Can a Trust Stop the IRS and Creditors?

Can you stop the IRS from getting your assets? Can you stop creditors from seizing what you work for?

The IRS can step all over you if you owe money for cancellation of debt income, say from a foreclosure or short sale or deed in lieuf of foreclosure. Even for settling credit card debts.

Can a trust stop the IRS? Can a trust help you regain your financial freedom even after you’ve got into financial trouble?

This article will explain what you can do and might be very helpful if you are in this situation.

We can protect our houses and our families using Trusts, to keep the IRS and creditors from taking away what we earn and have a better life.

We can protect our houses and our families using Trusts, to keep the IRS and creditors from taking away what we earn and have a better life. Photo courtesy of https://secure.flickr.com/photos/emeryjl/

Disclaimer: I’m not a lawyer and can’t give legal advice so check everything out and don’t hold me responsible. I have examples in here that are often composites drawn from the files of my students, acquaintances and friends.

Alright, so let’s begin.

Using a Trust to Protect Assets in Bankruptcy

Samuel came to the US as a young man and began a remodeling business. One thing led to another and he began to build houses on spec. Spec houses were a huge business in the early 2000s, remember? He would buy a large lot with a teardown house and get the city to divide the lot into three lots, and build big houses and sell them before they were done.

Great business. He went from struggling to earning $500,000 a year.

Until things kinda slowed down. Samuel didn’t look closely enough at what the economy was telling him. Sales started to become more competitive and soon he realized he had like 8 or 10 houses that were sitting there month after month costing him money in interest payments, property taxes, maintenance and all kinds of other expenses.

No worries. He dropped the prices and held on until things got better.

But the didn’t get better. They got a lot worse.

And Samuel had run his life according to the $500,000 income. He had four beautiful fine cars, a lavish 7000 square foot house and a country club membership that cost oodles. Suddenly all Samual had was monthly expenses and no income.

Eventually Samuel found himself in bankruptcy. There was no choice. He had to hold onto his assets and the creditors and the banks and the credit card companies were all after him and filing bankruptcy stopped them and gave him some breathing room.

Now, Samuel used the bankruptcy process to try to gain a new start. But he ended up in a chapter 11 that became a chapter 13 and he faced five years of court supervised financing.

People got into real estate and need to protect their assets so they can get a new start. A trust may be the answer.

People got into real estate and need to protect their assets so they can get a new start. A trust may be the answer. Photo courtesy of https://secure.flickr.com/photos/nanpalmero/

He had a huge concern, which was how to start over without the bankruptcy trustee taking what he built up from now on. What people don’t realize in a chapter 13 is that if their income rises, the trustee can swoop down and take away whatever extra income they get. So what incentive did Samual have to build something new, if the bankruptcy trustee could come and take it away.

The solution for Samuel is the Fresh Start Trust. The Trust can own the buildings and lots that Samuel is buying. Samuel works for the Trust and earns a salary that the bankruptcy trustee is okay with. Then when Samuel emerges from bankruptcy, he can distribute Trust assets and the bankruptcy trustee can’t do anything about it.

Using a Trust to Keep the IRS Off Your Back

Another situation is a young man who I’ll call Jordan. Jordan had badly miscalculated his earnings and run into some of the same type of problems as Samuel. He had made very good money for awhile in the subprime mortgageĀ  business but when that went south, his expenses were very high. He had a great house, a boat, and an expensive boatload of credit card debt.

Jordan didn’t want to file for bankruptcy. He consulted a bankruptcy lawyer and he decided to settle his debts using my Dime on the Dollar system. That worked well but now Jordan faced a huge hit from the IRS for cancellation of debt income.

It isn’t a matter of whether the bank sends a 1099 or not. There are other aspects to reporting income from cancellation of debt and Jordan realized that he faced a problem.

He used my IRS Bulletproof system to become “currently non collectible” so the IRS laid off him. But meanwhile, his income was only about $40,000 a year and Jordan worried that as he rebuilt his financial situation, the IRS would take whatever extra he was earning and what use was it to risk everything and rebuild, only to have the IRS take it away?

