Why is an experienced estate planning attorney worth their weight in Gold? Beck, Lenox & Stolzer Estate Planning and Elder Law, LLC, shares a sobering example of an unethical attorney and a dentist who either wasn’t very savvy or was too interested in hiding income. A dentist in Colorado has been indicted on criminal charges for using an abusive trust tax shelter to hide more than $3.5 million of taxable income earned from 2017 to 2022. The IRS is cracking down on shelters using tax-reducing trusts considered “abusive,” i.e., violating the law. A recent article from The Wall Street Journal explains how high-income earners are being targeted by promoters selling trusts, “A Tax-Shelter Crackdown Uncovers a Dentist’s ‘Smile High Trust’”
An experienced estate planning attorney should be the only source for identifying and creating trusts. Your estate planning attorney should vet anyone promising to have a complex trust to solve tax problems to prevent becoming a victim of these scammers. A complex structure with no purpose signals fraud to the IRS. It should also signal the same to high-income professionals.
The dentist was told he’d need to pay $50,000 for the shelter, eliminating a large part of his practice’s taxable income by routing it through a chain of three trusts and a charitable foundation. Each trust was the beneficiary of another, and deductions for expenses were made on each one. What should have been a giant red flag to the dentist: the promoter provided him with two versions of the trust documents. There was a short version to give to banks to open trust accounts, and he was instructed to keep the longer version confidential.
There should not need to be two different versions of a trust. An ethical estate planning attorney would not give a client a document they themselves wouldn’t want another ethical attorney, financial professional, or IRS agent to see.
When the dentist spoke with his CPA about transferring the dental practice into a Limited Liability Company and assigning nearly 90% of its income to the first-tier trust, named the “Smile High Trust,” the CPA questioned whether this move was legal, according to Colorado law. The dentist ignored the question and proceeded with the creation of the trusts.
Transferring a professional practice into an LLC is not unusual and is often part of an estate or succession plan. However, the overall scheme’s intricacies should have alerted the dentist of its questionable nature.
Another red flag is the creation of a foundation that lends funds to the dentist’s practice and pays for personal expenses.
An experienced estate planning attorney has an ethical duty to their clients to follow the law when creating trusts, including those designed to minimize tax liabilities legally. Any consideration of a complex trust promising to eliminate taxes should be vetted through your estate planning attorney. Those who think they are above the law often end up ensnaring themselves and their victims. It’s relatively easy not to fall into these kinds of traps if you have an established network of trusted professionals, including an estate planning attorney, CPA and financial advisor, and listen to their advice.
If you are looking for an experienced estate planning attorney worth their weight in gold, you do not need to look any further than the attorneys at Beck, Lenox & Stolzer. Take advantage of our free phone consultation by clicking here to schedule.
Reference: The Wall Street Journal (Sept. 27, 2024) “A Tax-Shelter Crackdown Uncovers a Dentist’s ‘Smile High Trust’”
