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BEWARE THE COMPLICATIONS OF LIVING TRUSTS

Some people act first, ask questions later. But applying that John Wayne approach to major financial decisions can be expensive.

That was the case with a 67-year-old retired Seattle banker who attended a free seminar on saving taxes through living trusts. He shelled out $210 for a set of books and materials and eventually paid a law firm an additional $2,300 to create a living trust.

Then he transferred the ownership of his home and his other property, hoping to save taxes and avoid the hassle of probate.

Six months later, when he couldn't get a bank loan to remodel his kitchen, the man wished he had never heard of living trusts, said Terry Cole, a financial planner in Bellevue, Wash., who specializes in helping seniors with their finances.

Had he consulted a financial planner or another unbiased expert in advance, he might have learned he'd have borrowing problems.

"Most banks and other lenders don't understand living trusts at all," said Cole. "Walk into a bank with a living trust owning your home, and they'll look at you as if you are from Mars. They just can't fill out the forms that way."

Even if they could, mortgage companies can't sell such a home loan in the secondary market unless the loan is secured by property owned by the borrower.

The retired banker eventually transferred his property back into his own name and got a home-equity loan for his remodeling project. But he realized too late that the living trust wasn't all it was cracked up to be at the seminar.

"Living trusts are an appropriate tool for some people," Cole said. "The biggest problem is that they are overmarketed, and the promoters tend to be very misleading about tax consequences."

Cole's advice to somebody considering a living trust: Just say no, unless you are sure you understand all the ramifications. Though probate is a public process, its advantages usually outweigh its disadvantages.

Sometimes even a brief consultation ahead of time can alert people to the pitfalls of moves they are contemplating.

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