Articles Posted in Offshore Trusts

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

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

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.
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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.
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