A: No. Trusts have many uses, and in some cases they can help minimize the effects of taxes. But tax "avoidance" is never a good idea and is generally illegal.

The IRS recently warned that the courts are toughening their rulings against taxpayers who pursue frivolous tax cases. The law allows the courts to impose a penalty of up to $25,000 when they come to any of these three conclusions:

A taxpayer instituted a proceeding primarily for delay,

A position is frivolous or groundless, or

A taxpayer unreasonably failed to pursue administrative remedies.

Andy Hromiko, another California resident, tried to avoid taxes by making his trust the recipient of his wages (Matrixinfosys Trust v. Commissioner, T.C. Memo. 2001-133, 6-7-2001). The Tax Court found that Andy, not his trust, was the true earner of income. It noted that he had made "shopworn arguments characteristic of the tax-protester rhetoric that has been universally rejected by this and other courts." He was fined $12,500 in addition to penalties and fees for the unpaid taxes.

So, in general, if a tax plan involving trusts has for its main purpose the "avoidance" of taxes, it is probably risky and possibly illegal. Be sure to discuss the matter with an attorney who specializes in trusts before executing any plan involving their use.