Let's Be Careful Out There

Word To The Wise............
Warning: Some Trusts Can't Be Trusted
For more than 75 years, promoters throughout the United States and Canada have peddled seriously defective trust schemes. These bogus trusts supposedly offer individuals tax and asset protection benefits, but in reality provide neither.
I was reminded of this a few days ago when I received an email message from the managing editor of The Sovereign Society, Kathlyn Von Rohr. It seems that one promoter, with a website address similar to my email address, is now promoting yet another seriously defective trust scheme.
This so-called "trust" supposedly protects the person forming it from lawsuits and judgments, reduces tax liability, and avoids probate and estate tax. Moreover, books and records relating to the "trust" are supposedly protected from court-ordered subpoenas. What's more, while this appears to be an irrevocable trust, the person who forms it retains full control over the trust and its assets.
Ah, if it were only this easy to achieve asset protection, probate avoidance and tax savings. But unfortunately, it's not.
Indeed, this trust appears to be only the latest incarnation in a long and shameful history of defective trusts. According to William Comer, writer of the encyclopedic Freedom, Asset Protection, and You most sham trusts evolve from the schemes of Harry Morgan Phipps, a disbarred Illinois attorney who began promoting "tax saving" trusts in the 1930s. While several of these arrangements were struck down in the courts, that didn't stop others from taking up Phipps' torch, most notably James Robert Walsh. Beginning in the mid-1960s, Walsh promised to "Henry Fordize" the "tax-dodging specialties that were once associated only with millionaires." When Walsh received a five year prison sentence in 1981, dozens of other promoters arose to take his place.
Today, defective trusts are marketed under a variety of names, including "constitutional trust," "pure trust," "family preservation trust," "federal contract trust," among others. And while U.S. courts have consistently ruled that these trusts are shams and don't avoid income tax liability, promoters keep springing up, much like mushrooms in cow manure.
Here are a few tell-tale signs to look for to determine whether youre being sold a "bill of goods" or a real genuine trust.
First, beware of any claims of income tax savings in a trust. While a properly drafted trust can provide substantial gift and estate tax savings, rarely will there be income tax savings.
Second, beware of any claim that you can both control a trust and obtain asset protection from it. A long line of trust cases dating back hundreds of years has concluded just the opposite -- that a trust grantor who retains too much control over the trust, or over the trustee -- can't expect to have trust assets protected from his or her creditors.
Third, beware of promoters who try to persuade you not to obtain expert legal advice before forming a trust, under the theory that "lawyers are out to gouge you" or that "you don't need a lawyer." While there is little doubt that some lawyers are out to gouge you, and that you can form a trust without a lawyer, it's generally not advisable to do so. In trusts, as in other complex legal relationships, professional legal advice is worth paying for!