"Go to Jail" Estate Plans
are certain trusts which are simply illegal. In the early 1950 a
"new creation" came from the U.S. midwest called the "Constitutional
Family Trust." Since then it has had many other names (ie.
"Pure Trust, Pure Contract Trust, Common Law Trust, Massachusetts
Business Trust, Indiana Land Trust," etc..), but has remained
much the same in format. An irrevocable trust is created and the
assets are divided into Units of Beneficial Ownership. These units
can be distributed to family members and heirs and then enforced
when the owner of the estate dies. This entire arrangement violates
IRC 1031 (A)-(E).
have refined the argument that the Trust is based on Common Law
which pre-dates U.S. law. This is irrelevant in that statutory law
(that passed in legislatures) over rules common law (Note Uniform
Probate Code Sec.15002). Others have tried to argue that a "Trust
is a Contract" as is thus protected under Article 1 Section
10 of the U.S. Constitution which states, "No State shall enter
into any law . . . inmpairing the Obligation of Contracts."
are two basic problems with this view:
A trust is not a contract. Trusts hold title to property. Contracts
do not. A contract is an agreement by two or more parties to provide
goods or services where there is consideration involved. A Trust
is an entity which hold title to and manages property.
states cannot pass any laws abrogating contracts, the U.S. constitution
reserves that power to the Federal government. The Federal government
can, and has, abrogated existing contracts where such contracts
have gone against the rule of law.
short, any trust arrangement must be made under existing state and
federal laws in effect at the time the trust is created.
the past the IRS simply ordered people who had such trusts to pay
their back taxes (with interest). Now, they have lost their patience
and prosecution is frequent. The IRS has yet to lose one of these