How to Spot and Avoid Trust Scams
Setting up trusts during estate planning offers asset protection, tax advantages, and a structured way to pass down wealth. However, in recent years, trusts have become a lucrative opportunity for scammers to set up too-good-to-be-true trust solutions, and the IRS has flagged fraudulent trust schemes designed to trick taxpayers into believing they can skirt tax obligations. Getting caught in the web of a trust scam often leads to severe financial and legal consequences. Here’s what you need to know:
How Trust Scams Work
Many trust scams rely on misrepresenting legal tax strategies. Scammers often target small business owners and high-income individuals. These scams often involve a layered, confusing structure to disguise the fact that the taxpayer still controls the assets—something the IRS closely scrutinizes. Scammers charge $5,000—$70,000 for these fraudulent trust setups, complete with official-looking documents and tax filing services. However, the IRS makes one thing clear: these schemes do not hold up under legal scrutiny, and those who fall for them could face civil penalties—or even criminal charges.
Red Flags to Watch For:
- Loopholes. Tax law is complicated, but it’s not a secret. Scammers like to tell potential victims how those with wealth utilize loopholes only known to them to avoid paying taxes. It simply isn’t true.
- Exaggerated claims. If it sounds too good to be true, it probably is because taxes are unavoidable. Trusts are excellent for gaining some tax advantages, but no legal trust strategy can entirely cut all tax obligations.
- False legitimacy. Scammers use official-sounding terms to sound credible. They say trusts operate under “common law” or “sovereign” status to avoid federal rules—it’s their way of trying to gain your trust.
- Pressure tactics. When establishing an official trust, your attorney will not pressure you into decisions. They will provide an understanding of your options, give recommendations for your unique situation, and keep you in control of things. On the other hand, a scammer will pressure you into making rash decisions. Look for the language of “act quickly” and “exclusive opportunity.”
- Confusing structures. Scammers love to weave their webs in the parts of life that can be complicated. Since trusts and tax laws are inherently complex, they use the general confusion many people have to work in their favor. They create multiple trusts with convoluted names and structures to hide what’s really going on, making it harder to spot the fraud.
- Lack of transparency. Scammers often avoid giving clear explanations or proper documentation about the trust. Instead, they rely on vague stories and testimonials rather than actual facts or legal proof.
- Similarity to known scams. Many trust scams are just old tricks with new names. Recognizing the warning signs and comparing a trust strategy to known scams—like those on the IRS Dirty Dozen list—can help protect you from fraud.
Safeguard Your Future with Law Stein Anderson
It’s an unfortunate truth that scams are everywhere. From shady HVAC duct cleaners to outright identity thieves, scams lurk around every corner, and even the most capable person can fall victim to one. However, we can help you with a rock-solid way to always avoid a trust scam—only ever discuss a trust with a highly reputable and skilled estate planning attorney, like our team here at Law Stein Anderson. Call us today—we’ll establish your estate plan on solid ground.