Dear Mr. Premack: I saw an ad for a trust seminar given by a financial planner. It says that a trust is a great way to avoid estate taxes and to avoid probate. I get a free lunch out of the deal, and am considering attending. As a lawyer, can you give me a perspective that will be useful when I go to this lunch? – H.N.
The first thing to consider is that a financial planner is not licensed to provide legal services. As such, the planner should never have written a trust for any of his clients – if he has, he is in violation of state law. If he has not, then he is either acting as a front for an attorney or is utilizing an illegal trust mill to prepare documentation for his clients.
In contrast to a financial planner, a specialist attorney like a Certified Elder Law Attorney is trained in the law, is licensed by the state to practice law, and is subject to strict disciplinary rules. For instance, Texas attorneys are forbidden to “advertise that a particular approach to a legal problem … is superior” when compared to other “accepted and appropriate approaches” to the same problem. Lawyers may not run ads claiming that Living Trusts are the only solution to various legal problems, or which create unjustified expectations among consumers.
If an ad claims that a Living Trust avoids estate taxes or avoids probate, the ad may violate attorney disciplinary rules. The State Bar bans a lawyer (I repeat: a lawyer…) from advertising that “The use of a living trust in and of itself will reduce or eliminate estate taxes…” or that “The use of a living trust will achieve estate tax savings that cannot be achieved using a will.” A financial planner, however, is not under the same restrictions and may make misleading statements to you without fear of disciplinary action.
The financial planner is leading you to believe a Living Trust always saves taxes. In truth, either a proper Living Trust or a proper Will can provide exactly the same estate tax relief. Add to that the fact that estate taxes are no longer a consideration for any estate below $5.34 million.
Another tactic the planner might use is that “probate could take months or years, and probate fees could be substantial” but that a Living Trust transfers your estate “quickly without the expense of probate.” Again, both these claims are often true. However, the State Bar has ruled that it is misleading to say probate “is always lengthy and complicated,” or that probate “should always be avoided.” Lawyers cannot make those statements, but financial planners are not regulated by the same strict guidelines as lawyers.
I’ve handled many situations where probate was simple and cost effective. I’ve handled the opposite, where probate was complex and expensive. A Living Trust might save time and money, or it might waste time and money—it depends on the specific situation. A Living Trust is not the sole solution to tax and estate problems. Every person has unique attitudes and unique problems, and needs exposure to a unique set of solutions.
You may believe that the financial planner will be less expensive because he is not a lawyer. In fact, these illegal operations often charge higher fees than licensed attorneys. They also avoid the controls imposed on licensed attorneys who bear professional liability for errors. Many State Attorney General’s offices have taken action against “strong-arm” trust sales and trust mills. It is up to the smart consumer to avoid them completely.
A free lunch is not worth it; stay away from non-attorney trust sales. While your goals may be fulfilled with a Living Trust, do not ever jump to conclusions as to what is right for you. See a Certified Elder Law Attorney to compare and contrast the costs and benefits of a Living Trust versus other planning techniques. Always aim to achieve your goals with as simple and cost effective an approach as possible.
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio. Submit estate planning, probate and elder law questions by clicking “submit a question” at www.premack.com, or go there to view the archive of his past legal columns.