What is a "Living Trust"?
A trust is merely an agreement (i.e., a “contract”) between two parties,
the person establishing the trust (the “settlor”) and the person holding
the property (the “trustee”), to hold property for the benefit of another
(the ”beneficiary”). In a typical living trust situation, these three
legal “persons” are, in actuality, the same person (i.e.,
you).
The term “living trust” merely means that the trust is established and
funded during your lifetime rather than being a trust which is described in your
will (a “testamentary” trust) and which must go through probate to be
created and funded. In order for a trust to be a valid, binding instrument all that
is necessary is for the parties executing it to have the legal capacity to enter
into a contract (i.e., age and competency) and for the trust to actually own something
(the “corpus”). In our trusts, we initially “fund” the trust
with $10 to make it effective (you don’t actually have to transfer the $10)
and then you can assign, deed and transfer your other assets into the existing trust
(including your real property). Once the trust is signed, dated and acknowledged
by a Notary Public, it is in full force and effect; neither the trust nor the Will
need to be recorded or filed with any governmental entity (although the deed transferring
real property is usually recorded with the County Recorder). That is all that is
needed; a trust does not need to be created by, reviewed by or signed by an attorney.
It is always a good idea to let your successor trustee know that the trust exists
and where you keep the original documents.
Our documents all utilize the same underlying templates and language as the software
which we market to attorneys through-out the country. The documents are specific
to each state and all of the language was drafted by attorneys who are certified
specialists in Estate Planning, Trust and Probate Law.
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Why do I need an estate plan?
Most of us spend a considerable amount of time and energy in our lives accumulating
wealth. With this, there comes a time to preserve wealth both for enjoyment and
for future generations. A solid, effective estate plan ensures that your hard-earned
wealth will remain available for your care and will remain intact when it passes
to your beneficiaries, instead of being siphoned off to government processes, attorneys
and bureaucrats.
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If I don't create an estate plan, won't the government
provide one for me?
YES. But your family may not like it. The government's estate plan is called "Intestate
Probate" and guarantees government interference in the disposition of your estate.
Documents must be filed and approval must be received from a court to pay your bills,
pay your spouse an allowance, and account for your property--and it all takes place
in the public's view. If you fail to plan your estate, you lose the opportunity
to protect your family from an impersonal, complex governmental process that can
become a nightmare. Then there is the matter of the federal government's death taxes.
There is much you can do in planning your estate that will reduce and even eliminate
death taxes, but you don't suppose the government's estate plan is designed to save
your estate from taxes, do you? All estate planners agree that dying without an
estate plan should be avoided at all costs.
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What's the difference between having a will and a "Living
Trust"?
A will is a legal document that describes how your assets should be distributed
in the event of death. The actual distribution, however, is controlled by a legal
process called probate, which is Latin for "prove the will." Upon your death, the
will becomes a public document available for inspection by all comers. And, once
your will enters the probate process, it's no longer controlled by your family,
but by the court and probate attorneys. Probate can be cumbersome, time-consuming,
expensive, and emotionally traumatic during a family's time of grief and vulnerability.
Con artists and others with less-than-pure financial motives have been known to
use their knowledge about the contents of a will to prey on survivors. A Living
Trust avoids probate because your property is owned by the trust, so technically
there's nothing for the probate courts to administer. Whomever you name as your
"successor trustee" gains control of your assets and distributes them exactly according
to your instructions. There is one other crucial difference: A will doesn't take
effect until your death, and is therefore no help to you during lifetime planning,
an increasingly important consideration since Americans are now living longer. A
Living Trust can help you preserve and increase your estate while you're alive,
and offers protection should you become mentally disabled. Please note that even
with a Living Trust you should still have a complementary will (known as a "pour-over
will"; this type of will makes sure that any assets which may not be in your Living
Trust at the time of your death "pours-over" to the trust so everything is distributed
pursuant to the terms of your Living Trust. Our Trust Package includes all of the
necessary estate planning documents including the "pour-over will".
