than Worthless:3 Asset Protection Scams Exposed
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, 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!
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:
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.
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.
“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.
“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.
Commonly Encountered Asset Protection Scams
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 -
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.
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.
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
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Continued From Above -
form the pitch generally takes:
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.
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.”
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
An 80-Year-Old Scam
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).
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.
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
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.
is president of The Nestmann Group, Ltd., a consultancy assisting high
net-worth individuals with wealth preservation solutions. He is the author
of many books and reports on privacy and asset protection. In 2005, he
was awarded a “Master of Laws” (LL.M.) degree in international tax law
at the Vienna University School of Economics and Business Administration.
The former editorial director for The Sovereign Society, Mark now serves
as a consultant to the Society.