/publicpubs.html
Council of Better Business Bureaus, Inc.,
4200 Wilson Blvd., Suite 800, Arlington, VA 22203-1838; 703-276-0100;
The National Academy of Elder Law Attorneys, Inc.,
1604 North Country Club Rd., Tucson, AZ 85716; 520-881-4005;
The National Consumer Law Center, Inc.,
18 Tremont St., Ste. 400, Boston, MA 02108-2336; 617-523-8010;
Where to Complain
OF THE FEDERAL TRADE COMMISSION
ON LIVING TRUST SCAMS
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
July 11, 2000
Mr. Chairman, I am Elaine Kolish, Associate Director of the
Bureau of Consumer Protection's Division of Enforcement at
the Federal Trade Commission.(1)
I am pleased to be here today to testify about scams involving
living trusts. It is important to note at the outset that
living trusts can be legitimate and valuable estate planning
tools. However, scams involving living trusts raise serious
and growing concerns. These scams often prey on older Americans'
concerns that their estates will be subject to long and costly
probate, and involve misrepresentations about the costs and
benefits of trusts versus wills and that local attorneys will
create the trust documents.
I want to thank the Committee for holding this hearing and
drawing public attention to this issue. To help alert older
Americans and others about these scams, we are today issuing
a new Consumer Alert. We hope that with the Committee's assistance
and that of our many partners such as AARP, state Attorneys
General, and the Council of Better Business Bureaus, we can
together raise consumer awareness about living trust scams.
The FTC is the federal government's primary consumer protection
agency. Congress has directed the FTC, under the FTC Act,(2)
to take action against "unfair or deceptive acts or practices"
in almost all sectors of the economy and to promote vigorous
competition in the marketplace. The FTC Act authorizes the
Commission to halt unfair or deceptive conduct through administrative
proceedings, and to bring civil actions in federal district
court for injunctive relief to halt the targeted illegal activity
and for redress for victims.(3)
Where redress is impracticable, the Commission obtains disgorgement
to the U.S. Treasury of defendants' ill-gotten gains or, in
certain situations, uses the money to conduct educational
campaigns to prevent further fraud.
Many Commission initiatives and law enforcement actions target
scams that prey on older Americans. The Commission brings
a wide range of law enforcement actions against fraudulent
marketing practices conducted through various media. For example,
FTC and Canadian officials recently sued a Canadian telemarketing
company engaged in an illegal lottery scheme that targeted
elderly U.S. citizens.(4) The
Commission also pursues aggressively false and unsubstantiated
cure or treatment claims for cancer and other diseases, and
other health claims with obvious appeal for elderly consumers.(5)
The Commission is also vigilant in pursuing predatory lending
practices that often target older and low income citizens,
to protect them from losing what is typically their most valuable
asset - their homes.(6)
III. Living Trust Scams
A. Living Trusts
As you know, a living trust is a legal arrangement where
a person, called the "grantor," places his assets
into a trust during his lifetime. The trust is administered
by a "trustee" for the benefit of the trust's beneficiaries.
The grantor may be a trustee and a beneficiary of the trust.
Living trusts are a widely recognized and legitimate estate
planning device. Because assets transferred to the trust are
no longer owned by the grantor, at the grantor's death, the
assets are not part of the grantor's estate and do not have
to be probated. Accordingly, a living trust can avoid what
could be a costly, lengthy process. Whether or not this is
a major advantage varies by the size of the estate and by
state and locality; for small estates, many states have an
informal probate process that minimizes cost and delay. Whether
a living trust is an appropriate estate planning tool depends
upon an individual's circumstances and goals, and state laws.
B. Scams Involving Living Trusts
Misinformation and misunderstanding about probate and estate
taxes provide a ripe environment for scam artists to prey
on older consumers' fears that their estates will be eaten
up by costs, and that distribution of their assets to loved
ones will be long delayed. Some unscrupulous businesses advertise
seminars on living trusts or send postcards inviting consumers
to call for in-home appointments, ostensibly to learn whether
a living trust is right for them. A common practice is to
greatly exaggerate the benefits of living trusts and falsely
claim that locally-licensed attorneys will prepare the documents.(7)
In some instances, consumers send money for living trust kits
but receive nothing. In others, the offer of estate planning
services is merely a ruse to gain access to consumers' financial
information and to sell them other financial products, such
as insurance annuities.(8)
These practices may violate federal securities laws, as well
as other laws.