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What's the difference between having a "Living Will"
and a "Living Trust"?
A "Living Will" is a document that describes your wishes regarding life support
if you are ever in a terminal condition or irreversible coma (think Terri Schiavo).
As mentioned above, a "Living Trust" deals with your assets (either in
the event of incapacity or at death. Both are very important and necessary parts
of a proper estate plan and both are included in our Trust Package.
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The possibility of a disabling injury or illness scares
me. What would happen if I were mentally disabled and had no estate plan or just
a will?
Unfortunately, you would be subject to "living probate," also known as a conservatorship
or guardianship proceeding. If you become mentally disabled before you die, the
probate court will appoint someone to take control of your assets and personal affairs.
These "court-appointed agents" must file a strict accounting of your finances with
the court. The process is often expensive, time-consuming and humiliating. A Living
Trust will avoid this process because your assets are titled in the trust and you
have appointed someone to act as the successor trustee of the trust if you are no
longer able to act' further, if you have created the appropriate Health Care powers,
you have already given someone else the ability to make health care decisions on
your behalf. In short, with a properly drafted and complete estate plan, you can
eliminate the "living probate"!
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I have heard that my old health care powers may be invalid;
is this true?
YES. New federal regulations known as the Health Insurance Portability and Accountability
Act ("HIPAA") imposes strict privacy regulations on the disclosure of individually
identifiable health information. This necessitates the addition of specific release
and consent authority in all health care powers before any health care provider
(e.g., your doctor) can release medical information to your agents and interested
persons. This can often present a "Catch-22" situation: the powers of
attorney are effective only on your incapacity, but if you are incapacitated how
can you authorize the release of the information necessary to establish that you
are incapacitated? Because HIPAA has no "grandfather" exceptions, previously
executed estate planning documents may now be useless unless the documents
specifically address the HIPAA requirements. The documents provided by most of the
other on-line trust preparation services are not HIPAA compliant. All heath
care documents (and the living trust) included in our program are specifically HIPAA
compliant and the HIPAA release provisions are made effective immediately.
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If I set up a Living Trust, can I be my own trustee?
YES. In fact, people who create most Living Trusts act as their own trustees. If
you are married, you and your spouse can act as co-trustees. And you will have absolute
and complete control over all of the assets in your trust. In the event of a mentally
disabling condition, your hand-picked successor trustee assumes control over your
affairs, not the court's appointee.
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Will a Living Trust avoid income taxes?
NO. The purpose of creating a Living Trust is to avoid living probate, death probate,
and reduce or even eliminate federal estate taxes. It's not a vehicle for reducing
income taxes. In fact, if you're the trustee of your Living Trust, you will file
your income tax returns exactly as you filed them before the trust existed. There
are no new returns to file and no new liabilities are created.
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Can I transfer real estate into a Living Trust?
YES. In fact, all real estate should be transferred into your Living Trust. Otherwise,
upon your death, depending on how you hold the title, there will be a death probate
in every state in which you hold real property. When your real property is owned
by your Living Trust, there is no probate anywhere.
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Is a Living Trust valid in all states?
YES, a Living Trust is valid in all fifty states, plus the District of Columbia;
however, the Living Trusts on the Web program is only specific for forty-nine states,
plus the District of Columbia. Sorry residents of Louisiana, but your Napoleonic
Civil Law history makes your laws too unique for even as sophisticated a program as
we offer.
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Is the Living Trust some kind of loophole the government
will eventually close down?
NO. The Living Trust has been authorized by the law for centuries. The government
really has no interest in making you or your family suffer a probate that will only
further clog up the legal system. A Living Trust avoids probate so that your estate
is settled exactly according to your wishes.
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Isn't a Living Trust only for the rich?
