Safeguarding your wealth from creditors, lawsuits, and unexpected legal threats is one of the smartest financial decisions you can make. With the right asset protection plan designed by a qualified professional, you can create lasting security for yourself and future generations.
But not all asset protection strategies are what they seem. In fact, many people searching for legitimate protection end up falling for costly scams instead. What’s worse, many asset protection scams are tax evasion in disguise. Victims of these schemes can face jail time and steep fines.
To truly shield your wealth, you need to know how to avoid asset protection scams. We’ll break down the three most common and dangerous scams to help you keep your wealth safe:
- 1. Corporation Sole Scam
- 2. The Pure Trust Scam
- 3. Certified Asset Protection Consultant Scam
- Other Trusts Commonly Used as Asset Protection Scams
1. Corporation Sole Scam
Some people claiming to be asset protection professionals say they can exploit “corporation sole” laws to eliminate taxes and shield wealth. However, everything they promise can land you in serious trouble with the IRS.
A corporation sole isn’t something designed for the average citizen. It’s a legal entity consisting of a single corporate office (corporation) operated by a lone person (sole), specifically designed to help churches and other religious institutions pass their ownership from one officeholder to another without issue. These entities are occasionally used for political offices as well.
Despite what a scammer may claim, a corporation sole provides little to no tax benefit or asset protection for an individual. The lawsuit protections afforded by a corporation sole fall well short of those provided by a standard corporation or limited liability company (LLC).
There’s one key element that makes it easy to identify the corporation sole tactic as a scam: its focus on tax avoidance. Asset protection has almost nothing to do with altering your tax status. Instead, asset protection primarily focuses on keeping your wealth safe from creditors and other threats. Anyone promoting impressive tax benefits, especially outside estate planning, as part of an asset protection plan should raise red flags.
2. The Pure Trust Scam
Also called “Common Law Trust” or “Constitutional Trust”
This scam became famous when actor Wesley Snipes was convicted of tax evasion after using a “pure trust.” But this scam isn’t only targeted at the rich and famous. Instead, it makes a victim of anyone who is searching for an advantageous tax structure.
Pure trusts are the most common asset protection scam in the United States. Sadly, it’s easy to see why people would readily sign up for this fraudulent form of trust. Those who tout pure trusts as a valid method of asset protection proclaim that it can help you avoid paying taxes.
People who attempt to use pure trusts tend to be anti-tax protesters who believe that a loophole in the Internal Revenue Code can allow citizens to eliminate their tax liability. Of course, these pure trusts are pure fiction. In truth, these trusts violate the tax laws as set forth by Congress in the Internal Revenue Code, Sections 641-683. This section states that trusts must facilitate the genuine transfer of assets and adhere to the tax laws of the federal government.
As we’ve seen in the case of Wesley Snipes, the consequences of falling for this scam are severe and include massive back tax payments and lengthy prison stays. However, you can avoid this asset protection scam by remembering that significant tax reduction isn’t part of a valid asset protection strategy.
3. Certified Asset Protection Consultant Scam
This scam is often structured as a pyramid scheme where potential asset protection consultants pay $10,000 to go to a weekend class and become a “certified asset protection consultant.” This certification is not worth the paper it is written on and is not recognized within the legal or financial industries.
This program is fraudulent for three reasons:
- Certified asset protection consultant courses are predatorily priced. They cost thousands of dollars more than courses that are respected by asset protection professionals.
- The techniques taught during certified asset protection consultant courses are ineffective and sometimes even fraudulent.
- There is no industry-accepted certification for asset protection consultants.
If someone offers certified asset protection consultant courses to you, or you come across someone touting this certification, avoid them. In almost all cases, the people with this certification do not have the skills needed to create effective asset protection strategies and are likely to engage in illegal practices.
Other Trusts Commonly Used as Asset Protection Scams
Scammers use the good reputation of trusts to mislead people who want to protect their assets. Here are some examples of trusts that scammers use to convince people that they can keep their assets safe from creditors or even the government:
- Business trust: This type of scam claims to transfer an ongoing business to a trust to make it appear that the taxpayer has given up control of their business. In reality, the taxpayer still runs day-to-day activities and controls the business’s income streams. An effective asset protection trust is run by a trustee, not controlled by the trust’s creator. This scam may also be called an unincorporated business organization, a pure trust, or a constitutional trust.
- Equipment or service trust: This type of trust is formed to hold equipment that is rented or leased to the business trust, often at inflated rates. The scammer then uses a trust to deduct the rental payments from their taxes. This type of arrangement has the same pitfalls as the business trust and provides no asset protection.
- Family residence trust: Under a family residence trust, taxpayers transfer family residences, including furnishings, to a trust. The family then rents the residence from the trust. The expenses of maintaining and operating the residence, including pool service and utilities, are then deducted from the home’s value, which is illegal.
- Charitable trust: In a charitable trust scam, taxpayers transfer assets or income to a trust that they claim is a charitable organization. The trust then pays for personal, educational, and recreational expenses on behalf of the taxpayer or family member. The scammer illegally claims those payments as charitable deductions on tax returns.
- Abusive foreign trusts: Not to be confused with the legitimate offshore asset protection trust, abusive foreign trusts are located in overseas jurisdictions that impose little or no tax on trusts. Typically, abusive foreign trust arrangements enable taxable funds to flow through several trusts or entities until the funds are ultimately distributed or made available to the original owner. If you fail to pay taxes on these distributions, you could be charged with tax evasion.
True and False: Claims Made About Asset Protection Trusts
To better understand how to avoid asset protection scams, here are some common false claims about trusts, along with the facts that expose the truth:
| False Claim | Truth |
| Establishing a trust will reduce or eliminate income taxes or self-employment taxes. | Taxes must be paid on the income or assets held in a trust, including the income generated by property held in trust. The responsibility to pay taxes may fall to the trust, the beneficiary, or the transferor. |
| You will retain complete control over your income and assets held inside a trust. | Under legal trust arrangements, you do not control your assets. An independent trustee, who is governed by a trust agreement you drafted, holds the legal title to any assets in the trust. They must manage those assets as you direct, but you cannot manually move the assets held in a trust. |
| Taxpayers may deduct personal expenses paid by the trust on their tax return. | Nondeductible personal living expenses cannot be made into deductible expenses by virtue of assigning assets and income to a trust. |
Call Asset Protection Planners for Real Asset Protection That Works
If you really want to know how to avoid asset protection scams, the best plan is to work with an experienced and qualified asset protection planner. Only a professional with years of experience in this industry can create an effective asset protection plan that won’t land you in legal trouble.
To shield your wealth without fear of breaking the law, contact Asset Protection Planners! We’ve spent decades setting up 100% legitimate, effective trusts that keep our clients’ wealth safe. Schedule your free consultation today!
