Tuesday, August 18, 1998

Marianne Parry shudders at the thought.

"Can you imagine it? Someone appears, at your house, in your living room, and wants $1,700 for the living trust in his hand."

Ms. Parry, a broker with Paine Webber in Dallas, is one of the most careful people I know. She likes security and caution and has been worrying over her client accounts for more years than it is polite to say.

Whats bothering her right now is a new and unusual danger to her clients and others: the overselling of Living Trusts. Some Living Trust sales operations are operated from boiler rooms and aim for a quick sale of virtually worthless documents. Others, she said, can be an even greater danger: seminars and trust offers that function as loss leaders for getting control of assets and doing transactions that carry high commissions. Think of it as portfolio slamming, the financial equivalent of unwanted changes in long distance telephone service.

Curious, I called Don Malouf, a man widely regarded as the veritable godfather of estate planning in Dallas. A partner at Malouf, Lynch, Jackson, Kessler, and Collins, Mr. Malouf has been doing estate planning since the early sixties. Listening to him, you very quickly sense that he is an artist, not a technician, and that he sees all the instruments of estate planning as just that— instruments that can be used to achieve a family goal.

I asked him if Living Trusts were being oversold.

"Theyre being marketed very aggressively by the legal profession and outside the legal profession. In a lot of the marketing, the benefits are overstated."

Here, according to Mr. Malouf, are the major misunderstandings people have about living trusts.

There is no tax magic. "Start with the premise that what you own will get taxed. If you dispose of it and (still) get the benefit of it, it will be taxed at your death. There is a misconception that you can put something in trust, retain the income, and not be taxed in your estate. Basically, you can save no more money with a Living Trust than you can save with a Will."

Probate may not be so expensive. The cost of probate, Mr. Malouf pointed out, depends very much on where you live. "In a highly populated state like New York where there are highly protected processes, with constant filings and hearings, probate is an expensive and cumbersome process." In Texas and some other states, however, probate is relatively simple and inexpensive. In his view, the cost of probate isnt a compelling reason to avoid it.

Ironically, while many estate attorneys have avoided living trusts because they didnt want any connection with the dark side of living trust marketing, Mr. Malouf sees a broad movement toward greater use of living trusts.

Why?

Privacy. "If I die owning all my assets and having a will that passes my estate, two things occur. First, my will is a file of record. Second, my executor has to file an inventory with the court and thats a public record as well. Everything I own is laid out in public." One book on living trusts, for instance, points out that Jacqueline Kennedy Onassiss Will was an easily obtained public record. Thats how the last gifts and bequests of a very private person got to be published in The New York Times, Money magazine, and Fortune.

Listening to Mr. Malouf, a man who clearly enjoys what he does and the people he works with, I had a sense that the real issues werent taxes, probate expenses, or even privacy. I asked what they were.

"We get people in our office who are very smart— but obsessed with the idea of avoiding taxes. We go to a great deal of effort to get them to refocus. Properly approached, this whole subject deals primarily with family and secondarily with taxes."

Is there a bottom line here?

Not with a hard edge. If you look for either a living trust or a will as a thing, as an object that will save probate expenses or avoid taxes, youve missed the point. Whichever you choose (and you should choose one) it is a process, not a thing,