Estate Planning 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. 

If the main speaker is not an attorney, what are the credentials of the person giving the seminar?  Is the presenter an annuity salesman?  Financial advisor?  Paralegal? The qualifications of the presenter can tell you a lot about what they expect to get out of the seminar.

2.  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. 

3. 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 legitimate court cases. 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 and Forms 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 often "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 might be a different story.  And that court decision 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 legally avoid all income taxes for you, no trust will allow you to legally stop paying self-employment taxes, and no trust will legally 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.

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.

For more estate planning information:  Sitemap