[IMGCAP(1)]Accountants are often selected as trustees of trusts for their clients. But before agreeing to act as trustee, the accountant should understand the time constraints and obligations of a trustee, along with other potential pitfalls, including trust scams.
Accountants should determine whether the trust is worthwhile and in the best interest of the client. A client should avoid purchasing a trust that is boilerplate and does not carry out the client’s intentions.
There are many good reasons for establishing trusts. They include protecting assets, preventing the assets from being dissipated prematurely by heirs, anticipating a will contest, avoiding ancillary probates if the real property is located in multiple jurisdictions, elder law planning, making sure the trust assets are maintained in the family, estate planning, and privacy issues.
There are many reasons for not having a trust, however, such as not having a qualified trustee or sufficient assets to warrant the establishment of a trust. The costs of administering a trust, time demands on the trustee, the death or disability of the trustee of a trust that lasts decades, and complex state trust laws can also make trusts difficult propositions.
Be that as it may, senior citizens are often invited to living trust seminars throughout the United States. These free lunch or dinner trust seminars have been the subject of scrutiny by Attorneys General in a number of states, including California, Michigan, Minnesota, Texas and Washington State. These seminars are often called living trust seminars and use techniques that encourage senior citizens to use revocable living trusts.
There are many good reasons for creating living trusts. However, there are many living trust seminars that take advantage of senior citizens by using scare tactics and that are in essence scams.
It is important that the senior only work with an attorney who is knowledgeable in estate planning. In most jurisdictions, going through probate is not a big deal. Having a revocable living trust does not save estate taxes. A living trust can be expensive initially and costly to administer in many cases after death.
An article by the AARP, “The Truth about Living Trusts,” warns about scams involving living trusts, noting, “Pre-printed, generic forms are often passed off as custom-made documents.”
Several years ago we had a client who set up a living trust to avoid probate after he attended a seminar. The pre-printed document ran well over 125 pages and was impossible to read or understand. He had paid a significant sum of money for the canned trust. I immediately had him take steps to eliminate the trust from his estate plan.
We currently have a client who came to us after the death of her parents. The documents exceeded 60 pages and were riddled with boilerplate language, preprinted in a loose-leaf binder. The trusts were not necessary based on the amount of the probate assets. Most of the assets were retirement accounts. The costs of running these trusts for the probate assets of under $2 million will exceed $50,000.
There are some benefits in living trusts, as the AARP acknowledged: “A properly created living trust can be helpful if you need help managing assets during a disability (and a power of attorney won’t work), if you have children or grandchildren with special needs, or own real estate in more than one state.”
Trusts can often be worthwhile, but they can be costly to administer after the death of a client. Most clients, in my opinion, would not understand the terms of a 60-page trust document even if they read it several times.
The bottom line: don’t do a trust unless you fully understand it and the fact that there are often substantial post-death administrative costs of running the trust.
Seymour Goldberg, CPA, MBA, JD, is a senior partner in the law firm of Goldberg & Goldberg, P.C., in Jericho, N.Y., and professor emeritus of law and taxation at Long Island University. He has taught many CLE and CPE programs at the state and national level as well as CLE courses for the New York State Bar Association, City Bar Center for Continuing Legal Education, New Jersey Institute for Continuing Legal Education, local bar associations and law schools. He is a member of the IRS Long Island Tax Practitioner Liaison Committee and the Northeast Pension Liaison Group. He was formerly associated with the Internal Revenue Service and has been involved in conducting continuing education outreach programs with the IRS. He has authored guides for the American Bar Association and the American Institute of CPAs on the IRA compliance rules. His most recent guide in 2014 is entitled “Can You Trust Your Trust? What You Need to Know about the Advantages and Disadvantages of Trusts and Trust Compliance Issues,” published by the American Bar Association. The guide is also available through Amazon.com and Barnes & Noble.
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