Cecily Zamora
The Common Law Pure Trust, also known as the Constitutional Trust or Pure Trust, is a type of trust that is promoted as a way to protect assets and gain tax benefits. Proponents of the Common Law Pure Trust argue that it is a legitimate structure that exists outside of state laws and provides asset protection and tax advantages. However, critics argue that it is a scam that can lead to legal and financial troubles. The effectiveness of the Common Law Pure Trust as a tax strategy is questionable, and it is not widely recognised as a valid technique by legal and tax professionals. The Common Law Pure Trust is said to have originated in the 12th century during the reign of King Henry II Plantagenet, marking a shift from the Catholic Church's control of land and assets.
| Characteristics | Values |
|---|---|
| Legality | The Common Law Pure Trust is a scam and is not a legitimate trust. |
| Promoter Claims | Promoters claim that it provides asset protection against creditors and freedom from income tax. |
| Promoter Claims | Promoters claim that it is created under English common law and is independent of state law. |
| Promoter Claims | Promoters claim that the United States Constitution and US Supreme Court cases validate it. |
| Reality | The trust does not provide asset protection and can get you into trouble with the IRS. |
| Reality | The trust is technically deficient in how it operates and is hard to administer. |
| Reality | It is considered tax fraud by the IRS. |
| Reality | It is not subject to state law but also has no legal support. |
| Individuals | Individuals can sue or be sued for violating the terms, but they must do so in their own name. |
| Trustee | The trustee is the legal owner of the assets and must manage them according to the settlor's wishes. |
| Trustee | The trustee cannot mismanage trust assets, including bank accounts, stocks, bonds, retirement accounts, and pensions. |
| History | It originated in the 12th century with King Henry II Plantagenet after he gained control of land and assets from the Catholic Church. |
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What You'll Learn
Common Law Pure Trusts are a scam
A Common Law Pure Trust is a legal structure that is often promoted as a way to protect and manage assets, reduce taxes, and shield individuals from legal liability. While the concept of trusts in common law has a long history and legitimate applications, the specific idea of a "Common Law Pure Trust" as it is often presented is highly questionable and potentially a scam.
Proponents of Common Law Pure Trusts often claim that they are ancient, time-honored legal entities that exist outside of any specific jurisdiction and are therefore not subject to the laws and regulations that govern traditional trusts or businesses. They argue that by placing one's assets into such a trust, one can achieve a level of protection and privacy that is not possible through conventional means.
However, the reality is that Common Law Pure Trusts as they are marketed are not recognized by legal systems in the way that is claimed. While it is true that trusts have a long history in common law jurisdictions, the specific type of trust being promoted here is a modern invention that takes concepts out of context and misinterprets legal principles to sell a false bill of goods.
There have been numerous cases where individuals and organizations promoting Common Law Pure Trusts have been found to be operating scams. They often charge high fees to set up these structures, promising asset protection and tax benefits that never materialize. In some cases, individuals have lost their life savings to these schemes, believing they were placing their assets into a secure trust only to find that the structure provided no actual protection and that the promoters had no legal recourse.
Reputable legal professionals advise against the use of Common Law Pure Trusts as they are often ineffective at best and illegal at worst. They can run afoul of tax evasion laws, as they are sometimes used to hide assets and income from tax authorities, and they may also be considered invalid by courts if challenged. This can leave individuals exposed to liabilities they believed they had shielded themselves from, and potentially open them up to additional legal consequences.
In summary, while legitimate trusts are an important and useful tool in estate planning, asset protection, and business, the specific concept of a Common Law Pure Trust as it is often marketed is misleading and potentially fraudulent. Individuals considering such structures should exercise extreme caution and seek independent legal advice before proceeding.
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They do not protect assets from creditors
A common law pure trust is a legal structure that is often promoted as a way to protect and manage assets, and it is based on long-standing common law principles. While these trusts can offer certain benefits, it is important to understand their limitations, especially when it comes to asset protection. One significant drawback is that common law pure trusts do not offer ironclad protection against creditors. Here's why:
The underlying principle of a common law pure trust is that assets are held and managed by a trustee for the benefit of beneficiaries. The trust itself is a separate entity, and the assets within it are no longer owned by the individual who set up the trust, known as the grantor or settlor. This separation of assets can provide a layer of protection, as creditors of the grantor cannot directly go after the assets held in the trust. However, this protection is not absolute and can be circumvented in certain situations.
