Living trusts are advertised all the time as a “must have” estate planning tool, but unfortunately many of these trust products are simply scams. It’s gotten so bad that the Texas Bar put out a pamphlet titled LIVING TRUST SCAMS AND THE SENIOR CONSUMER. According to the Texas Bar every year thousands of people pay anywhere from $500 to $5000 for trusts that are not only useless, they can actually cost your family even more money after you pass away.
As the pamphlet discusses, these snake oil salesmen use several different fraudulent and misleading statements to try to sell you their services. It’s classic “FUD” they are selling – fear, uncertainty and doubt. Below are just some examples:
A living trust will save on death taxes. This is misleading for several reasons. First, there is no estate tax in Texas. Second, for any amount of a federal estate tax to be levied, your estate would need to be valued over $5.49 million ($10.98 million for couples) for 2017. The vast majority of us don’t have this kind of wealth, and even if you did you wouldn’t need a living to take advantage of the other things that you can do to reduce your estate taxes.
Living trusts let you avoid creditors. This is flat-out false. While you are still alive creditors can go after assets in the trust. Likewise, after you pass away the creditors can still go after those assets.
Probate is very expensive. This is another false statement, especially if you have a properly written will. The probate laws in Texas make probating a correctly worded will pretty easy, so it doesn’t cost all that much to hire a probate attorney to take care of it for you. 80% of Texas probate cases only require one very simple court hearing.
Having said that, there are some situations when creating a living trust makes sense. Below are some of the more prevalent examples.
You own real estate outside of Texas. If you own real estate in another state, then your heirs would need to go through an entirely separate probate proceeding in that state. Having a living trust for your out-of-state real estate would avoid this.
You think you have a high chance of becoming mentally disabled. If you think there is a high chance of getting dementia or some other debilitating disease, then setting up a living trust would enable someone else to manage your assets if that time were to come. A power of attorney could help to some degree too, but having a trustee over a trust would be much more powerful.
You think there is likely to be a strong challenge to terms of your will. If you think someone is likely to make a major court challenge to your will, then having a living trust might make sense. Trusts can be challenged just like wills, but trusts are generally more difficult to challenge, especially if they have been in place for several years before you passed away.
So the shorter answer to the original question of “Should I get a trust?” is that most likely you do not need one. However, there are legitimate times when they are a good idea. Likewise, if you do get one, make sure you get one created by a competent estate planning attorney rather than a snake oil salesman.