Trust misconceptions
Wanna avoid taxes?
Set up a trust. đź“ś
Trusts are how the super rich get out of paying income taxes. đź’°
I’ll show YOU the same tricks THEY use. Sign up for my reasonably-priced course and never pay taxes AGAIN!
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Does that sound to good to be true?
That would be because. it. IS.
While trusts often have income, gift, & estate tax implications, they are NOT the income tax-avoidance mechanism that TikTok promoters & others would have you believe.
At its heart, a trust is simply one of several methods for assets to transfer ownership.
A trust acts like a legal “waiting room” for your house, your business, your financial assets, etc. to “sit” from the time you give up ownership until the time your heirs or a charity receive ownership.
Popular trust tax scams include:
“Deduct all your personal expenses in a trust.” Absolutely not. There’s nothing in the Internal Revenue Code that allows for personal expenses to magically 🪄become tax-deductible merely by having a trust pay for them. See IRS discussion here.
“Run your business through a trust and neither you nor the business pay tax on business profits.” While this actually CAN happen, it would mean the TRUST pays the tax which is typically not a desirable outcome due to compressed trust tax rates. Promoters who proclaim that NO ONE pays tax in this scenario are uninformed or lying. See IRS discussion here.
“Put your assets in an offshore trust. Uncle Sam can’t find you there.” False. US citizens absolutely CAN establish trusts in non-US countries. But this does NOT make trust activity exempt from US income tax or reporting. See IRS discussion here.
BONUS:
How to ACTUALLY use a trust to avoid income tax: Make your beneficiary a 501c3 charity. If you're willing to give up assets to a charitable organization, there may be a legitimate tax benefit for you.