Many state Attorneys General and other authorities, such
as disciplinary or grievance committees of state or city bar
associations, have taken enforcement actions against living
trust scam artists. Some cases have been brought under state
Unfair and Deceptive Acts and Practices laws. Others have
been prosecuted as the unauthorized practice of law because
the salespeople were not lawyers.(9)
Even in instances where there may be some attorney review,
it may be insufficient to render the activity legal.(10)
The U.S. Securities and Exchange Commission also has prosecuted
companies purporting to offer estate planning services, such
as living trusts, for violating the securities laws through
fraudulent investment schemes targeting senior citizens.(11)
IV. The Commission's Experience with Living Trusts
Unlike state authorities, the Commission has had limited
experience with prosecuting living trust scams. Historically,
the Commission has received few consumer complaints about
living trusts. Nonetheless, the Commission sued two companies
selling living trusts after AARP brought their practices to
In 1997, the Commission charged that The Administrative Company
(TAC), and its president, Michael McIntyre, and Pre-Paid Legal
Services, Inc. (Pre-Paid) together violated the FTC Act by
engaging in deceptive practices in selling living trusts.
The Commission's staff worked with a 21-state coalition in
developing the cases.
The Commission's complaint alleged that TAC, McIntyre and
Pre-Paid misrepresented that a living trust avoids all probate
and administrative costs; the use of a living trust allows
assets to be distributed immediately or almost immediately;
a living trust cannot be challenged; living trusts are prepared
by local attorneys; a living trust protects against catastrophic
medical costs; a living trust is the appropriate estate planning
device for every consumer; and there are no disadvantages
to a living trust. The administrative consent orders obtained
by the Commission require the respondents to stop making these
misrepresentations and to disclose clearly and conspicuously
that living trusts may be challenged on similar grounds as
wills; living trusts may not be appropriate in all instances;
and all estate planning options should be examined before
determining which estate plan best suits a particular individual's
needs and wishes.
Given differences in state laws, the orders also require
the respondents to disclose, where true, that: (1) the availability
of informal probate under a state's law allows minimal or
no contact with the courts and reduces the time required to
probate a will; and (2) creditors have a longer period of
time to file a claim against a living trust than against a
probated estate. The order against Pre-Paid also required
redress to consumers who had not previously received refunds
or did not reside in states in which Pre-Paid already had
settled with state authorities. Under the FTC order, 480 consumers
received a total of more than $78,000.
B. The Commission's Consumer Sentinel Complaint Database
The Commission's Consumer Sentinel database does not identify
living trusts as one of the most frequently complained about
consumer protection problems.(12)
Consumer Sentinel is an online complaint database and investigatory
tool available to more than 240 law enforcement agencies in
the U.S. and Canada. Initially focusing on telemarketing fraud
when it was first created in the late 1990s, it has expanded
to include complaints about all types of consumer fraud. The
Consumer Sentinel database contains more than 250,000 consumer
fraud complaints that have been filed directly with the FTC
through a toll-free telephone number (1-877-FTC-HELP), an
online complaint form, or the mail, or added by Sentinel partners.
These include other federal, state and local law enforcement
agencies, such as the U.S. Postal Inspection Service, Canada's
Project Phone Busters and private organizations, such as more
than 100 BBBs, and the National Consumer League's National
Fraud Information Center and Internet Fraud Watch projects.
Consumer Sentinel can be accessed by law enforcers in the
U.S. and Canada through an encrypted Web site to identify
particular targets for law enforcement, to determine whether
a particular fraudulent scheme is local, national or cross-border
in nature, to help spot larger trends for law enforcement
action, and to monitor rapidly emerging frauds, such as telephone
cramming and sophisticated hi-tech fraud, including Internet
pagejacking. It features an "Alert" function that
informs users whether a company, address, phone number or
email that they came across during a search is of interest
to another member, and an "Auto Query" function
that notifies users when new data relating to one of their
investigations is entered into the complaint database.(13)
Consumer Sentinel shows few complaints about living trusts
in both absolute numbers and in relative ranking to complaints
on other topics. Thus far this year Consumer Sentinel has
recorded 14 complaints on living trusts, ranking it the 144th
category out of 200 that are recorded; in 1999, there were
17 living trust complaints, with a ranking of 163. By way
of contrast, there are more than 1000 complaints for each
of the top 30 complaint topics, involving many credit topics
(e.g., credit bureaus, debt collection, credit cards, credit
information providers, mortgage lenders, credit repair, advance
fee loans), travel scams, Internet auctions, telephone pay-per-call
services, autos, computers, Internet access providers, mail
order sales, and business opportunities, subjects that are
frequent targets of FTC actions.
Although Consumer Sentinel is a powerful tool for finding
new or emerging frauds, the Commission also looks to other
sources of information that may suggest budding problems.
