Don’t Trust the Trust You Are Being Sold

I’m not a trust expert, but I spent ~20k in lawyers to determine viability.

As we earn more money, we naturally look for ways to save on taxes and protect that capital.

The "Exit the Matrix" Trust Scam

A Non-Grantor Complex Discretionary Spendthrift Trust has been promoted in recent years.

It hits you emotionally and seems logical.

It promises asset protection and the ability not to pay capital gains.

You want to believe it's true as it reduces taxes and provides more money for your family.

So I decided to go with it, but on the condition, I could get a lawyer to write an opinion letter.

This should at least save my butt if ever audited; no guarantees.

If I were to want more of a guarantee, I would have gotten a PLR.

A PLR is a private letter ruling by the IRS itself where they verify the tax structure.

This is the guaranteed way to go about a complicated tax situation.

About 6 months later, the lawyer couldn’t complete the letter based on the tax code.

Not only this, but I also reached out to another handful of lawyers and got their opinion.

These were all estate lawyers, and some were big-time in New York.

Again, that was a dead end. They all said the same thing: it was a scam.

I know these promoters also get over $25,000, and I’ve seen as high as $100,000.

The IRS points out these abusive trust arrangements here.

What is the Promoter’s Basis

Promoters often cite a Private Letter Ruling (PLR) that suggests certain types of dividends are "excludable from gross income," leading them to claim tax avoidance is possible.

However, this interpretation is incorrect. The PLR references Section 634(a)(4) of the tax code, which allocates income between trusts and beneficiaries for tax purposes.

It doesn't state that the income is exempt from taxation altogether.

Promoters make the mistake of mistaking the allocation of tax liability for the elimination of tax liability.

The income is still taxable; Section 634 merely clarifies who pays the tax: the trust or its beneficiary.

The allure of eliminating taxes is strong, leading some to pay hefty fees for trust setups and even become promoters themselves.

The financial incentives for promoting these arrangements can be significant, as evidenced by social media claims of "exiting the matrix" through trusts.

Conclusion

This is not only about the trust scam.

In life, almost always, when something seems too good to be true, it usually is.

No matter how much you want to be, believe it.

It is best to go with your gut and get another professional opinion.

There are legal legitimate asset protection trusts available.

We hit on these topics regarding investing in our Investpreneurs Community.

So, to save you from these mistakes that cost thousands of dollars, join us today!

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