Seniors Warned Against Fast-Talking Living Trust Sellers

As many as 4 million lower-income seniors may have purchased costly, unnecessary and potentially dangerous living trusts as a result of high-pressure sales tactics by firms masquerading as affiliates of the American Assn. of Retired Persons, the AARP and Michigan’s attorney general said Wednesday.

“What these fast-talking crooks don’t tell their clients is that the ‘living trust’ they’re selling could become the buyer’s ‘living hell,’ ” said Irma Swantner, AARP’s volunteer consumer-affairs specialist in Lansing, Mich.

AARP has been concerned about abusive trust mills for more than a decade, but the concern has increased recently amid a flurry of such activity, particularly in California and Michigan, said Sally Balch Hurme, national consumer-affairs representative for AARP.

While Michigan Atty. Gen. Jennifer Granholm did not file charges against any company on Wednesday, she said the trust sellers should consider themselves warned.

Living trusts are three-part legal documents that act as a will, distributing assets to heirs; set up guardianship arrangements for minor children; and create a successor trustee who can act on the original trustee’s behalf if the owner of the property dies or becomes incapacitated.

But because each of those goals can be accomplished through simpler documents such as wills or durable powers of attorney, the main selling point of a living trust is that it can help pass assets on to heirs without going through probate. Probate is a legal process whereby creditors submit claims to be paid from an estate.

Avoiding probate does not skirt paying debts or estate taxes, though it can save time and limit attorney’s fees.

However, trust mills, which frequently charge $2,000 or more to deliver boilerplate documents, often charge more to create the trust than a senior would ever lose via probate, experts maintain. Moreover, many of these operations fail to explain that a trust must be funded to be effective.

A living trust document establishes a legal entity to hold assets and avoid probate, but the consumer must take the additional step of changing the owner or beneficiary of these assets to the trust. If they do not, the trust remains nothing more than an empty legal shell. Any assets that were not deeded over to the trust would still go through probate.

The AARP’s Hurme said that living trusts can benefit some higher-income people and those in special situations, such as the disabled.

But a just-released AARP study found that trust sales to people with less than $25,000 in income have surged 125% in the last year. Most of those people don’t need such trusts, AARP maintains.

The AARP also said many trust mills cite AARP studies and use look-alike marketing materials in an effort to masquerade as AARP-sanctioned or affiliated entities.

In some states, although not California, living trusts also create risk for anyone who might suddenly fall ill and require institutional care. That’s largely because these cookie-cutter trusts could disqualify seniors from Medicaid nursing home eligibility for substantial periods, Hurme said.

That’s a significant risk for Americans of modest means who are most likely to qualify for Medicaid. AARP estimates that 18% of this population--roughly 4 million people older than 50 with less than $25,000 in annual income--now have living trusts.

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Kathy Kristof can be reached at kathy.kristof@latimes.com.