Misuse of trusts
Trusts can be valuable legal arrangements to deal with many complex family, financial and tax issues. However, trusts designed solely to hide assets from the IRS are illegal.
But year after year, folks fall prey to unscrupulous promoters who have persuaded them to transfer their assets into improperly designed trusts. Recently, the IRS says it has seen an increase in the inappropriate use of private annuity trusts and foreign trusts.
Beware of a trust that promises to reduce the amount of income subject to tax, offers deductions for personal expenses or claims to lower estate or gift taxes. Such trusts rarely deliver the advertised tax benefits. Rather, they are used primarily as a way to hide assets from creditors, including the IRS, and avoid legitimate tax liability.
Trusts can be complicated, so don't take the word of a stranger offering to set up one that will reduce your tax bill. Find an attorney or other trained tax professional who can help you establish a proper, legal trust.