To a great extent, Jordan learned that if he could hold off the IRS for 10 years then the debt to the IRS would disappear. How to do this?

Jordan’s dad set up a Fresh Start Trust for Jordan and now Jordan works for the Trust. The Trust accumulates the assets and Jordan can only get a salary from the Trust. When things have blown over and the ten years is past, Jordan can get to the Trust assets he has worked to build and the IRS can’t touch him.

These are two great uses of a Fresh Start Trust.

A Trust to Protect your Assets If You Are Having Financial Problems

Notice that each of these people, Samuel and Jordan, both already have financial problems. Most asset protection doesn’t work if you already have problems. There are fraudulent conveyance problems with just transferring your assets to a trust. With a Fresh Start Trust, these problems disappear.

A Fresh Start Trust can be used if you are facing a messy divorce. Susan has worked hard and built her medical practice and she and Joe are not getting along. Joe got into some major substance abuse problems and has squandered the couple’s nestegg on drugs and gambling. Susan wants out.

Susan can use a Fresh Start Trust to take over a new medical practice she was recently negotiating to buy. Since the Trust will own it, Susan won’t have to include that medical practice in the divorce proceedings.

It isn't the end of the world if you need to protect your assets from the IRS or creditors, or from a messy divorce.

It isn't the end of the world if you need to protect your assets from the IRS or creditors, or from a messy divorce. Photo courtesy of https://secure.flickr.com/photos/amanderson/

These are some of the uses of a Fresh Start Trust. I am planning on re-releasing the Fresh Start Trust system soon and I ask you to post your questions or situation here and I’ll see if I can’t get some answers. Not for advice to you, as I am not qualified to give you advice, but for information only and for others to learn from.

Post your questions or comments here. Thank you.

10 Responses to “Can a Trust Stop the IRS and Creditors?”

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  1. B Thompson says:

    How would this work if I was self employed but now working for a company ? Can I still have a fresh start ? I have some assets and creditors coming after me.

    • richard says:

      This is a great question, B.

      In my way of thinking and knowing what I know, the thing to do is pretty easy. Don’t listen to me without checking it out with an attorney of course!

      You can’t transfer those assets into a trust at this point without incurring the possibility of a fraudulent conveyance. It might work anyway. You never know. But if the creditors take you to court they can get this reversed and it looks bad and could expose you to serious liability.

      So if I am in this position I want to see that the earnings that I get from my independent contractor position aren’t going to be taken away.

      Then I’ll deal with the assets.

      Simply set up a trust, have the trust own an LLC. The trust is set up by a family member not you. The money they put in (you don’t put the initial seed capital into the trust, they do) is used to buy the LLC.

      You inform your client that he or she should pay the LLC from now on.

      The independent contractor cash flows to the LLC and it pays you reasonable compensation for your efforts.

      When the dust settles and you’re all clear, the LLC can distribute what’s in the LLC to you in gratitude and thanks for your fine work, as a bonus.

      If you are interested in acquiring properties you can do that using the same LLC.

      If you want to start another business, do so through the LLC.

      The IRS and creditors can’t touch what’s in the LLC as it isn’t yours. They can go after the earnings that the LLC is paying you, that’s all.

      You can use my IRS Bulletproof to make sure your earning make you “currently non collectible” to the IRS and wait out the ten year statue on collections, or settle with the IRS before that.

      Same with creditors. They are even easier as you can settle with them over time for a pittance because your income is only what the LLC pays you, not what your client pays.

      I think I’ll write an article about this as it is a serious consideration and deserves more than brief reply.

      warmly

      –Richard

  2. Barb says:

    I “became the bank” to two real estate investors I can only refer to as dumb and dumber (maybe that makes me “the dumbest?)

    My long time credit card offered a 0% interest rate for a year, which enabled me to write myself a check, and turn around and lend these two guys $30,000 in the form of a mortgage on a property in a low-income area. The terms were interest only (12%)for one year, after that they were supposed to get a bank mortgage.

    In fact, they purchased SIX properties total, approximately THREE of those using my funds. For 18 months life was good, I got a check for $325, thenwhen my credit card charged me 12% I got 25% from them $625 a month. Now remember, they had SIX homes to collect rent of $500 to $600 a month from and their only debt repay was to ME for $625.

