Buyer Beware - Spotting Trouble in the Land of Trusts

Buyer Beware - Spotting Trouble in the Land of Trusts

By Melinda Gustafson Gervasi

October 20, 2023

After a decade of public speaking on the ins and outs of estate planning and probate, mainly as a guest presenter for a financial education nonprofit or a local library, my words flowed freely during my talks.  After covering the basics of powers of attorneys, wills, and probate, I would briefly comment on the roles of trusts in estate planning.

"A trust is a tool that functions like a basket, it holds your assets. A trust can be created during your lifetime, known as a Living Revocable Trust.  Or a trust can be formed at your death, called a Testamentary Trust.  One feature of a Living Revocable Trust is that the assets inside avoid probate at your death, and transfer directly to the people and or organizations you designate in the paperwork.  For a Living Revocable Trust to work you have to transfer your assets from your name to the name of the trust.  For example, if my spouse and I decided to create a Living Revocable Trust we would have to change the deed to our home in order for the trust to work properly. It would go from "Charles J. Gervasi and Melinda Gustafson Gervasi, marital property with the right of survivorship" to "The Charles J. Gervasi and Melinda Gustafson Gervasi Living Revocable Trust of [date it was created]".  

Then I'd insert a bit of levity:

"For those of you over a certain age you will receive fliers in the mail inviting you for a free fish dinner at a local restaurant as apart of a speaking series on the wonders of trusts."

Audience members would nod and laugh knowingly.  Many were approaching or at retirement and knew these fliers well.  Their arrival correlated with the solicitations to join AARP.

"Be careful, many of these organizations are LLCs that open-up shop in your area, sell a bunch of overpriced trusts, and then close the doors leave town without ever helping you fund the trust.  They are trust mills, and border on fraud."

I'd take a sip of my hot tea to calm my vocal cords and launch into the dangers of trust mills and fraud, providing listeners with a few simple tools to assess whether or not the "free dinner" was worth it, and when the expense of a Living Revocable Trust might make sense of them.  The seminar would wrap up, with me commenting that I would stick around for a few minutes to take questions from those who did not want to ask in front of a large crowd.  I would add that I would need to head out by 9pm in order to tuck in my two young children at home.  

Time has a habit of moving forward.  Those two kids of mine are now both teenagers, and this past week my husband received such a flier in our mailbox.  A subtle reminder that in some database we are now deemed eligible for the "free fish dinner" seminar.  Needless to say, we will not be sending in a RSVP. 

Badlands, South Dakota, Image by M. Gustafson Gervasi, 2023

If you receive such a mailer, beware and remember, there is no such thing as a free lunch.  Keep in mind:

• Probate in Wisconsin is not as expensive as other states.  Our statutory fee is 0.2 percent while other states are 6 or 8 percent.  A quick back-of-the-envelope calculation will show you how much a house, car, bank accounts (assets without a named beneficiary) would cost going through probate.  You can then compare that fee with the fee of creating the Living Revocable Trust being sold (the fee on a $350,000 home going through probate is $700);
• Living Revocable Trusts do not hold certain assets well, such as retirement accounts.  This means you cannot use the trust to hold that asset and have to make other plans;
• Individuals selling these instruments may not be attorneys licensed in Wisconsin, meaning they are limited in their ability to help you create, fund and maintain a trust.  A simple test is to ask the attorney for their Wisconsin Bar Association Number -- we know them by heart and should be able to recite it quickly;
• Gather information, but take time to process, reflect and comparison shop.  Never feel pressured to sign up for an appointment the night of the dinner;
• Read the fine-print.  Our flier says "Financial Professionals, Accountants, and Attorneys will be charged a $5,000 educational fee".  So, if I were to attend, they'd charge me $5,000 -- hmmm,  seems like they want to discourage me from attending, I wonder why?  

Thank you for reading.  Remember that a blog is meant to spark thought and discussion, it is not legal advice.  I encourage you to seek counsel from an attorney licensed in your home state for help with your unique goals and needs.  And if you are curious about those pre-pandemic talks I used to give here is a sample from one done via Zoom as the pandemic shifted how we gathered.