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Asset Protection Trust
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An
Asset Protection Trust, less commonly known
as a "self-settled spendthrift trust"
is a trust you set up yourself to protect yourself
from creditors. With the 2005 changes in the
Bankruptcy Code on shore or domestic trusts
may not provide such protection. These trusts
known as DAPT's - a Domestic Asset Protection
Trust may by recognized as the Alaska Trust,
the Delaware Trust, or the Nevada Trust.
The
problem is that with the introduction of a 10
year limitation period for transfers to self-settled
trusts any transfers 10 years prior to a bankruptcy
filing will be suspect.
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You
may with to contact your estate planning attorney to
develop some alternate asset protection strategies.
Weaknesses
of a Domestic Asset Protection Trust
A
Domestic Asset Protection Trust is designed to be
an alternative for foreign asset protection trusts
but not withstanding the new bankruptcy provision
they have some inherent flaws.
Trustee
is subject to US Jurisdiction
Should the trustee be obligated by a US. Court to
divulge information he would have no choice but comply
or face charges of contempt or just as disastrous
face civil lawsuits against his own property. Given
the choice of protecting himself or the trust - this
is by far the most obvious weakness of a domestic
trust. A foreign based trustee could simply ignore
any such action being totally outside of domestic
jurisdiction.
Full
Faith and Credit
Under the “full faith and credit” clause
of the US Constitution any judgment made in any state
can be transferred and recognized by any other state.
This means that if you formed your trust in one state
its courts will be forced to uphold any decision made
in another state. This is not so in a foreign jurisdiction
as any court proceedings involving bringing witnesses
from the US would have to started from the beginning
- a very expensive and effective deterrent.
Bringing "Import Law" or "Choice
of Law" into another State will likely fail.
Legislation in Alaska,
the Delaware, or Nevada is written to shelter an asset
protection trust from creditors and have a shorter
statue of limitations and more conservative interpretations
of what is considered a fraudulent transfer. This
runs contrary to the policy of the other forty plus
states as most strictly prohibit such structures in
the interest of the public good. It is unlikely they
will uphold legislation of another state if you are
opposed by a creditor in their state.
So
you want to be careful as to where you get your advice
and information in doing your estate planning and
asset protection trust planning. Consider jurisdiction
not only in where you situate your trust but pay attention
in the selection of your trustees. Part of the key
is to remove yourself from any association with the
trust itself. How you do that has every thing to do
with jurisdiction and the structures that interface
in each jurisdiction be it in State, Off shore or
in Common Law. For example you may operate a company
in state that is owned by an International Business
Corporation (IBC) that is owned by an Asset Protection
Trust /Foundation. You get the tax and licensing benefits
of being in State but your assets flow to a more favorable
tax jurisdictions and are ultimately untouchable inside
a foreign asset protection trust foundation.
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