Trusts offer an opportunity for con artists who promise miracle
results, including totally avoiding all estate taxes and income
taxes, regardless of the size of an estate. The information on
this page is an attempt to explain these cons and scams. When
you are considering an estate plan, remember the old saying:
If it sounds too good to be true, it probably is too good to
be true.
Living Trust Seminars
Many seminars about living trusts are legitimate and
provide useful information about estate planning. However, there are
some that are blatant schemes to sell annuities. How can you tell the
difference? Look for the following details:
1. Is the main speaker at the seminar an attorney?
If an attorney is involved, you can check with the State Bar of California
website at State Bar of California and
click on "Attorney Search" on the right side of the page. Enter the
attorney's name and you will find verification that the attorney is currently
a member of the state bar, his or her address, education information, and
discipline record, if any.
2. Even if an attorney is giving the seminar, read the small type
at the bottom of the ad. A recent ad explained that the attorney who was
giving the seminar "is not offering and does not intend to provide legal
services or legal advice." In other words, the attorney doesn't want you
as a client. Why?
3. Is the real purpose of the seminar to sell you
an annuity? A recent ad for a seminar also notes, "An independent licensed
Notary/Insurance Agent will contact you." For what purpose? Probably
to sell you an annuity. (An insurance license is required for selling
annuities. For more about annuities, click here:
Annuities).
4. Does the seminar require payment at the seminar
to obtain the low, low price that is being advertised? This raises some
questions: Why is the best price available only at the seminar?
What's the rush? Legitimate seminars are presented at no cost to those
attending. Also, you should meet the attorney in an attorney-client
setting before writing out a check.
Constitutional Trusts
These are often a series of trusts that
might include trusts called a "business trust," "equipment
trust," "residence trust," and the "final
trust." In some cases the final trust receives income from
the other trusts and also is formed in a foreign country. In
most of these cases, the person who owns the trusts is told that
there will be no income tax or federal estate tax for any of
the trusts. The general idea is that income will shift from trust
to trust, and IRS will never figure out where it went. The cost
of these trusts is often much higher than an attorney would charge,
and the companies that sell these trust arrangements warn their
customers to never discuss the trust with their attorneys or
accountants.
These trusts are illegal. They violate
federal or state tax laws, and they are not based on any case
law. IRS is constantly fighting these trusts and has been successful
in convicting the sellers and buyers of these trusts of tax fraud.
There are many names for these types of
trusts. Some are known as "pure trusts", or "irrevocable
pure business trusts," "unincorporated organizations,"
"common law trusts," or "pure equity trusts."
The promoters of these trusts often promise their customers that
the trusts will reduce income taxes, eliminate self employment
taxes, eliminate estate taxes and inheritance taxes, and protect
the customer from lawsuits. The promoters may promise that ordinary
expenses will be deductible from income taxes as "business
expenses," or that tuition paid for private schools will
be deductible as "scholarships."
Trust and Will Kits from
the Internet
There are many sites on the Internet that
will sell you kits and forms for preparing trusts and wills.
These documents are "guaranteed" to be valid in all
50 states, will never be attacked in court, and will save thousands
of dollars in legal fees, according to the claims made by the
promoters of these documents. The goal of these websites is heavy
sales volume, and whether the documents are valid is a minor
concern for the promoters. Before you pay for these forms and kits, ask whether
you can get your money back if you decide that the information
is worthless, or who your heirs can sue if the documents create
more problems than they solve. If the promoter of the documents
refuses to give your money back, what are your options? Will
you try to sue someone who is out-of-state to get your $100 back?
Is there any government agency that can help you get your money
back? Also, how do you know that the forms are valid in your
state? And don't forget a basic question involved with estate
planning: Does it sound too good to be true?
Remember that any document, valid or not, can be called a "trust" by the
creator of a will and trust kit. Whether the "trust" will stand up to
the scrutiny of a court may be a different story. And that judgment may
occur after you are long gone and unable to sign a new estate plan. At
that point your estate will probably be forced into probate or lose a
substantial amount in federal estate taxes if the "trust" that you created with the internet trust kit
wasn't valid in California. Is it worth the gamble?
Legal Advice From Non-Lawyers
A trust mill is a virtual factory for producing
trusts, wills, and other estate planning documents. Clients never
meet an attorney face-to-face, despite representations that all
of the documents have been reviewed by an attorney. Fees are
sometimes higher than an attorney would charge, and the documents
produced are often inappropriate for the client's needs, or so
disorganized as to be useless.
One of the trademarks of a trust mill is
an energetic sales force of non-lawyers who meet with the clients,
sell them the trusts, and take charge of the details, such as
completing the forms and getting them signed. This sales force
may also be earning large commissions by selling the clients
annuities or health insurance. In one case that was prosecuted
by the California Attorney General's Office, the sales force
was found to be making 10 percent commissions on the sales of
annuities. In many cases they convinced clients to convert hundreds
of thousands of dollars of sound investments to less appropriate
investments, raking in huge commissions for themselves.
Characteristics of Estate
Planning Scams
1. The
claims are too good to be true. No trust
will avoid all income taxes for you, no trust will allow you
to stop paying self-employment taxes, and no trust will turn your
family into a business with thousands of dollars of business
expense deductions.
2. The
salesmen are the nicest, most sincere people you've ever met. They promise you exactly what you want, when you
want it. Many attorneys who have worked with the victims of these
salesmen say that clients have to be "deprogrammed"
to convince them that the trust they bought is worthless.
3. The
trust documents are often pre-printed,
with the client's names, the names of trustees, and the distribution
plans written in later. The documents are voluminous and give the
impression that much work has been done. Closer inspection often
shows that the documents are not necessary and are repetitive
of other information that is provided.
4. Clients
never have an opportunity to talk to an attorney. They are often assured that an attorney has looked
at their file and has approved it, or that attorneys review all
of the cases. In some cases the salesman will masquerade as an
attorney, and will not give a straight answer if asked if he
is an attorney. Clients are often told they should not seek a
second opinion from an attorney.
