Question: My wife and I recently attended a seminar about trusts which was sponsored by a financial planning group. Because we were interested in saving income and estate taxes, we went back for a private meeting and were told that if we participated in their trust program, we could even deduct our personal expenses, depreciate our home and furnishings, and save income and estate taxes. Although the cost was rather high -- $4,000, we were told that we could save that much in taxes next year. We are in our early 60’s and both work, so saving on taxes is important to us. We have been reading your column for quite a while and appreciate the good information you provide. Is what they promise legal, and is this something we should look into further?

Answer: No. In fact, rather than walk away from folks who make promises that are just too good to be true, we suggest you run from promoters of scam, abusive, fraudulent, and deceptive trusts, many of whom have become targets of Internal Revenue Service initiatives. .

A trust is a form of asset ownership which is used to separate the responsibility and control of assets from the benefits of ownership. Properly used, trusts can be the foundation of good estate planning which can help save probate cost while affording privacy and other protections. Trusts can also be used to assist in the legitimate charitable transfer of assets and to hold assets for minors, disabled individuals, and others who are unable or unwilling to handle their financial affairs.

However, if you use a trust, you must comply with the tax laws. And violation of these laws can subject you to not only civil penalties, but also criminal prosecution. The civil sanctions can include a fraud penalty – that is, you could pay a penalty of up to 75 percent of the amount of tax you should have paid – in addition to the tax you owe. Criminal charges may result in significant fines and/or prison time for each offense.

What “buzz words” should put you on alert that a trust seminar may be a scam? 1) “Learn how to deduct your personal expenses.” 2) “Depreciate your home and furnishings by assigning them to the trust.” 3) “Reduce or eliminate your income taxes or self-employment taxes." 4) "Avoid estate and income taxes while retaining complete control over all your assets.” 5) “Get tax relief by transferring your business into a trust, keeping control, and continue to receive all the same benefits.” 6) “Form a trust and lease equipment to the trust at inflated rates which are deducted by the trust.” 7) “Transfer your family residence into a trust and rent it so the trust can deduct the depreciation and expenses associated with the operation of your home.” 8) “Use a foreign trust to pay no taxes and have financial secrecy.” 9) “Find out how to use trusts to qualify for Medicaid”. In fact, all of these promises are empty marketing ploys.

Also be careful of such promises as 1) “The fees you will pay will be offset by tax benefits." 2) "We can backdate the documents, so don’t worry about it.” 3) “We will help you with the trustee because he is in our pocket.” 4) “We will provide you with a lawyer who will review the documents for you at now cost to you.”

Taking the NextStep: A “cottage industry” of promoters has gone over the edge. We believe it is most inappropriate for lawyers to approve these trusts for a fee without ever talking to you, which is what generally happens in these types of transactions. The Internal Revenue Service’s special national task force is charged with stopping these trust scams. Prosecution can be recommended of promoters, marketers, and clients who participate in abusive and fraudulent transactions.