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Asset Protection Trusts
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Asset Protection Trusts, 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 - Domestic Asset Protection
Trusts 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 Domestic Asset Protection Trusts
Domestic
Asset Protection Trusts was 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 protect trusts
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 trusts. 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 consider the concept of
operating companies in state owned by International
Business Corporations (IBCs) owned by Asset Protection
Trusts. 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
asset protection trusts.
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