NO. A Living Trust can help anyone protect his or her family from unnecessary probate
fees, attorney's fees, court costs and federal and/or state estate taxes. Any person
with an estate large enough to require probate (from $25,000 to $100,000 depending
of the state) will derive meaningful benefits from a Living Trust. Besides, how
rich do you have to be to want your assets protected from an unnecessary court procedure
in the event you become incapacitated; a conservatorship/guardianship is just like
a probate except you're still alive!
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I have minor children; what happens if I die?
One of the most important things you can do as a parent is to protect your children,
especially when they are minors. If you die, the Court will appoint a Guardian for
any minor child; therefore, if you want to determine who that person will be, you
need to designate your choice of the Guardian in your Will. Without a trust, the
Guardian will also take charge of the assets going to the child which will be under
court supervision (with all of the costs and delays involved in that process). With
a trust, when minors are the beneficiaries, your designated successor Trustee can
manage and invest the trust funds, free of the costs and restrictions that arise
when the Court appoints the Guardian. Often times, the person you may want to raise
your children might not be the best person to manage the assets; with a trust, you
can have the duties split or you can have the same person performing both functions.
Additionally, with a trust, you can continue the management of a beneficiary's assets
to whatever age you desire; certainly beyond age 18 (the age at which ALL guardianships
must terminate). The management of a beneficiary's asset in a trust can include
disbursement of assets and/or funds in increments, according to your directions
(e.g., 1/3 distribution at age 25, 1/3 distribution at age 30, and the balance at
age 35). Of course, during this period, the trustee can use any or all of the trust
principal for the benefit of the beneficiary (e.g., education).
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Will a Living Trust save on "Death Taxes?
If your estate is subject to death tax (whether federal and/or state), the trust
can save substantial taxes for a married couple (this savings is obtained by being
able to use the exemption amount at each death instead of just at the death of the
surviving spouse -- see the next FAQ). However, a Living Trust will not save any
death taxes for an individual (if your estate is above the tax exemption amount
and it is not going to a spouse or a charity, it will be taxed whether it is in
a trust or not).
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Will my estate have to pay any "Death Taxes?
Whether your estate will be required to pay any tax on your estate at the time of
your death depends on a number of variables: (1) the size of your estate; (2) the
beneficiaries of your estate; (3) the federal estate tax laws at the time of your
death; and, (4) the laws of your state of residency at the time of your death. Currently,
an estate of under $5,000,000 does not have to pay any federal estate tax (although this exemption may be lowered to $3.5M and, in the absence of further legislation, will return to $1M in 2013); however,
many states are creating a separate death tax to make up for the lost revenue since
the federal government no longer shares any of the estate tax it collects (click
here for a list of those states which impose a separate death tax). Generally,
any part of your estate going to a surviving spouse or to a qualified charity is
exempt from the tax. If your estate must pay tax, the federal rate is 35% (the rate
for a state tax is generally much lower). Please note, that the exemption and tax rate are subject to change; the Democratic Party has stated that it would like to see the Estate Tax return to the 2009 levels ($3.5M exempt and a 45% rate) and, in the absence of further legistlation, on January 1, 2013, the Estate Tax is due to return to the 2001 level of $1M exempt and a 55% rate! While no one expects to see the return to the 2001 level, it is very possible that we will see a return to the 2009 level; this is why our software uses a $3.5M calculation as part of its "matrix" for selecting the best possible tax plan for your situation (if the exemption stays at the current $5M, there is no downside to using the lower number).
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We are not married, can we still have a Joint Living
Trust?
Only Living Trusts on the Web gives you the option to prepare a Joint Trust (along
with all of the matching supporting documents for a "Non-traditional Couple". The
software automatically determines the best type of Trust for you (after taking into
account the estate tax situation).
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We are married, what type of Living Trust do we need?
What about an "A/B Trust"?
