Legal principles that are applicable to trusts
It must be remembered that, when trusts are used for legitimate business, family or estate planning purposes, either the trust, the trust beneficiary, or the transferor to the trust, as appropriate under the tax laws, must pay the tax on income generated by the trust property. Used in accordance with tax laws, trusts will not transform an individual’s personal, living or educational expenses into deductible items, and will not seek to avoid tax liability by ignoring either true ownership of income and assets or the true substance of transactions. Consequently, tax results promised by those promoting abusive trusts are not allowable under federal tax law. Contrary to promises made in any promotional materials, several well-established tax principles control the proper tax treatment of these abusive trust arrangements.
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Trust scams and scammers