Clients frequently seek advice as to whether they can disclaim an inheritance in order to avoid the inherited property being reached by their creditors. The issue faced by the asset protection planner is whether a disclaimer, made with the intent to hinder, delay or defraud creditors, can be viewed as a fraudulent transfer.
Continue reading "CAN A DISCLAIMER BE A FRAUDULENT TRANSFER?" »
I recently began settlement and workout negotiations with a bank for a client where the debt on a piece of commercial real estate is $4million and the current value is $2million. The client was referred to me by another attorney who was aware of my asset protection planning experience and wanted to learn if there was still time to implement any asset protection planning in order to minimize the client's exposure to the bank. The client is married, and the specific nature of his situation enabled me to position his assets in a way that makes them unreachable by the bank. After this initial phase of the client's planning, I was asked to conduct the settlement and workout negotiations. As it turned out, the asset protection planning, as the initial phase in the process, provided my client with very valuable leverage in our negotiations with the bank. Despite the bank pressuring my client to access funds which the bank could not reach, with the objective of my client using those funds to pay a discounted lump sum settlement, we were able to negotiate a much steeper discount because of the structure we had implemented for the client.
The Bloggers are having a heyday. The first case to test Section 548(e) of the Bankruptcy Code, In re Thomas William Mortensen, was decided in an Alaskan Bankruptcy court on May 26, 2011. The court held that Mr. Mortensen's transfer to an Alaskan asset protection trust in 2005, while Mr. Mortensen was solvent, which occurred within the statutory 10 year period prior to the filing of his bankruptcy petition, was made with actual intent to hinder, delay or defraud his future creditors. The Judge concluded that a settlor's expressed intention to protect assets placed into a self-settled trust from a beneficiary's potential future creditors can be evidence of an intent to defraud. On this basis he allowed Mortensen's creditors to reach the assets of the trust. Commentators are weighing in on the effect of this decision on Domestic Asset Protection Trusts. Some are predicting that the decision may be the death warrant for this planning strategy. This author believes that the decision should have only a minor effect on the continued use of DAPT's.
When clients come to see me for asset protection planning, it is clear that the client has preconceived notions about offshore trusts that are integral to some type of abusive tax shelters or other nefarious activity. This is not surprising. The media recently reported about a man from Niagara Falls, NY who was sentenced to 36 months in prison for selling and promoting an abusive tax shelter scheme that involved offshore trusts and domestic trusts. It is stories like this one that confuse many clients and give them unnecessary concerns about what asset protection planning is all about. As I always tell my clients, the asset protection planning we do for our clients is not designed to shelter income or avoid the payment of income taxes; instead it utilizes legitimate structures with the simple goal of helping these clients legally position their assets in a way which makes them less vulnerable to creditors.
Commentators are coming up with all sorts of clever ways to take advantage of the new $5million gift exemption that was part of the TRA 2010 legislation. Indeed, those of us who practice extensively in the asset protection planning arena have our own preferences and, not surprisingly, they involve the use of domestic asset protection trusts.
Continue reading "Using the $5million Gift Exemption to Create Creditor Protected Safety Net" »
Although their styles may differ, most asset protection planners will approach their initial client meetings in much the same way. We will listen to the client's concerns and determine if the client has existing or identifiable future creditors or if the client, with no creditor issues at all, simply desires to be prudent and adopt a plan that will protect his assets from unknown future creditors. We will also carefully review the client's assets and income streams to ascertain which ones are free from creditor claims and which may be vulnerable.
Continue reading "Another Asset Protection Strategy...But Does It Work?" »
Inevitably, in connection with developing an appropriate strategy for a client who is seeking asset protection planning, the issue of fraudulent transfers is front and center. An experienced Michigan asset protection planning practitioner will be able to quickly identify that certain proposed transfers will indeed violate the Michigan Uniform Fraudulent Transfer Act ("UFTA").
Continue reading "Asset Protection, Fraudulent Transfers and Bankruptcy" »
A client in financial distress is often searching for any possible opportunity for protecting assets from her creditors. Having been advised of the applicability of the Fraudulent Transfer Act, the client understands that gifts to family members or sales at below market prices are likely to be challenged as fraudulent transfers. In general, a fraudulent transfer is one made with the intent to hinder, delay or defraud a creditor. However, intent can be also be found where the debtor transfers assets without receiving reasonably equivalent value and intends to incur debts beyond her ability to pay. In addition, a transfer is fraudulent if the debtor transfers assets without receiving reasonably equivalent value and is insolvent at the time or becomes insolvent as a result of the transfer. If a transfer is found to be fraudulent, the creditor has a number of remedies including avoidance of the transfer or attaching the transferred property.
Many traditional asset protection planning opportunities available to persons not in financial distress cannot be used by distressed debtors because of the Fraudulent Transfer Act. Sometimes, however, a family's unique situation can justify a transfer that otherwise might have been considered fraudulent. We occasionally encounter distressed debtors with children or are suffering from chronic physical or mental disabilities...autism, cystic fibrosis, muscular dystrophy and so forth. It is not unusual for a parent or grandparent, as part of his or her estate planning, to set up a Special Needs Trust for such child. This type of trust can be funded at death or inter vivos (during life). This author submits that if a distressed debtor funds a Special Needs Trust with the intent to further the interests of the child and to insure adequate funds exist for such child's needs beyond those provided by governmental benefits, and not with the intent to hinder, delay or defraud creditors, such transfer may be permissible.
Continue reading "Asset Protection Planning Using Special Needs Trusts" »
Often a new client will contact me disclosing at our initial meeting significant pending creditor exposure. He will advise me that other lawyers told him that there is nothing they can do for him and that any strategy or structure that might be considered would likely constitute a fraudulent transfer. Therefore, not only would the creditors be able to avoid the transfer but the attorney could face ethical issues if she assisted the client with the fraudulent transfer. So, is there any asset protection available to someone in this position.
If the circumstances permit, a possible approach might be for the debtor to make a loan to a third party...often a member of his family. By doing so, the debtor converts liquid assets that would be readily available to the creditor's collection efforts to a promissory note. The terms of the promissory note can be such that the creditor, if it executes against and becomes an assignee of the note, is willing to accept a discount from the face amount if the borrower pays cash rather than wait for the note to be paid in accordance with its terms. If this occurs, the debtor will have accomplished the seemingly impossible...getting the creditor to accept an amount less than debtor's available liquid assets.
Continue reading "Using Loans As An Asset Protection Planning Technique" »
Dec 12, 11 03:42 PM CAN A DISCLAIMER BE A FRAUDULENT TRANSFER? Clients frequently seek advice as to whether they can disclaim an inheritance in order to...
Nov 11, 11 02:19 PM ASSET PROTECTION PLANNING CAN PROVIDE LEVERAGE IN SETTLEMENT AND WORKOUT NEGOTIATIONS I recently began settlement and workout negotiations with a bank for a client where the...
Nov 3, 11 10:53 AM DOMESTIC ASSET PROTECTION TRUSTS DON'T MERELY SURVIVE BUT THRIVE DESPITE MORTENSEN The Bloggers are having a heyday. The first case to test Section 548(e) of the...
Oct 24, 11 02:14 PM Abusive Tax Schemes Often Cause Confusion in the Asset Protection Planning Arena When clients come to see me for asset protection planning, it is clear that the...
Apr 12, 11 02:46 PM Using the $5million Gift Exemption to Create Creditor Protected Safety Net Commentators are coming up with all sorts of clever ways to take advantage of the...
Sep 29, 10 09:10 AM Another Asset Protection Strategy...But Does It Work? Although their styles may differ, most asset protection planners will approach their initial client meetings...