    Then they defaulted! Idiots did not find renters, left them vacant. AND they did not pay the property taxes! NOW I can foreclose, to the tune of $2,000 for the lawyer and $4,000 for the taxes (and yes I SHOULD have checked out the situation better all along)

    Anyway, if I default on my credit card for $24,000, and they default on THEIR loan of $30,000 to ME, at least maybe the IRS will go after them for taxes if I can’t afford to foreclose! And my credit card debt is with a debt collector and yes, they want to settle. Barb

    • richard says:

      Hey Barb, we live and learn. Use your education to your advantage. You got a great education, now use it!

      Let me say this to the many folks (you, my dear reader) reading this article as it has gotten a LOT of traffic and will for a long time.

      NEVER borrow from a credit card and loan that money to anyone else. You have no control over what they do.

      Okay, now we’ve got that out of the way. I would settle the card debt if I had to. You can do that with info from my Credit Card Relief Formula course or on your own it’s pretty easy.

      Maybe they’ll deed the properties to you. You could threaten a law suit and maybe they’ll do a deed in lieu of foreclosure. Why not? It will save them from being sued and you’ll get the properties.

      I probably wouldn’t worry about the property taxes just yet. Did they pay cash for the properties or borrow? If they borrowed, the lender may advance the property tax money and add that to the loan.

      You can negotiate with the lenders in this case now that you own the properties. The properties could be deeded to your LLC inside of a Fresh Start Trust so you aren’t personally vulnerable.

      warmly

      –Richard

  3. Sam says:

    Richard,
    I had about 120K unsecured loan and 480 secured loans.
    properties are under foreclosure. i have some properties in my name free and clear. How i can protect and how i can avoid irs taxes after settlement on unsecured and foreclosure deficiency. I read your articles, also i bought ccrf course. Our monthly income on W2 is 10K per month from Govt Job.
    As financial problems already started, so transfer of properties to trusts will not be good action to take. Having regular income from Govt Jobs, i can not avoid IRS.
    How your courses can help me now?

    • richard says:

      My Credit Card Relief Formula course can help you with the unsecured loans and rescue your credit rating.

      A Fresh Start Trust can help you with anything new you work on outside your government job. You can negotiate with the secured creditors and perhaps do a deed in lieu of foreclosure for those.

      The IRS rules for cancellation of debt income are pretty interesting. If the secured debt is non-recourse you may not have a problem. If you are technically insolvent you don’t owe to the extent you are insolvent.

      There are some neat ways to overcome owing the IRS that we spell out in IRS Bulletproof. Consisting of waiting things out. As time goes by you may end up doing just fine and the lenders reporting to the IRS may not end up resulting in your owing much.

      I would deal with the debt and consult a good bankruptcy lawyer who favors settlement rather than automatic bankruptcy filing.

      warmly

      –Richard

  4. Douglas McPhail says:

    I need to use your fresh start trust to help my sister out of a mess with the IRS and wonder if you can recommend an attorney in the Fayetteville or Raleigh, NC area that we could use to modify the trust to the her needs? Keep up the great info.!

  5. jak says:

    i own some free and clear properties and owe just as many.have tried a couple years ago deed in lieus to only get a laugh from my lenders who took me to the court hse steps with foreclosures.i managed to sell a property to get caught up with the monies owed so nothing happened at the steps.now a couple years later im in much deeper and broke.this month i can not pay.what would be the best course you would consider for this senario delima?please answer me .i know im not alone and could use some kinda help.i found out if i go to a bk att i get told do bk.if i checked a trust att im told do it.im so confused now i just dont know which way is best?i already have an llc but afraid to put anything in for fear of being considered fraud.please help me.thanks

  6. Dennis says:

    Would this work for people who are considering a strategic default?

  7. Rick says:

    The bank is foreclosing on our house and there is a sale date in a couple of months. Can a fresh start trust save our house from foreclosure? Can the bank still get the house in a trust or super trust or will this just postpone the foreclosure for a while until the bank attorneys break the trust?

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