On the topic of living trust scams, for example, AARP and
Michigan Attorney General Jennifer Granholm recently reported
new data showing a 125% increase over the last decade in the
number of people aged 50 and older, with incomes of $25,000
or less, who own living trusts, a growth that far outpaces
the living trust ownership growth rate of seniors with moderate
and higher incomes.(14) This
is a cause for concern because generally consumers of modest
means are the least likely to benefit from sophisticated estate
planning services. At a press conference, General Granholm
also warned that older people living in Michigan were being
targeted by unscrupulous sellers of costly, "cookie-cutter"
V. New Consumer Alert
The FTC shares AARP and General Granholm's concern that the
increase in living trust ownership among lower-income consumers
may indicate a corresponding increase in living trust scams.
We hope that this hearing and increased education about the
dangers of one-size-fits-all trusts will raise awareness about
this problem, preventing additional seniors from falling prey
to these scams. To that end, the Commission today is issuing
a new Consumer Alert (attached) about how to spot and avoid
living trust scams.
The new Consumer Alert warns consumers about living trust
scams, and how unscrupulous businesses may use marketing for
estate planning services as a ruse to gain entrance to consumers'
homes and their financial data for the purpose of selling
them other investments. It also notes that often living trust
scam artists claim affiliation or endorsement with legitimate
nonprofit organizations such as AARP or claim that they got
the consumer's name from AARP. Such claims are a red flag
because AARP does not sell or endorse any living trust product,
and does not partner with any company that promotes or sells
such documents. AARP also never sells its members' names or
sells its services door to door. The Alert also advises consumers
to check with their local BBB for a reliability report before
making any major purchases of goods or services.
Consumers who are concerned about probate and other estate
issues should consult a reputable local attorney experienced
in wills and trusts or a trusted financial advisor. Although
a living trust may be useful for some, it is not for everyone.
And, unless the trust is properly drafted and the assets properly
transferred to the trust, it will not achieve its purpose.
Consumers should beware of individuals or companies who portray
living trusts as a panacea for all estate planning issues
and probate as a necessarily protracted, hugely expensive
Consumers also should be aware of FTC and state laws that
give them the right to cancel certain purchases. Under an
FTC regulation known as the Cooling-Off Rule, consumers have
a right to cancel, within three days, the purchase of goods
or services, including estate planning products and services,
they make in their homes or at a location that is not the
seller's principal place of business (e.g., rented hotel space).(15)
All states have similar laws or regulations.(16)
To comply with these rules, sellers are required to advise
consumers orally and in writing of their right to cancel.
Although scam artists are not likely to provide such notices,
consumers still have the right to cancel and should do so
in writing if they have second thoughts about their purchases.
No explanation for canceling need be given. Stopping payment
on a check is also a good idea. If a consumer paid by credit
card and the seller did not credit the consumer's account
for the cancellation, the consumer should follow the dispute
billing procedures provided by the Fair Credit Billing Act.(17)
Credit card issuers generally provide information on the
back of credit card statements on how to dispute charges.
The Alert also advises consumers who have purchased a living
trust or other financial planning services and who believe
that they may be the victim of a scam to file complaints with
the FTC in writing, online or by calling the FTC's new toll-free
The Commission will distribute the Consumer Alert through
its extensive network of contacts, including organizations
for the aging, legal aid societies, community service organizations,
extension home economic services, state and local consumer
protection agencies and thousands of media. We also are seeking
new partnerships with other organizations that have frequent
contact with older Americans. We hope that this outreach effort
will prevent additional consumers from being victimized and
lead others to report complaints to the FTC or other authorities.
The Commission greatly appreciates the Committee's effort
to investigate the problems associated with abuses in the
marketing of living trusts and to assess the potential scope
of living trust scams. Putting the spotlight on this problem
will help alert consumers to the dangers they may face by
buying living trusts or other estate planning products from
strangers who play on their fears that their loved ones will
not get the benefit of their estates in a timely fashion because
of probate costs and delays. Thank you for providing the Commission
the opportunity to participate in this hearing.
1. This written statement represent the
views of the Federal Trade Commission. My oral presentation
and response to questions are my own, and do not necessarily
represent the views of the Commission or any individual Commissioner.
2. 15 U.S.C. §§ 41 et seq.
The Commission also has responsibilities under more than 40
3. 15 U.S.C. §§ 45(a) and 53(b).
