| Legitimate trusts are tools used by qualified estate | | | | professional ability. |
| planners and their clients to achieve certain objectives, | | | | Similarly, you should request and verify the professional |
| including, but certainly not limited to, controlling the | | | | licensing of any advisor recommending or selling any |
| disposition of assets, avoiding probate, reducing | | | | investment, insurance, or annuity. The legitimate |
| administration costs, saving estate taxes, and | | | | professional will encourage, rather than discourage |
| preserving family wealth for future generations. | | | | your verification, and will facilitate your investigation by, |
| Unfortunately, trusts are often used for improper | | | | for example, proving numbers for the state |
| purposes. Lurking in the shadows are con artists who | | | | department of insurance, the SEC, Comptroller |
| promote sham trusts and trust scams for their own | | | | General, or the like. |
| gain. These con artists rely on the ignorance of the | | | | Another way to determine the validity of the claims |
| public, and only education and information can prepare | | | | made by a trust promoter is to compare them to |
| you for their pitch. | | | | materials published by third parties in magazines, |
| Sham trusts and trust scams are usually sold at high | | | | newspapers, and books. Materials that are used to sell |
| pressure seminars, by door-to-door salesmen, and on | | | | sham trusts often contain incorrect references to the |
| the internet. In some cases, they are recommended by | | | | Constitution, references to court cases that have been |
| well meaning but poorly informed CPA's, financial | | | | overturned or changed by statute, and often cite |
| advisors, friends, or business acquaintances. The | | | | scripture. An attorney will always be able to provide |
| marketing techniques can be persuasive, and are | | | | you with articles from popular or professional |
| aimed at all classes of people. | | | | publications which discuss the use of legitimate trusts |
| What is a Sham Trust? | | | | and business arrangements. In fact a professional will |
| A sham trust is any trust created for an improper or | | | | usually encourage you to have a greater |
| illegal purpose. For example, "trusts" or "contracts" | | | | understanding of the legitimate estate planning |
| which purport to avoid, or significantly reduce, all taxes, | | | | technique, and will never discourage you from learning |
| including all income taxes, for individuals and, in some | | | | as much as possible about the arrangement, or its |
| cases, businesses, are almost always sham trusts. | | | | costs and benefits. |
| These often use a complex structure that involves the | | | | Scam artists will usually discourage you from seeking |
| "irrevocable" transfer of your assets to one or more | | | | additional information. They might suggest that the |
| business or trust entities which you control. The | | | | government conspires with the media to suppress |
| promoters claim that the arrangement will significantly | | | | truthful information that might support their claims. They |
| reduce or eliminate state and federal income taxes. | | | | might even suggest that the efforts of the |
| Although there are legitimate estate tax objectives | | | | government to shut down such scam artists proves |
| that may be accomplished with trust planning, income | | | | how worried they are that the truth not come out! One |
| tax planning is quite a different matter. Generally | | | | con man successfully made such arguments to |
| speaking, someone is going to have to report taxable | | | | continue marketing his plans after being indicted for tax |
| income, as well as pay income taxes thereon. While | | | | evasion! |
| there are legitimate credits, deductions, and exemptions | | | | They might even caution you against having your CPA |
| available under state and federal law, there is no trust | | | | or attorney review the documents they sell to you. |
| or business entity into which you can convey all of | | | | They often say that CPA's and attorneys simply do |
| your property and thereby avoid all income taxes. | | | | not understand them, or have a vested interest or bias |
| These trusts sometimes come with seductive names. | | | | against them. While it may be true that certain |
| Moreover, when the justification for the trust somehow | | | | attorneys or CPA's may dislike or have biases against |
| involves the unconstitutionality of the IRS or of income | | | | legitimate estate planning techniques which they may |
| taxes, you are best advised to seek additional or | | | | not fully understand or appreciate, or with which they |
| alternate legal counsel. | | | | have little experience, no legitimate professional will |
| Another common illegal purpose for which sham trusts | | | | discourage you from seeking additional advice or |
| are marketed to the unsuspecting public is the | | | | counsel. Moreover, it is a sign of confidence in the |
| avoidance of the claims of existing creditors. Most | | | | advice that an attorney is giving you that the attorney |
| states have laws which make unlawful transfers of | | | | welcomes a second opinion, or agrees to provide |
| property to avoid existing or current creditors. These | | | | documents for review by another attorney or trusted |
| laws, often called fraudulent conveyance or transfer | | | | advisor. |
| acts, ensure that persons do not transfer all of their | | | | Some con artists discourage your education by |
| property to a related person or entity in order to avoid | | | | suggesting that you do it "now." Beware of seminars |
| claims. In addition, bankruptcy trustees have rights to | | | | where materials or services are sold only immediately |
| property in contemplation of insolvency of a debtor, | | | | following the presentation, especially if large groups of |
| and to property transferred which prefers one class | | | | people literally run to the back of the room to purchase |
