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At least once a week, someone contacts me to announce a new asset protection scheme, and with near-religious intensity, implores me to promote it.  The schemes usually promise significant tax benefits and investment returns of 100% or more annually!  In 20 years of studying asset protection methods, I have never found one of these schemes effective. Indeed, the vast majority of these “plans” are worse than worthless.  In fact, some of these “asset protection plans” not only help you lose your “protected” assets, but can also land you in prison.  Or help the IRS, rather than your creditors, seize your assets.  Year after year, the schemes never really change.  Only their names change.  As one promoter is shut down, ten more take its place.  Some of the scams originated more than 80 years ago and are still going strong!  That’s not to say there’s not a crying need to protect assets.  The U.S. is by far the world’s most litigious society, with more than 50,000 lawsuits filed each week.  But if an asset protection promoter tells you one or more of the following things, RUN (don’t walk) away:  1.  “My plan will result in big tax savings.”  With the exception of asset protection plans involving insurance, annuities and certain retirement plans, asset protection planning is tax-neutral.  2.  “If you follow my investment advice, you’ll achieve great returns plus asset protection.”   Those who offer investment advice are seldom asset protection experts, and vice versa.  3.   “When you form this trust (foundation, corporation, etc.), you’ll achieve complete secrecy and total anonymity.”  Since most asset protection plans must be tax-neutral, this is a dubious claim, because U.S. persons are taxable on their worldwide income.  Plus, most asset protection structures involve extensive IRS reporting requirements.  4.   “You’ll maintain total control over your assets at all times.”  Virtually all asset protection techniques result in transferring legal ownership or control of assets to a third party.  That’s one of the main reasons these are effective.  If a promoter claims this isn’t necessary, it’s near-100% certain you’re witnessing a fraud.  The Most Commonly Encountered Asset Protection Scams Nevada Corporations: Corporations are usually lousy asset protection vehicles for individuals.  (In certain cases, corporations may offer businesses asset protection, although limited liability companies are often more effective.)  Nevada corporations are the worst offenders - not because there’s anything intrinsically wrong with them, but because of their promoters’ 25 years of false promises.                    - Article Continued Below -

The Sovereign Society, headquartered in Waterford, Ireland, was founded in 1998 to provide proven legal strategies for individuals to protect their wealth and privacy, lower their taxes and to help improve their personal freedom and liberty. The Society's highly qualified contacts recommend only carefully chosen banks and investment advisors as well as financial and legal professionals located in select tax and asset haven jurisdictions around the world. The Society provides advice concerning the establishement and operation of offshore bank accounts, asset protection trusts, international business corporations (IBCs), private foundations, second citizenships and foreign residency, as well as practical safeguards for financial, Internet and personal privacy. The Sovereign Society stands alone in fulfilling this singular, international offshore service role for its members. To learn more about our organization and how you too can become a member, please click here. .

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Here’s the form the pitch generally takes: 
Nevada is the only U.S. state that lets you use “bearer shares,” meaning you can anonymously transfer the assets those shares represent and no one really knows who owns your corporation.  So, you can give the shares to Aunt Milly before you appear in court and testify under oath, “I don’t own the shares.”  And everyone, including your creditors, your creditor’s lawyers and the judge will believe you. 

First, it’s far from clear Nevada law even permits bearer shares . Since 1942, Nevada has required “a transfer of stock between individuals, in order to receive recognition by the corporation, must be registered upon its books.”  That certainly sounds like “registered shares” to me!  And creditors can subpoena your corporation’s books.  Thus, simply handing Aunt Milly your shares hardly constitutes a “change of ownership.” 

And because stock shares are personal property, all rules, regulations and taxes which apply to personal property transfers also apply to bearer share transfers . So, assuming Aunt Milly DOES own the shares you gave her, delivering those shares will trigger a U.S. federal gift tax up to 46% of their fair market value.  When Aunt Milly gives them back, another gift tax is triggered. 

Pure Trusts: An 80-Year-Old Scam 
These arrangements supposedly allow a person to transfer all their property into the trust, never pay taxes again, and secure asset protection.  These scams are also called “common law trusts,” “equity trusts,” “unincorporated business organizations” (UBOs), “liberty trusts,” “contractual companies,” “colatos,” and “unincorporated business companies (UBCs). 

These schemes seldom result in asset protection because the person funding the trust generally retains complete control over the trust and its assets, and there are serious tax problems with virtually all variations.  You are the grantor so you directly benefit from the trust’s property, and therefore you must pay all taxes from the trust’s income or gain.  But as you might expect, promoters claim no taxes are due, which leads to a near-inevitable confrontation with the IRS. 

The Disconnected Offshore Trust Scam 
By the 1970s, pure trusts had evolved into offshore trust schemes.  Promoters claimed you could convey assets into an offshore trust, which “disconnects” assets from the U.S. tax system.  Until 1976, there was some truth to this claim, because you could set up an offshore trust and defer the trust’s income tax until the funds returned to the U.S.  But the 1976 tax law made this almost impossible. But that hasn’t stopped promoters from claiming you can save taxes with an offshore trust or foundation.  In virtually every case, you can’t . Offshore trusts can sometimes reduce future estate tax liability, but you won’t save taxes during your lifetime. 

A recent scheme placed a foreign corporation between the grantor and the trust.  The grantor funded the corporation, which in turn funded the trust.  Promoters said this made the trust disconnect from the U.S. tax system.

In all cases, the “disconnect” theory doesn’t work. The IRS “looks through” the person or entity funding an offshore trust and determines where the funds originate.   That’s you, if you sent the money to the promoter.  You won’t save taxes and when the IRS finds out, they can prosecute you for tax evasion, tax fraud and perhaps even money laundering. 

As with domestic pure trust scams, many offshore trust scams let you retain control over its assets, often by serving as trustee.  You’re advised to resign as trustee at the first sign of trouble, and transfer control to an offshore trustee. 

Judges have thrown many individuals in jail who followed this strategy.  These “tax strategists” are only released after their assets are repatriated for their creditors. 

As you can see, asset protection scams have a long history.  It’s the mission of The Sovereign Society to show you the right way to protect your assets - and teach you how to avoid the charlatans. 
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