There are a number of different trust types for a married couple; all of which are
typified by the result after the first death. The factors which go into determining
the correct type of trust are the size of the estate, the tax laws (both federal
and state), the underlying ownership of the trust assets and the comfort level the
couple has with the degree of control the survivor should have over the trust. Based
on these factors, the different types of trust are:
A "probate avoidance trust" which continues everything in a single trust
for the benefit of the survivor who maintains the complete right of change and/or
revocability. Typically, this type of a trust is utilized when there will be no
possibility of estate tax and no issue about the control the survivor will have
over the entire trust.
A "disclaimer trust" which is like the probate avoidance trust except
the surviving spouse has the opportunity to disclaim a portion (up to the entire
amount) of the decedent's estate into an irrevocable tax avoidance sub-trust (created,
if necessary, by the terms of the trust after the first death) which then passes
tax free at the survivor's death.. This is a very useful trust given the uncertainty
of the estate tax laws and the likelihood that most estates will not require the
creation of a separate trust for tax purposes; it defers the decision of what planning
is necessary until the time of death when the size of the estate and the exact nature
of the tax laws is clearly defined. Typically, this type of trust is utilized when
there is no concern with the survivor having full control over the trust.
An "A/B Trust" is called that because, at the first death, the joint trust
splits into two sub-trusts (originally labeled the "A Trust" and the "B
Trust" [who said lawyers aren't clever]). Anyway, the deceased spouse's sub-trust
(which we call the "Decedent's Trust") is funded up to the maximum amount
which can pass tax free in the year of death (currently $5M) and the surviving
spouse's sub-trust (cleverly named as the "Survivor's Trust") receives the
balance. The Decedent's Trust is irrevocable and is held for the lifetime of the surviving spouse (typically,
the survivor is the sole trustee and has the right to all of the income and the
right to use any or all of the principal of the sub-trust for her/his benefit); however,
this sub-trust can be protected from creditors of the surviving spouse (including the "spend-down" for Medicaid) and survivor cannot leave the assets of the Decedent's Trust to anyone other than the children. The balance
in the Survivor's Trust qualifies for the unlimited marital deduction and no tax
is due at the first death. At the death of the survivor, what is in the Survivor's
Trust is subject to tax, but only to the extent that the total is above the exemption amount in the year of the survivor's death.
The Decedent's Trust, because it was already subject to tax at the first death and
because it is an irrevocable trust, passes estate tax free at the second death. Because of the higher exemption amount and the loss of a potential income tax benefit at the death of the surviving spouse, this type of trust is not recommended for most situations (although it may still be beneficial for "non-traditional" couples).
With the new 2010 Tax Relief Act, a new type of trust called a "Marital Deduction Trust" is now our recommended choice for many estates. At the first death, the joint trust
again splits into two sub-trusts; the deceased spouse's sub-trust
(which we call the "Decedent's Trust") is funded with the deceased spouse's estate up to the maximum amount
which can pass tax free in the year of death (currently $5M) and the "Survivor's Trust" receives the
survivor's estate. As with the "A/B Trust", the Decedent's Trust is irrevocable and is held for the lifetime of the surviving spouse (typically,
the survivor is the sole trustee and has the right to all of the income and the
right to use any or all of the principal of the sub-trust for her/his benefit); as with the A/B Trust,
this sub-trust can be protected from creditors of the surviving spouse (including the "spend-down" for Medicaid) and survivor cannot leave the assets of the Decedent's Trust to anyone other than the children. The balance
in the Survivor's Trust qualifies for the unlimited marital deduction and no tax
is due at the first death. At the death of the survivor, because the Decedent's Trust is treated as part of the survivor's taxable estate (even though no tax must be paid), the assets in this trust receive a new basis adjustment (a "step-up") and the heirs can sell the entire estate with no capital gains tax.
Another version, the "ABC Trust", is a combination of the above two trusts and is recommended for larger estates. This trust has the excess of the deceased spouse's
estate above the exemption amount going to a sub-trust often called a QTIP ("qualified
terminable interest property trust" - which we label as the "Marital Deduction
Trust"). The Decedent's Trust and the Marital Deduction Trust are irrevocable trusts held for the lifetime of the surviving spouse with the same protections as with the other two types of trusts.