| of creditor over another. | | | | materials. It is well known that con artists will use |
| Although it is possible to protect assets from creditors, | | | | "plants" or "shills" to encourage people to "go along" |
| the creditors from whom you should protect assets | | | | with the group by purchasing materials. The shills, and |
| must be future creditors. Moreover, asset protection | | | | or the promoter may even resort to making |
| trusts, and business entities all have issues that you will | | | | comments disparaging or embarrassing those few |
| want to carefully consider. Giving all of your property | | | | who do not go along. The bottom line is that there is |
| to the trustee of an irrevocable trust, for example, | | | | no substitute for a professional service performed |
| even if that trustee is one of your children, involves | | | | professionally. Legitimate professionals spend time to |
| risks that you must consider. | | | | inform and educate their clients, as well as to learn the |
| How To Recognize a Sham Trust | | | | specific circumstances of their clients, so that an |
| The name of the trust can often help identify the trust | | | | estate or financial plan is tailored to the needs and |
| as a sham. Sham trusts have a variety of forms and | | | | expectations of the client. |
| names, such as "Freedom Trusts," "Constitutional | | | | Risk of a Sham Trust |
| Trusts," "Pure Trusts," "Common Law Trusts," | | | | Trusts and business arrangements that are marketed |
| "Unincorporated Business Associations," "Business | | | | as a way of avoiding all or a substantial amount of |
| Trusts" (not to be confused with legitimate | | | | income tax are almost always illegal. The IRS |
| Massachusetts Business Trusts), and "Family Trusts" | | | | considers these "abusive arrangements." Any person |
| (not to be confused with legitimate revocable family | | | | who creates one of these trusts will, when caught by |
| trusts), and my personal favorite, the "Patriot Trust." | | | | the IRS, have to pay all back taxes owed, interest, and |
| They often use combinations of names, such as "Pure | | | | penalties. Remember that failure to report or pay |
| Business Trusts." | | | | taxes upon income may be a crime. Criminal sanctions |
| But the name may not always identify the trust as a | | | | are often imposed upon all who participate in the |
| sham. For example, an "Intentionally Defective Grantor | | | | promotion of abusive trusts, if they can be located. A |
| Trust, " sounds bad, but is a well accepted technique | | | | transfer of real estate to a sham trust may result in a |
| for "freezing" the value of your estate for estate tax | | | | reassessment by the county appraiser, resulting in |
| purposes. So ask yourself if the purpose of the trust | | | | significantly greater property taxes. And, of course, |
| seems proper. If the trust seems too good to be true, | | | | usually the promoters of these trusts are long gone |
| it might be! For example, if the trust is promoted to | | | | when you need assistance or get into trouble. |
| avoid all income taxes, change nondeductible personal | | | | There are often incidental unintended costs and |
| expenses into deductible business expenses, or | | | | expenses associated with these sham trusts. For |
| redirect all, or most of, a person's ordinary income into | | | | example, transfer of your real property to a sham |
| retirement savings, the trust may be a sham. If the | | | | trust may result in loss of a homestead exemption, or |
| trust is promoted to avoid all of the claims of creditors, | | | | acceleration of your mortgage. You may learn too late |
| including existing creditors and the government, the | | | | that your insurance coverage no longer covers |
| trust is likely a sham. | | | | property transferred to a sham trust. The reality is that |
| Your best protection from a trust scheme is the | | | | since these trusts are shams, they are not well thought |
| involvement of a legitimate attorney, licensed to | | | | out and conceived, and consequently there can be |
| practice law in your state. If you are referred to an | | | | many unintended adverse consequences. |
| attorney by another professional, it is always a good | | | | If You Think You May Have a Sham Trust |
| idea to verify that the attorney is licensed by your | | | | If you think you may have a sham trust, see an |
| state Supreme Court to practice law. Most states | | | | attorney immediately. Do not return to the person(s) |
| keep disciplinary action against attorneys as public | | | | who provided the trust until you have obtained an |
| records available through state or local bar | | | | independent opinion that the trust or business |
| associations. | | | | arrangement is valid. Most estate planning attorneys |
| An additional information, consider the | | | | will review your trust for a nominal fee; some will |
| Martindale-Hubbell® Peer Review Rating,(TM) and | | | | review the trust for free (although, there may be a |
| the Martindale-Hubbell® Client Review Ratings,(TM) | | | | nominal fee if you want a written legal opinion). The |
| available here. Based upon self-reported professional | | | | sooner that you learn whether your trust is legitimate, |
| credentials and other fact-based performance data, | | | | the better. |
| the Peer Review Ratings contribute to a | | | | Proper estate planning requires consideration of your |
| comprehensive view of a lawyer, which can help you | | | | specific needs, goals, and circumstances. When |
| identify, evaluate and select the most appropriate | | | | performed correctly, by competent professionals, |
| lawyer for a specific task. Martindale-Hubbell® | | | | estate planning can accomplish much. When estate |
| Lawyer Ratings serve as an objective indicator that a | | | | planning is done incorrectly, or for improper purposes, |
| lawyer has the highest ethical standards and | | | | much may be lost. |