The Furor over Living Trusts
Jones, Leigh, THE JOURNAL RECORD
Touting living trusts as the cure-all for probate court headaches, some attorneys aren't telling the whole truth about the limits of this estate planning mechanism.
Though the Federal Trade Commission in April put a stop to certain representations Ada-based Pre-Paid Legal Services made about living trusts, some contend the distortion continues for Oklahoma lawyers who try to lure clients with false promises.
"We have concerns about ads that living trusts are a panacea for all estate planning problems -- they're not," says attorney Fred Doak, the 1997 chair of the Oklahoma Bar Association's Estate Planning, Probate and Trust Law Section. The lawsuit against Pre-Paid last spring highlights a problem some attorneys and advocates for the elderly perceive as being bald- faced misrepresentations regarding the advantages of living trusts. The FTC charged that Pre-Paid and Dallas-based Administrative Company made false statements about the benefits and appropriateness of the more than 3,000 living trusts sold to elderly consumers in 43 states. Specifically, the federal agency argued sales literature that stated, "You could save thousands of hard earned dollars" and other representations failed to inform consumers that probate actions could still occur despite the existence of a trust and that trusts are contestable on grounds similar to will contests. Living trusts, also called inter vivos trusts or revocable trusts, are an estate planning tool in which individuals place lifetime assets and, by transferring ownership of the assets to the name of the trust, remove the assets from the estate thereby avoiding probate. In a consent agreement, Pre-Paid refunded consumers more than $300,000 without admitting liability. The multi-level marketing company, with total revenues of $60 million in 1996, has since ceased marketing living trusts and now provides them as part of its legal services package only if clients request them. "We washed our hands of them from a marketing standpoint," says Pre-Paid's Chief Financial Officer Randy Harp. The FTC's Director of Consumer Protection called Pre-Paid's practices "particularly contemptible because they were designed to prey on the financial fears of the elderly by exploiting a general perception that probate is an expensive and drawn-out process." The FTC also took issue with Pre-Paid's assertions that living trusts were appropriate planning mechanisms for everyone. But Larry Parman, who routinely gives estate planning seminars and advertises for those programs in local newspapers, says living trusts are a good move for virtually everyone, though he usually recommends them to people with assets of more than $100,000. "With less than $100,000 to $150,000 it's a close balancing act," Parman holds. Doak says one of his greatest qualms about living trusts is an exaggeration of the tax benefits. …