The Survivor's Trust and the Marital Deduction Trust qualify for the unlimited marital deduction and no tax
is due at the first death. At the death of the survivor, the balance in the Survivor's
Trust and the Marital Deduction Trust is subject to tax, but only to the extent
that the total is above the exemption amount in the year of the survivor's death.
The Decedent's Trust, because it was already subject to tax at the first death, passes estate tax free at the second death.
Unlike any other on-line trust preparation program, our software offers all of the
above described types of trusts for a married couple; a simple "probate avoidance
trust", a "disclaimer trust", an "A/B trust", a "marital deduction trust" and an "ABC
trust". You are not required to try to figure out the correct version; our
software uses a unique "matrix" which analyses your responses to certain
questions, as well as the most up-to-date status of the federal and your state's
tax laws, to determine what is the appropriate form of trust for your situation.
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My spouse is not a U.S. citizen, are there any special
problems?
YES. A non-citizen surviving spouse can be required to pay substantial estate taxes
at the first death if a proper estate plan is not in place. Depending on the size
of the estate, it may be necessary to have your Living Trust set up as a "Qualified
Domestic Trust" to avoid the payment of any taxes at the first death. Only
our software will create the appropriate trust for you based on the information
you provide in the interview process.
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If my estate will not have to pay any "Death Tax",
why do I need a Living Trust?
Saving on estate taxes (for a married couple) is just one of the benefits of a Living
Trust. If your estate is over your state's "small estate" limit (usually $30,000
to $100,000 depending on the state), then your estate must go through the expense,
delay and publicity of a court administered probate proceeding at your death if
you do not have a Living Trust. Further, death taxes have no bearing on the protection
a Living Trust and the appropriate health care powers can provide in the event of
your incapacity.
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I'm very concerned about internet security; how safe
is your site?
Our site is the safest possible because, unlike all other internet document preparation
sites, everything you do is created on just your computer. All information you provide
is sent via a 128 bit secured SSL connection; likewise, your payment information
is handled by our credit card processor (in this case, PayPal) through their encrypted
and secure system. The most important point is that the final estate plan document
is only on your computer.
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I have a pet which I want to make sure is cared for
after my death, can I do that with a Living Trust?
Our site allows you to create a "Pet Trust" as an option; this trust can be for
a specific animal or animals or for whatever animals survive you. You can designate
different trustees for the care of the pet and the amount allocated for the care
of the animal. You will also have the option to designate a trust "enforcer"; that
is a third party who has the right to make sure the funds are acting being used
for the care of the animal.
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How much does a complete estate planning package cost?
If you went to an attorney, especially an experienced attorney who specialized in
estate planning, you could expect to pay from $1,000 to $1,500 as an individual
and from $1,500 to $3,500 as a married couple. Even the cut-rate or discount firms,
with their "cookie-cutter" forms, would charge you from $700 to $1,200. With Living
Trusts on the Web, you get the same quality estate plan as you would expect from
an estate planning specialist for $149 for an individual and $199 for a married
couple. Some sites "quote" one price for the trust but then charge you separately
for the other necessary documents; you can pay well over 2 or 3 times our price.
Our price is for the complete estate plan.
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What should I consider before I begin?
You should decide on (1) who will be the successor trustee in the event of death
or incapacity; (2) if you have minor children, who should be the Guardian; (3) who
will make health care decisions for you if you cannot make them yourself; and, (4)
how your estate will be distributed at your death.
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What happens if I want to proceed?
(1) As mentioned in the previous Answer, you should decide on some important estate
planning considerations;
(3) You will complete a Registration Form which will be your Log-in to the system
and so we can contact you if there are any changes in federal or your state's law
which might affect your trust;
(3) You will see a short "Navigation Tutorial";
(4) You will then begin the interview process (please add this page to your "Favorites")
which will take you screen by screen through the context sensitive "question and
answer" process (you can save your answers and come back at a later time to finish).
