The so-called pure trust scheme was a criminal tax evasion ploy that widely circulated from roughly 1995 to 2005. Promising a form of trust which negate the payment of all taxes, the promoters of the pure trust sold these things by the tens-of-thousands to (former) taxpayers who used them for a while until the IRS caught up with them, and sent literally hundreds of promoters and taxpayers alike to nice vacations at Club Fed.
With the IRS and DOJ on the hunt for both sellers and users of pure trusts, the sales of these vehicles dramatically tailed off and I had not heard much of any about them until recently when I had the occasion to cross the path of a promoter of pure trusts, but now referred to as complex trusts. This promoter had the same old marketing materials as went around two decades previously, including representations that John D. Rockefeller used one to avoid paying his income taxes (he didn't, at least when there was an income tax during his lifetime), and these trusts are only known to the super-wealthy, etc. and etc.
The complex trust is simply another name for the pure trust, which have also gone by such names as constitutional trusts, contract trusts, patriot trusts, and the like. The scammer who sells complex trusts will show their marks a letter from the IRS which states that such a trust pays no income taxes. Using that letter, they then tell their marks that if they put all their assets and divert their income into the Complex Trust that it will then be forever free of tax.
What the scammers don't tell their marks is that the IRS letter actually states that the trust itself does not pay tax because the trust is treated as a grantor trust which means that all the taxable income of the trust passes through to some individually (known as the "tax grantor") who records it on their own personal tax returns as if the trust never existed. As with any scam, there is a kernel of truth: The kernel of truth in this case is that the complex trust indeed pays no tax, but the rest of the story is that this is because the tax grantor pays the tax instead. Thus, there is no "tax free" trust, but instead merely a trust that is disregarded for tax purposes much like single-member LLC which also passes all taxable income on to its owner.
The rest of the complex trust promoter's story is some combination of lies and gibberish. They'll tell you that the super-wealthy of America use these taxes to avoid paying income tax, but as somebody who has represented a few of those folks from time to time, I can tell you that is an absolute lie as the super-wealthy do not even attempt to use complex trusts to avoid tax (this is not to say that they don't often use some pretty creative or even aggressive tax shelter strategies, but nothing like a pure trust). They'll also drop some names like the aforementioned Rockefeller as having used the complex trust to avoid taxes, but there is no evidence whatsoever that such is the case.
Another thing the complex trust promoters will tell their marks is something like, "you're attorney and CPA don't know about complex trusts because it was never taught to them." This is true in part because the schools of law and accountancy do not teach scams, but false in the sense that many attorneys and CPAs are well aware of this fraud through the numerous IRS warnings and DOJ press releases of indictments and convictions in relation to complex trusts.
It is here that the complex trust sellers will take advantage of those amendable to conspiracy theories, by telling them that the complex trust is a great secret that only certain people who are wealthy and in high places know about. By interlocking into their existing conspiracy beliefs, it is but a short hop to make a sale of one of these trusts and realize a quick profit.
Notably, with complex trusts there is often a scam-within-a-scam going on, which is that one scam artist will make money convincing another soon-to-be scam artist that the complex trust both "works" and is a great way of making money selling complex trust systems, sold of course by the first scam artist at a nice illicit profit to the second. The person who buys into the complex trust system usually doesn't know that complex trusts are actually a form of criminal tax evasion, but merrily set up internet sites and post videos praising their virtues ⸺ they themselves have just been scammed, but haven't figured it out yet.
I would tell that the only folks who buy packages for selling complex trusts are non-attorneys and non-accountants, but surprisingly in the first wave of pure trusts from 1995 to 2005 there were at least a few attorneys and accountants who were caught selling these things and spend their own time in Club Fed, along of course with losing their professional licenses. I personally knew some of these folks and was amazed that they fell for it, but fall they did, and paid the steep price for doing so.
Anyway, if somebody mentions a complex trust, know that it is only a renamed pure trust and it is still as much of a criminal tax evasion scheme that it ever way, pending only a new name by somebody 20 years from now when it will resurface again. Note that there are quite legitimate forms of trust which may also be characterize the terms complex trust or pure trust and which have nothing to do with the scam version of these trusts: When in doubt consult a licensed tax attorney of your own choosing, and not one suggested by the promoter.
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August 18, 2021 at 01:05PM
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The Complex Trust Is Simply The Criminal Tax Evasion Device Known As The Pure Trust Repackaged - Forbes
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