It is surprising that so many people are persuaded by complete strangers to transfer their homes and other assets into so-called “common law trusts,” a.k.a. “pure trusts,” “constitutional trusts,” “common law business trusts,” and “common law business organizations.”   These bogus arrangements are touted as producing favorable income tax benefits to the property owners normally only received by commercial property owners.

    Unlike legitimate revocable trust agreements commonly used for estate planning, these sham arrangements put the ultimate control of title to these properties with an independent trustee, who is normally the scam artist or a separate entity organized for that purpose.

    While one might expect the appeal of these arrangements to be limited to the unsophisticated, or even to those members of “fringe groups” with anti-government sentiments, such is not the case.  We are seeing more and more of these situations in Western North Carolina involving well educated persons, some even professionals.  These illegal trust arrangements have become so commonplace that the North Carolina Bar Association has even published the accompanying pamphlet: Abusive Trust Arrangements: Too good to be true?

    Typical of these scams is the arrangement entered into by various families with one John Philip Ellis, Sr., the subject of a U.S. Department of Justice news release at http://www.usdoj.gov/usao/fls/IRS.html.  When these folks want to sell their homes, they often cannot convey clear title because the property is held “in trust” by Mr. Ellis, who is the subject of a federal criminal action.

    Often, persons involved in these transactions have entered into them in good faith and cannot believe the awful consequences, not the least of which involves their having attracted the attention of the Internal Revenue Service.  The more sophisticated the persons, the more likely they are to be embarrassed by their naiveté, sometimes even to the extent that they are hesitant to discuss their predicament with their lawyer or accountant. This is a shame, because even the worst of these abusive trust arrangements is subject to reformation or revocation, based on its being illegal to start with.  The sooner the persons admit that they have a problem, and seek professional help, the more likely it is that their title problems can be cleared up and the more likely it is that potential problems with tax authorities can be minimized.