At the conclusion of the interview, you will have provided all the necessary information
for the software to assemble a custom living trust package for your individual situation;
(5) After the interview, you will be taken to the encrypted and secure PayPal site
for payment (all major credit cards are accepted and you do not need to have or
create a PayPal account);
(6) Upon acceptance of your credit card (usually a matter of seconds), you will
be returned to our download site where your complete trust package will be downloaded,
completely assembled and fully formatted, into your word processor; and,
(7) You can then do a final edit, print the package (which includes complete signing
instructions); once you sign and date the documents, and have the necessary pages
witnessed or signed by a Notary Public, your trust is fully implemented and is immediately
effective.
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What if I need to make changes or the tax laws change?
As mentioned above, as part of the process, you will register with us; if there
are any changes in federal and/or state law which may affect your trust, you will
receive notification. When you finish the process, you will be entitled, upon request,
to receive a password which will allow you to create a Restated Amendment at any
time in the future. A Restated Amendment completely rewrites your estate plan so
it will have all the new language if there have been any legal changes which would
affect your trust and will allow you to implement any changes you need to make to
keep your trust current. However, the Restated Amendment keeps your existing trust
name and the date of the existing trust, so you do not need to re-title any of the
assets already titled in the name of the existing trust. Normally, the cost of a
Restated Amendment is the same as creating a new trust (which is, in effect, what
it is); however, with the password you will be able to create the Restated Amendment,
whenever you need to do so, for half of the currently offered price of the trust
package.
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What do I have to do after I create a Living Trust?
Other than making sure that you title any newly acquired asset in the name of the
Trust (full details are included in the Funding Instructions included in the Trust
Package), the simple answer is "nothing". Once a trust is created and funded, it
will continue on until it is revoked or it is distributed pursuant to its terms.
There are no on-going costs or fees to establishing a Living Trust; nor are there
any separate accountings or tax returns required (IRS Regulations provide that a
revocable living trust uses the tax identification number -- your Social Security
Number -- of the Grantor as its identification number and no separate tax returns
should be filed for the trust).
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Can I transfer US Saving Bonds to a Living Trust?
You can transfer United States savings bonds to a revocable living trust without
any tax consequence. The transfer is made by having the bonds reissued in the name
of the trustee. The form that must be used to make the transfer is Department of
the Treasury Bureau of Public Debt, Form PD F 1851 E (Request to Reissue United
States Savings Bonds to a Personal Trust). Complete instructions for reissuing the
bonds are set forth in Form PD F 1851 E.
This form may be used to transfer all savings bonds, including Series EE, Series
E, Series HH, Series H, and Series I. Use Form PD F1851 to describe the bonds. If
more than 13 bonds are to be transferred, use Form PD F 3500 (Continuation Sheet
for Listing Securities).
You should be aware, also, that your signature (as the bond holder) must be certified
by a certifying officer, including authorized employees of insured depository institutions
and corporate central credit unions. For a complete list of certifying officers,
see Department of Treasury Circular No. 300 31CFR Part 306. This is not the same
as having your signature acknowledged by a notary public.
Since you will be transferring your savings bonds through the mail to a Savings
Bonds Processing Site (there are five sites specified in the instructions), you
should send them by registered or certified mail with a return receipt requested.
This will give you some satisfaction that the bonds were actually delivered.
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I'm very concerned about Internet security; how safe is your site?
Our site is the safest possible. All information you provide is sent via a 128 bit
secured SSL connection. Further, we do not ask for any truely sensitive information; although we provide you with the option to input account number for the transfer letters to your banks and other financial institutions, you can always leave the account number field blank and enter the information after the Trust Package has been downloaded to your computer and before delivery.
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