One of the inevitable problems facing suspects in a criminal proceeding is the availability of funds to pay for a legal defense. Frequently, applicable laws authorize government seizure of defendants’ assets which effectively impoverishes them. Obtaining private counsel then becomes problematic. However, the Supreme Court recently decided in Luis v. United States that criminal defendants should be allowed to use untainted assets; that is, assets unrelated to their alleged crimes, to pay for their criminal defense. Continue Reading
We have become so used to it that we no longer give it any thought. There is no requirement under Michigan law (as well as most other states’ laws) to disclose the beneficial owners of limited liability companies and corporations. Lawyers, formation agents and business owners routinely sign Articles of Organization as organizers and Articles of Incorporation as incorporators but are under no obligation to disclose their relationship to the entity being formed nor the entities’ beneficial owners. In many cases, such signers never become a beneficial owner or have any active involvement in the entity. Will this regime of anonymity end if H.R. 4450, the Incorporation Transparency and Law Enforcement Assistance Act (the “Bill”), is enacted? Continue Reading
It is not surprising that in the world of asset protection planning we have written extensively about charging orders. This is the collection remedy employed by creditors against debtors owning a membership interest in a limited liability company or a partnership interest in a partnership. These laws are fairly consistent throughout the United States and provide, in the case of a member of an LLC, that a court of competent jurisdiction may charge the member’s interest with payment of the unsatisfied amount of the judgment plus interest. The charging order works in this fashion. Assume the LLC has 3 members each owning 1/3 of the company and Member A has a judgment against him for $10,000. The LLC is making a $6,000 distribution ($2,000 to each member). If there is a charging order in effect against Member A’s interest, his $2,000 distribution must be paid directly to the creditor. Future distributions due Member A will likewise be paid directly to the creditor until the judgment is paid in full. Continue Reading
There is the understandable perception that by establishing a trust for your beneficiary which contains substantial restrictions on distributions and gives a trustee discretion to determine the timing and amount of distributions that creditors of the beneficiary cannot access trust assets. However, in the recent Arizona case of Duckett v. Enomoto, the IRS was able to attach a federal tax lien to assets held in a discretionary support trust. Continue Reading
Asset protection attorneys who are involved in defending against post judgment discovery and related collection activity have long been aware that debtors are required to submit to creditor examinations and provide information. Nonetheless, many debtors refuse to comply with court orders, transfer assets to third parties in defiance of such orders and take whatever actions they deem necessary to frustrate the efforts of the collection attorney. It is at this stage that the collection attorney will ask the court to issue a permanent injunction ….. a very powerful equitable tool used by the court to impose its will on the recalcitrant party. Continue Reading
Asset protection lawyers are almost universally in agreement that assets in an irrevocable spendthrift trust established by a third party (often a parent) for the benefit of a beneficiary (typically a child) are not available to satisfy the debts and liabilities of the beneficiary. Indeed, that is one of the principal reasons for including spendthrift language in the trust. And case law is clear that settlors have every right to place their assets outside the reach of their beneficiaries’ creditors. Compare this traditional planning with the self-settled spendthrift trust – the typical domestic asset protection trust – where under laws of certain states a settlor is entitled to convey the settlor’s own assets to a trust which is not reachable by the settlor’s creditors.
In a recent Massachusetts divorce action, Pfannenstiehl v. Pfannenstiehl, the marital estate was found to include the husband’s beneficial interest in an irrevocable spendthrift trust established by his father. Because the trust was not a party in the divorce case, the husband was ordered to make 24 monthly payments to his ex-wife insuring the ex-wife received her 60% share of the marital estate which included the value of the husband’s interest in the trust. Continue Reading
For a period of time, asset protection planners were quite concerned (and rightly so) about whether single member limited liability companies would be treated the same as multi-member LLC’s if a member’s creditor sought to reach the member’s interest in the LLC. While there was general agreement that in the case of multi-member LLC’s a creditor’s sole remedy was to obtain a charging order, such was not the case with single member LLC’s. Indeed, there was much commentary and analysis in the asset protection world following the Olmstead and Albright cases, where courts decided that single members of LLC’s were not entitled to the same protections as LLC’s with more than one member.
Some states then took action to clarify their positions on single member LLC’s and provide that the charging order remedy is the sole remedy for creditors of LLC members irrespective of whether the LLC is owned by one or several members. In an amendment to the Michigan Limited Liability Company Act in 2012, the legislature made it clear that single member LLC’s will be treated no differently than multi-member LLC’s if creditors come calling. So, if that is the situation today, why can’t asset protection planners in Michigan feel comfortable that a single member LLC is as protected from creditors as one with multiple members. Continue Reading
Background: Richard and wife Lois entered into a trust in 1986. They were the co-trustees and sole beneficiaries of the trust during their lifetimes. It contained a standard spendthrift clause. The trust could be amended or revoked only by the joint action of both Richard and Lois. Either Richard or Lois, acting alone, is considered a Managing Trustee. In other words, either one acting alone could exercise any power granted to a trustee under the trust.
Richard filed for bankruptcy in 2012. Richard disclosed the trust on his bankruptcy asset list but claimed that the trust assets were not property of the trust estate and that the spendthrift provision in the trust was effective to block a creditor from reaching trust assets. The trustee brought a summary judgment motion claiming that (i) the spendthrift provision of the trust is not enforceable under Michigan law, (ii) the trust is against public policy and unenforceable because it is a self-settled trust designed to place the assets outside the reach of the settlor’s creditors and (iii) the assets of the trust should be included in the bankruptcy estate. The trustee sought a declaratory judgment and order for surrender of the trust assets. Continue Reading