A reader of Debtor and Attorney Burned in Asset Protection Scheme asked about an asset protection scheme he found here. He wanted to know whether a “508 Trust” will really provide the kinds of protection the website claims. In a word, “No.”
The website provides do-it-yourself estate-planning documents that could work like a revocable living trust to help organize your assets and (maybe) avoid probate on your death. However, DIY estate planning is very dangerous unless you really know what you are doing and to know what you are doing would take the equivalent of three or four college classes. You would have to study wills, trusts, income tax, personal property, real estate, and probate, among other subjects. Otherwise, you are groping around in the dark.
The website’s claims about tax avoidance and creditor protection are malicious fabrications. There is no hidden mystery in IRC § 508 that will hide a family’s income or assets from either the Internal Revenue Service or a creditor. Section 508 says that a faulty charity is treated as a “private foundation,” which means that it is not tax-exempt. Tax schemes like 508 Trusts are not sophisticated investment vehicles that take advantage of tax shelters, they are houses of cards that fall apart as soon as an IRS auditor breathes on them.
Ordinary citizens cannot take advantage of the tax dodges used by billionaires, such as private foundations and charities. Those types of entities have five- and six-figure price tags. They are not available for download for $500 or $1,000. Tax “gurus” who claim that they can set up trusts or other legal gimmicks to avoid taxes are either deluded or crooked. The best and the brightest tax attorneys and the best and the brightest regulators and legislators have been hammering out tax law since Egypt was ruled by a pharaoh. There is no miracle trust or legal entity that will make the individual’s or family’s income and assets fall off the IRS’s radar. Sorry, but that is the way it is.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
law-business.com ©2012 John B. Payne, Attorney