4. See FTC Press Release, "Cross-Border
Lottery-Bond Scheme Alleged to Violate U.S. Laws," dated
Jan. 21, 2000. Consumers complaining to the FTC about telemarketing
activity often indicate that they are older citizens. Similarly,
older Americans account for 60 percent of the fraud victims
who call the National Consumer League's National Fraud Information
5. See, e.g., FTC Press Release,
"Operation Cure.All Nets Shark Cartilage Promoters: Two
Companies Charged With Making False and Unsubstantiated Claims
for Their Shark Cartilage and Skin Cream as Cancer Treatments,"
dated June 29, 2000 (Operation Cure.All is an ongoing federal
and state law enforcement and education campaign launched
in June 1999 targeting bogus health claims on the Internet);
and FTC Press Release, "Marketers of 'Vitamin O' Settle
FTC Charges of Making False Health Claims," dated May
6. In March 2000, the FTC, the Department
of Justice and the Department of Housing and Urban Development
announced a settlement with Delta Funding Corporation, a national
subprime lender, that resolved allegations that Delta engaged
in asset-based lending, in violation of the Home Owners Equity
Protection Act (HOEPA) (i.e., extending loans based on the
borrower's collateral rather than considering
the borrower's current and expected income obligations, etc.)
In July 1999, as part of "Operation Home Inequity,"
the Commission obtained settlements with seven subprime mortgage
lenders for violating HOEPA, the Truth in Lending Act and
the FTC Act. See FTC Press Release, "FTC Testifies
on Enforcement and Education Initiatives to Combat Predatory
Lending Practices," May 24, 2000.
7. Other problems include misrepresenting
affiliation with or endorsement by a legitimate nonprofit
organization such as AARP, and using a "cookie-cutter"
approach to trust documents, which should be customized to
the individual's circumstances. See "Scams in
the Marketing and Sale of Living Trusts: A New Fraud for the
1990s," by Lori A. Stiegel, Lee Norrgard and Robin Talbert,
Clearinghouse Review, Oct. 1992.
8. In 1998, for example, Florida Attorney
General Bob Butterworth and AARP charged Senior Estate Services
Inc., a Texas-based firm with offices in Florida, and Remington
Estate Services of Florida Inc., an affiliated firm, which
purported to sell living trusts, with using the sales presentation
to persuade consumers to liquidate their assets and purchase
insurance annuities, even if the annuities paid a lower rate
of return than consumers already earned. See Florida
Attorney General News Release, "Firm Charged With Deceiving
Seniors Into Buying Trusts, Annuities," dated June 10,
9. At least nineteen states have issued
ethics opinions specifically addressing the marketing of living
trusts, concluding that the determination about whether a
living trust is an appropriate estate planning device should
be made by an attorney and that the trust documents should
be prepared by an attorney.
10. See "Fraudulent Notarios,
Document Preparers, and Other Nonattorney Service Providers:
Legal Remedies for a Growing Problem," by Deanne Loonin,
Kathleen Michon, and David Kinnecome, Clearinghouse Review
at pp. 329, 335-36 and nn. 61-62, 70-71 (Nov.-Dec. 1997).
The sale of self-help kits also may violate some state Unauthorized
Practice of Law statutes. Id; see also The Florida
Bar Re Advisory Opinion-Nonlawyer Preparations of Living Trusts,
613 So.2d 426 (Fla.1992).
11. See SEC Press Release, "SEC
Halts Fraudulent Investment Scheme Targeting Senior Citizens,"
dated Sept. 1, 1999. The release also notes that in 1996 a
state court had enjoined some of the defendants from offering
trust and estate planning services because they were engaged
in the unauthorized practice of law. The SEC obtained a temporary
restraining order and was seeking a permanent injunction forbidding
further violations of the antifraud provisions of the federal
securities laws, disgorgement of wrongfully obtained profits
and penalties. The four individual defendants also were indicted
on October 20, 1999 and as of June 7, 2000, three had been
sentenced to terms ranging from 52 months to 20 years. SEC
Press Release, "United States v. Gary Davenport, et
al.," dated June 7, 2000.
12. This may be because representations
made in the promotion of living trusts often concern probate,
a state and local issue, or because issues of validity and
interpretation of living trusts are governed by state law.
Thus, consumers may not direct complaints to the FTC.
13. In addition, Sentinel features include
fraud trend analysis, an index of fraudulent telemarketing
sales pitches available from the National Tape Library, a
compilation of companies already sued for fraud and a catalog
of companies currently under investigation. It also offers
a contact list as well as how-to information to help agencies
coordinate joint actions.
14. See AARP Press Release,
"AARP, Granholm Take Aim at Generic 'Living Trust' Products,"
dated June 14, 2000.
15. Rule Concerning Cooling-Off Period
for Sales Made at Homes or at Certain Other Locations, 16
C.F.R. Part 429. The purchase price must be at least $25 for
the rule to apply. See "FTC's Facts for Consumers
on the Cooling Off Rule: When and How to Cancel," at
16. Some state actions against living
trust sellers have included charges that they failed to comply
with applicable Cooling-Off rules.
17. 15 U.S.C. §§ 1666-1666j. See
FTC's "Facts for Consumers, The Fair Credit Billing Act,"