Recognizing Trust Fraud Before It Happens
Unfortunately, scammers love trusts too – especially during the holiday season.
For many families, trusts are highly attractive and effective estate planning tools. While they come with a long list of benefits, from transfer and income tax mitigation to asset protection, planning for them can be quite complex. Because of this, working with reputable attorneys, financial professionals and trustees is imperative to avoid exploitation by scammers who pitch misleading schemes and promises.
Fraud attempts rise even higher during the holiday season, when distractions like gifts, travel and year-end giving create added opportunities for abuse – making it essential to know the most common trust scams, their warning signs and how you can protect your family.
Common Trust Scams and Red Flags To Watch For
Like many other types of fraud nowadays, trust scams have become increasingly sophisticated and difficult to spot – targeting high-networth individuals, families and business owners and causing serious financial consequences.
Here’s what to look for:
Abusive Tax Schemes
What they are: In the last few years, the IRS has detected a “proliferation of abusive trust tax evasion schemes.” In these scams, fraudsters set up multiple trusts and shuffle assets between them to make it look like the original owner has given up control. The promise is that, without control, the person no longer owes taxes. In reality, though, nothing has changed: The victim is still living in the house, running the business or spending the money.
This is what the IRS means by “control” – if you’re still making decisions about the assets or benefiting from them, you haven’t truly given them up. Because of this, the IRS continues to treat the assets as taxable. The IRS has also warned about fraudsters misusing Charitable Remainder Trusts in aggressive tax schemes and promising unrealistic deductions or exemptions – a tactic that may gain speed during the holidays.
How to spot one: Any claim that a trust arrangement can significantly or entirely eliminate taxes is a major red flag, as tax planning within trusts is complex and can vary based on the type. Be especially cautious of promoters who talk about secret loopholes, or design overly complex trust structures that make it difficult to decipher who truly controls the assets. While these trusts themselves may be legally valid, using them in this way isn’t – and it can even leave victims facing audits, penalties and back taxes.
Phony Trust Documents
What they are: Sometimes, scammers sell documents with official-sounding names like “constitutional trusts” or “common law trusts.” Unlike abusive schemes that misuse real trusts, these are not legitimate trusts at all – because they have no legal foundation and therefore won’t stand up in court. The sales pitch here is often the same: Property placed in the trust will supposedly be untouchable by taxes or creditors. This is dangerous because while victims believe they’re protected by a legitimate trust, they aren’t – and they may end up paying thousands of dollars for worthless documents. During the holidays, fraudsters may invoke year-end urgency by claiming you can only receive the tax benefits if you act before the calendar flips.
How to spot one: Be cautious of any trust packages that are sold outside of reputable channels like law firms – especially if they promise immunity from taxes or creditors. If the seller doesn’t let you have the documents reviewed by an attorney or trust company, that’s a clear sign the trust is fraudulent. High-pressure tactics, like pushing you to sign before consulting your attorney or trust team, are another clear warning sign.
Fraudulent Investment Offers
What they are: Some trust scams take the form of fake investment opportunities that are tied to trusts. They’re often posed as exclusive, limited-time chances to safely grow your assets – but end up being Ponzi-style schemes. Sometimes, investors may even see small “returns,” but these are typically just payouts from other victims’ money – not real profits. During the holiday season, you may see scammers encouraging people to park gift money, bonuses or excess cash in what looks to be a safe investment option.
How to spot one: Any unsolicited investment pitch – but particularly one that guarantees unusually high returns with little risk – should be investigated. These scams can drain assets quickly. In 2024, Americans reported losing $5.7 billion to investment scams, making it the costliest type of fraud.1
Phishing Scams
What they are: While not unique to trust fraud, phishing is one of the most common ways fraudsters gain access to sensitive information. These scams use emails, texts or phone calls that appear to come from reputable sources – like a bank, financial institution or even a trustee. Once bad actors get your login credentials or financial details, they can attempt to access your trust accounts, redirect distributions or steal personal information tied to your estate. Phishing is a big and growing business: In 2024, consumers reported $470 million in losses from scams initiated via text messages – a fivefold increase since 2020.2 Phishing activity also spikes during the holidays, with scammers sending fake shipping notifications, delivery problem alerts and year-end account updates that play on the season’s heavy online shopping.
How to spot one: Years ago, you could spot phishing attempts through tiny details, like bad grammar or a slightly misspelled email address. Now, though, fraudsters have upped their game – and can create seemingly spotless emails and text messages that perfectly mimic the contact information of an institution like a bank. For these reasons, any unsolicited messages from institutions asking for your personal information should prompt you to put your guard up. A legitimate firm will not ask you to give up information via email or text – and will certainly not ask you to click on suspicious links to do so.
How To Protect Yourself
With the wide range of possible scams to stay alert for, there is also a long list of ways you can protect yourself and your loved ones from being taken advantage of.
Lean On Your Trusted Professionals
From your Financial Advisor to your Trust Officer and estate planning att orney, you have a team of experts behind you that can spot a trust scam with ease. If you’re ever offered a trust package or trust advice – whether it’s raising red flags for you or not – consulting your team of professionals is always the safest route to go. Along with this, be sure to involve your attorney and trust team before signing or even updating any of your trust documents, as they can help ensure the terms are both legal and favorable.
Similarly, be sure that your trustee is someone you absolutely trust. You should have no concerns about this person acting in your best interest and diligently overseeing your assets to reduce the risk of fraudulent activity.
Be Proactive, Vigilant and Informed
Along with your Financial Advisor, attorney and Trust Officer, review your own trust documents and be sure you know the terms. This will help you recognize any irregularities or unauthorized changes quickly, especially if you are regularly monitoring your transactions. It’s also important that you remain aware of the types of scams that are out there and continue learning about new schemes to stay a step ahead.
Secure Your Personal Information
Any original documents like trust agreements, wills and financial records should be stored in a secure location – and if they eventually need to be disposed of, make sure they get shredded. Along with this, though, it’s vital that any digital accounts, like bank, investment and email, have strong passwords and multi -factor authentication enabled. This way, cybercriminals have to go through two forms of identification, making it significantly harder for them to gain access to your accounts.
Finally, if you receive any message, email or phone call that you suspect may be phishing, verify the sender’s identity. Instead of sending along the information they’ve asked for or clicking a suspicious link, look up the official contact information of the institution and contact them directly, asking if the message was legitimate.
Baird Trust Company (“Baird Trust”), a Kentucky state chartered trust company, is owned by Baird Financial Corporation (“BFC”). It is affiliated with Robert W. Baird & Co. Incorporated (“Baird”), (an SEC-registered broker-dealer and investment advisor), and other operating businesses owned by BFC. The information offered is provided to you for informational purposes only. Neither Baird nor Baird Trust is a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page is subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor. Investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor or a member of your Baird Trust team before taking action.
