Beware of Pure Trusts

Any field where large sums of money are present is bound to have its shysters, scam artists, and crooks. Asset protection is no different. Your “asset protection consultant” who steers you to an asset protection seminar may not have your best interests in mind. As you consider the pros and cons of wealth protection, keep in mind that many of the “pros” in the field in real life are ex-“cons.”


The most common asset-protection scam is the Pure Trust, also known as a Business Trust, Common Law Trust, Constitutional Trust, Foreign Common Law Trust Organization or Patriot Trust. A Pure Trust claims to be above US law because of the Contract Clause of the Constitution. The Contract Clause (Article 1, Section 10, of the Constitution) forbids states from impairing contracts.


No matter what a Pure Trust is called, it offers little or no protection in most states. Creditor’s lawyers can seize the assets of Pure Trusts in several ways, including the fact that “self-settled spendthrift trusts” are not permitted in most states, that they are set up for tax evasion purposes, and that transfers into the trusts are fraudulent conveyances. Many courts will determine that the trusts simply do not exist, so any funds moved to “inside” the trust are just as accessible as they were before its transfer.


The bad news continues: The Internal Revenue Service (IRS) can, and will, seize assets in a Pure Trust. Reportedly, they have never lost such a case. By the time the IRS gets to the trust, the taxes due will be joined by interest and penalties….a bad situation.


In several situations, those who promote and participate in Pure Trusts have done jail time.


Consultation with a licensed attorney is well advised before creating an asset protection trust.