The trust assets are still vulnerable to the claims of beneficiaries' creditors. If a beneficiary faces legal judgments or financial troubles, their creditors can target their interest in the trust. This means that while the grantor's assets may be shielded, the beneficiaries' interests are not completely protected. Additionally, if the grantor is also a beneficiary, their creditor could reach their beneficial interest in the trust. The structure and management of the trust must adhere to strict formalities and requirements. If the trust is not properly set up and maintained, a court may "pierce the veil," treating the trust assets as if they belong to the grantor, thus exposing them to creditors' claims.
Common law pure trusts are also subject to the Uniform Fraudulent Transfer Act (UFTA) or similar state laws. These laws allow creditors to undo fraudulent transfers of assets into a trust. If it is proven that the grantor's intent in creating the trust was to hinder, delay, or defraud creditors, the protection offered by the trust can be nullified. It's important to note that the law takes a creditor's rights into account and provides avenues for them to challenge the validity of a trust or attach its assets in certain circumstances. Proper planning and compliance are critical to maximizing the protection a common law pure trust can offer.
To summarize, while common law pure trusts can provide some level of asset protection, they are not impenetrable. Beneficiaries' interests can be reached by creditors, and improper trust formation or fraudulent intent can undo the protection altogether. Seeking expert legal advice and ensuring strict compliance with the applicable laws are essential steps to mitigate these risks and make the most of the benefits that common law pure trusts offer.
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They do not provide income tax freedom
A common law pure trust is a legal structure that is often promoted as a way to protect and manage one's assets and estate. While these trusts can offer certain benefits, it is important to clarify that they do not provide freedom from income tax. Here's a more detailed explanation:
The primary purpose of a common law pure trust is to hold and manage assets for the benefit of the trust's beneficiaries. Proponents of these trusts often claim that they can help individuals reduce their tax liability and protect their assets from creditors. However, it's important to understand that income earned by the trust is generally taxable, and the trust itself may be required to file income tax returns.
In the United States, the Internal Revenue Service (IRS) has very specific rules and regulations regarding the taxation of trusts. Income generated by the trust, such as interest, dividends, and capital gains, is generally taxable income. This means that the trust may need to pay income tax on any profits it generates, just like an individual would. Additionally, the beneficiaries of the trust may be liable for income tax on any distributions they receive from the trust.
While certain trusts, such as charitable trusts or certain types of irrevocable trusts, may qualify for tax exemptions or reduced tax rates, a common law pure trust does not inherently provide any special tax advantages. The tax consequences of a common law pure trust can be complex and depend on a variety of factors, including the type of trust, the jurisdiction in which it is established, and the specific terms of the trust agreement.
Individuals considering the use of a common law pure trust should seek professional legal and tax advice to understand the specific implications for their situation. While these trusts can offer certain benefits, it is important to manage expectations and understand that they do not provide a way to avoid income tax obligations. Misunderstanding the tax implications can lead to significant financial penalties and legal consequences.
In summary, while a common law pure trust can be a useful tool for asset protection and estate planning, it does not provide freedom from income tax. Individuals considering this type of trust should ensure they fully understand the tax implications and seek expert advice to ensure compliance with the relevant laws and regulations.
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They are not subject to state law
The Common Law Pure Trust, also known as the "Constitutional Trust" or "Pure Trust", is a scam that has been perpetrated for upwards of fifty years. It is promoted as a means of asset protection and freedom from income tax. Proponents of the trust argue that it is not subject to any state law and is independent of any state's sovereign law because it is created under English common law. However, this claim is misleading and not supported by legal professionals. The Pure Trust is not a legitimate mechanism for asset protection or tax avoidance, and it can create significant legal issues.
The Pure Trust is presented as a way for individuals to protect their assets and gain liability protection. It is marketed as a tool to reduce taxes, avoid probate, and maintain privacy. According to promoters, the United States Constitution and certain US Supreme Court cases validate the Pure Trust. However, legal experts refute these claims, stating that there is no legal basis for the Pure Trust as it is drafted. The Pure Trust is not recognised or enforceable under state statutory laws.
