Trusts are valuable tools in estate planning, helping individuals protect and transfer assets, often with tax advantages. However, trust scams have become increasingly sophisticated, misleading people with too-good-to-be-true tax benefits and asset protection claims.
The IRS has recently warned taxpayers about fraudulent trust schemes, such as § 643(b) trusts and pure trust scams, that falsely promise tax avoidance. If you fall victim to one of these scams, you could face serious legal and financial consequences. That’s why it’s crucial to understand trust scams and how to spot them before making any estate planning decisions.
Trust Scams on the Rise
The IRS has reported a rise in abusive trust tax evasion schemes, targeting wealthy individuals, business owners, and professionals with promises of:
- Eliminated or reduced taxes
- Depreciation deductions
- Stepped-up basis for trust assets
- Income tax reductions
However, these schemes often involve complex, layered trust structures designed to make it appear as though the taxpayer has given up control—when in reality, they still maintain full access.
Scammers charge anywhere from $5,000 to $70,000 to set up these fraudulent trusts, but the promised tax benefits don’t hold up legally. The IRS is actively investigating these schemes, meaning those who participate could face audits, civil penalties, or even criminal charges.
Types of Trust Scams to Watch Out For
1. The Pure Trust Scam
A pure trust (sometimes called a constitutional trust) is falsely advertised as a way to transfer assets tax-free while maintaining control over them. Scammers claim these trusts are beyond state and federal jurisdiction—which is simply not true.
Red flag: If a trust promoter claims you can place assets into a pure trust and avoid taxes while still maintaining control, it’s likely a scam.
2. 643(b) Trust Scams
A more recent variation of trust fraud, 643(b) trusts falsely claim that income allocated to the trust’s principal is not taxable. These scams use complicated legal jargon to mislead taxpayers into believing they have found a legal tax loophole.
Red flag: If you’re told that a trust is “§ 643 compliant” or that you will serve as a “Compliance Overseer” of a tax-free trust structure, you’re likely being misled.
3. Complex Multi-Trust Structures
Some scammers layer multiple trusts together, moving assets between them to create the illusion of reduced taxable income. These fraudulent trusts use fake business agreements, rental contracts, and inflated deductions to disguise real income.
Red flag: If a trust involves multiple entities moving money between each other in ways that seem unnecessarily complex, it’s worth questioning.
How to Spot a Trust Scam
With trust scams on the rise, it’s critical to recognize warning signs before committing to any trust structure. Here are key red flags to watch out for:
- Exaggerated claims – If a trust promoter guarantees zero taxes or complete asset protection, be skeptical. No legal trust can completely eliminate tax obligations.
- “Secret” loopholes – Tax law is not a secret. If someone claims to have a special trust strategy that only the wealthy know about, it’s likely a scam.
- Overuse of complex legal terms – Scammers use misleading language like “constitutional trust,” “sovereign trust,” or “common law trust” to create an illusion of legitimacy.
- Pressure tactics – If you’re being urged to act fast before an opportunity disappears, take a step back. Scammers rely on urgency to prevent you from seeking legal advice.
- Lack of transparency – If the promoter won’t clearly explain how the trust works, provides inconsistent information, or relies only on testimonials instead of legal documentation, that’s a major red flag.
- Connections to past scams – Many fraudulent trusts are rebranded versions of previous scams. Cross-checking with the IRS Dirty Dozen list can help spot known fraud tactics.
Protect Yourself: Work with a Trusted Estate Planning Attorney
The best way to avoid trust scams is to work with a qualified estate planning attorney. If a trust structure sounds too good to be true, it probably is.
At Williams Starbuck, we specialize in legitimate, legally sound estate planning that protects your assets and your future—without unnecessary risk.📞 Considering a trust? Get professional guidance. Contact our office today to schedule a consultation.
