Michigan enacted the Qualified Dispositions in Trust Act (the “Act”) effective March 8, 2017 becoming the 17th state to enact asset protection trust legislation. A more general description of the Act was provided in an earlier blog. The purpose of this blog is to point out how the drafters of this legislation very deliberately included provisions geared to blocking creditors’ access to assets held in a Michigan Asset Protection Trust (hereafter “MAPT”). Continue Reading

A 2016 Supreme Court case, Husky International v. Ritz, holds that if a debtor makes a fraudulent transfer, even if several years prior to filing the petition, any debt related to such fraudulent transfer will be nondischargeable. Section 523(a)(2)(A) of the Bankruptcy Code denies a debtor’s discharge of any debt obtained by false pretenses, false representations or actual fraud. There had been a split among the Circuits over whether “actual fraud” (e.g., a fraudulent transfer) required that a false representation be made to the creditor before a discharge would be denied. The Court in Husky concludes that as an exception to discharge, it is not necessary for the debtor to have incurred the debt based on a deception or fraud perpetrated on the creditor; instead, a fraudulent transfer involving no contact with the creditor is sufficient to give rise to the exception. Continue Reading

For those of us attorneys who have devoted substantial time to and assisted clients with asset protection planning over the years it is welcome news that Michigan has adopted the Qualified Dispositions in Trust Act, effective February 5, 2017. Continue Reading

The Seventh Circuit Court of Appeals has sustained a Bankruptcy Court decision holding that annuities qualifying for income tax deferral under Section 72 of the Internal Revenue Code (“IRC”) are exempt assets and therefore cannot be executed upon by the debtor’s judgment creditors. Continue Reading

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