The Pure Trust is often promoted by individuals who are not attorneys themselves. They argue that attorneys only deal with ordinary "statutory trusts" under state law and that the Pure Trust is a special type of trust that exists outside of state law. This distinction is false, and the failure to involve legal professionals in the creation of these trusts leads to technical deficiencies in their structure and operation. As a result, even if the Pure Trust could provide some benefits, its internal flaws make it challenging, if not impossible, to administer effectively.
The claim that the Pure Trust offers freedom from income tax is also false. While proponents may cite IRS letters or notices, these do not exempt the income generated from the trust from taxation. Instead, the income is taxed directly to the grantor of the trust. Additionally, the IRS and courts have been combating these trusts for years, demonstrating their illegitimacy. In conclusion, while the Common Law Pure Trust is presented as a way to circumvent state law and protect assets, it is not legally recognised and can lead to significant legal and financial issues.
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They are not supported by US Supreme Court cases
A common law pure trust is a legal structure that is often promoted as a way to reduce taxes, protect assets, and shield individuals from personal liability. However, it is important to note that these trusts are not supported by US Supreme Court cases or federal law. While the concept of a common law pure trust originates from misinterpretations of legal principles and cases, it exists outside of the traditional legal system and is not recognized by courts or government agencies. Proponents of common law pure trusts argue that they are based on "common law," which refers to legal principles that have emerged from judicial decisions and custom, rather than statutes or regulations. However, the US legal system, including the Supreme Court, does not recognize the validity of these trusts as a legitimate way to avoid tax obligations or circumvent legal responsibilities.
The US Supreme Court, the highest judicial body in the country, has not issued any decisions specifically addressing common law pure trusts. The Court's absence of support for these trusts indicates that they lack legal legitimacy and are not a recognized tool for asset protection or tax avoidance. The Court's silence on this matter underscores the fact that common law pure trusts exist outside of the legal framework that governs trusts and estates. Individuals who establish these trusts believing they will gain legal advantages may find themselves disappointed and vulnerable to legal consequences.
Furthermore, the US legal system is based on a hierarchy of laws, with the US Constitution at the top, followed by federal laws and then state laws. Common law, which includes judicial decisions, operates within this framework and is subject to statutory law and higher court rulings. Common law pure trusts, however, are presented as existing outside of this hierarchy, purportedly based solely on "common law" principles without any statutory foundation. This contradiction highlights the dubious nature of common law pure trusts and further underscores why they are not supported by the US Supreme Court or the legal system as a whole.
In addition, the US Supreme Court has a history of upholding the supremacy of federal law over state law in cases where there is a conflict. Since common law pure trusts are based on purported common law principles rather than federal statutes, they would likely be superseded by federal law if a conflict arose. This further emphasizes the lack of support for these trusts at the highest levels of the US judicial system. Individuals considering the creation of a common law pure trust should be aware of the legal risks and consult with licensed legal professionals who can provide accurate and ethical advice.
In summary, while common law pure trusts may be promoted as a viable legal strategy, they lack support from US Supreme Court cases and exist outside of the traditional legal framework. The absence of specific rulings on common law pure trusts indicates that they are not a recognized tool for asset protection or tax avoidance. Individuals should be cautious of such structures and seek proper legal advice to ensure compliance with federal and state laws.
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Frequently asked questions
A common law pure trust, also known as a constitutional trust, is a trust that is irrevocable. It is formed by an agreement between the owners of a property or business and a trustee or group of trustees.
The purpose of a common law pure trust is to protect assets, gain liability protection, avoid probate, and reduce taxes.
The trustees are the legal owners of the assets held in the trust. They are responsible for dealing with the assets according to the settlor's wishes, managing the trust on a day-to-day basis, and paying any taxes due.
A common law pure trust is created through a contract or agreement between the trust creator and the trustee. The trust creator enters into a private contractual arrangement with a trustee to hold real and personal property for the benefit of another.
Yes, there are risks associated with common law pure trusts. Some sources claim that these trusts are scams that can create legal issues and provide false promises of asset protection and tax avoidance. It is important to seek legal advice from licensed attorneys before considering such trusts.
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