Myth #8: Trusts Are Completely Private and Untraceable

Myth: Trusts provide an impenetrable shield for assets from public scrutiny, creditors, and even governments. This belief often stems from the idea that trusts operate in a legal gray area, beyond the reach of financial institutions and legal authorities.

TV Shows:

1. Billions (2016–2023)
2. Succession (2018–2023)
3. Ozark (2017–2022):  Marty Byrde, a financial advisor for a drug cartel, sets up trusts and offshore accounts to launder money. The show suggests that trusts make assets completely untraceable, even to law enforcement.
4. Breaking Bad (2008–2013): Walter White arranges for his illicit drug money to be placed in a trust for his son, ensuring it can’t be tracked by the DEA.

Movies:

1. The Accountant (2016): Christian Wolff, an accountant for criminal organizations, helps launder money through trusts and offshore entities, making assets nearly impossible to trace.
2. Enemy of the State (1998): A corrupt NSA official hides illicit funds in trusts and offshore accounts, ensuring that his assets remain hidden even under government investigation.
3. The Laundromat (2019): The movie, based on the Panama Papers scandal, explores how the ultra-wealthy use shell companies and trusts to keep assets private and untraceable.

Sources: Why the Myth Exists?

1. Lack of Public Registration (in Some Jurisdictions): Unlike corporations, which are often required to register publicly, many trusts—especially in the U.S.—do not have to be registered with government agencies. This creates an illusion of complete secrecy.
2. Private Trust Documents: Trust agreements are private contracts or declarations between the grantor (the person creating the trust) and the trustee (the person managing it). They are not filed in public records unless involved in litigation or specific legal proceedings.
3. Offshore Trusts and Secrecy Jurisdictions: Some offshore jurisdictions are known for strict confidentiality laws, reinforcing the perception that trusts are hidden from global authorities.

Reality: Trusts Are Not Entirely Private or Untraceable

1. Legal Disclosure Requirements: California imposes various disclosure duties on Trustees.  See CA Probate Code Sections 16060 (duty to inform), 16060.7 (provide terms of the trust), 16061 (inform beneficiary on reasonable request), 16062-64 (accounting).  While trusts are private documents, they are subject to disclosure during legal processes like lawsuits, divorces, tax audits, and bankruptcy proceedings. Courts can compel trustees to disclose trust information.
2. Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations:
   Financial institutions, especially banks, require detailed information about trusts when opening accounts. This includes identifying the grantor, trustee, and sometimes beneficiaries to comply with international financial regulations.
3. Beneficial Ownership Registers: Many countries are implementing beneficial ownership registries to combat money laundering and tax evasion. (E.g., U.S. Corporate Transparency Act).  Trusts may need to disclose key details, especially if they hold significant assets or conduct business internationally.
4. FATCA and CRS Compliance: The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) require financial institutions to report foreign-held assets. Trusts with international ties are often subject to these reporting requirements, making them traceable across borders.
5. Tax Filing Requirements: Trusts often have tax obligations. In the U.S., for example, certain trusts must file IRS Form 1041 (U.S. Income Tax Return for Estates and Trusts), which can trigger audits or reviews.