Posted on October 1, 2012 by Greg Herman-Giddens

Illinois Ruling Strikes a Blow at Asset Protection Trusts

In Rush University v. Sessions, et al, the Illinois Supreme Court ruled that a transfer to a Cook Islands trust was per se fraudulent.   Despite the holding, since the grantor was deceased and therefore could not be held in contempt of court, the trust would probably have worked to protect the assets had the assets not been located in the U.S.  In this case, however, the trust owned millions of dollars of Illinois real estate, over which the court has jurisdiction, of course.

As explained in this Forbes article by attorney Jay Adkisson, this ruling could spell bad news for the effectiveness of domestic asset protection trusts more so than offshore trusts.  Adkisson's view:

"(1) With some exceptions, Foreign Asset Protection Trusts can be effective if the Settlor/Beneficiary and all assets are beyond the reach of the U.S. courts. So long as those two conditions prevail, contrary U.S. law probably will not be of practical benefit to the creditor. But Foreign Asset Protection Trusts might not be effective as to trust assets found in the U.S. (as here), or if the Settlor/Beneficiary remains within the contempt power of the Court.

(2) With some exceptions, Domestic Asset Protection Trusts can be effective if all of the trust assets are held in a DAPT state. But Domestic Asset Protection Trusts might not be effective as to assets held in a non-DAPT state.

(3) While not considered in this Opinion, Bankruptcy Code section 548(e) casts a dark shadow over all “self-settled trusts and similar devices” to the extent that the Bankruptcy Petition is filed within 10 years of the date of transfer.

To summarize as to Domestic Asset Protection Trusts: They “work” so long as your assets are kept in a DAPT state and you can stay out of bankruptcy for 10 years. There is an open question as to whether the courts of a non-DAPT state can compel the return of asset from the DAPT state to the non-DAPT state so that those assets are available to creditors, i.e., the application of “Anderson relief” to DAPTs."

For North Carolina residents, this means that assets held in North Carolina, especially real estate, are unlikely to be afforded much protection by either foreign or domestic asset protection trusts.  Even assets located elsewhere may at risk.  My advice for those seeking protection - plan carefully, with multiple strategies, and do so now!

 

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Posted on October 3, 2011 by Greg Herman-Giddens

Nevada Asset Protection Trust Laws Improved

Nevada’s new  Domestic Asset Protection Trust (DAPT) laws became effective October 1, 2011. One new feature is the ability to move a DAPT that was established in another state to Nevada without having to start the statute of limitations period over.

For example, say you set up a DAPT in a state where there’s a four-year waiting period for protection, where the law expressly allows a divorcing spouse to pierce through the trust, and/or  permits a pre-existing tort creditor to pierce through the trust.  You can now transfer that trust to Nevada to take advantage of Nevada's more protective laws without having to re-start the waiting period for protection to begin.

At two years, Nevada's waiting period is the shortest, and it is the only state with no "exception" creditors.  Check out Steve Oshin's Domestic Asset Protection Chart for an up-to-date comparison of DAPT jurisdictions.

DAPTs do require use of a trustee in the jurisdiction in which the trust is established, but they can be used by residents of any state. Protection against court challenges for non-residents may be somewhat uncertain, but DAPTs are increasingly popular with real estate developers, physicians, and others concerned about future creditors.  They are normally used in conjunction with Limited Liability Companies to provide another level of protection and more control to the trust grantor.

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Posted on May 22, 2007 by Greg Herman-Giddens

Nevada Offers Estate Planning Advantages

North Carolina is not known for its attractive estate planning and asset protection laws, but NC residents can avail themselves of certain out-of-state planning strategies that can provide significant estate tax savings and creditor protection.  One state that has some of the most favorable laws is Nevada.

As a write this, I'm sitting in a hotel room in Las Vegas, having just finished up a meeting with nationally known estate planning and asset protection attorney Steve Oshins, whose office is located here.  Mr. Oshins, who is published frequently in Trust & Estates magazine and Estate Planning magazine, has developed several innovative trusts and trust-related strategies, such as the Megatrust, the Inheritors Trust and the Opportunity Shifting Trust. 

I have joined Mr. Oshins' Advanced Planning Legal Network to be able to bring these same types of techniques to my clients.

Click  "Continue Reading" for a brief description of the advantages of using Nevada laws for estate planning.

Nevada Estate Planning Strategies:

  • Limited Liability Company - Nevada has a law that limits the remedy of a creditor to a "charging order," and is otherwise attractive from an asset protection and estate tax planning standpoint.  Nevada also permits "Series" LLCs, which are bascially one main LLC with a "sub" LLC for each separate asset.  It provides the same protection as having a separate LLC for each asset, but avoids the additional cost and complexity of multiple LLCs.  As with all states, a local resident agent is required.
  • Dynasty Trust - Nevada now has a 365 year statute rule against perpetuities, which means that a trust can last for 10 generations or so.  In most states, including North Carolina, trusts can last for only about 100 years.  Keeping the assets in trust for a long period of time provides creditor protection and avoids estate tax for one's heirs, ensuring that even modest wealth ($1-2 million) can grow into a lasting legacy.  At least one trustee of the trust must be a NV resident or bank or trust company.
  • Asset Protection Trust  - Nevada law allows one to establish a trust for one's own benefit (called "self-settled trust) that is protected from most creditors after just two years.  Only a few other states allow such trusts, and these states require a longer period of time to elapse before the protection is effective.  Just like with a Dynasty Trust, a NV trustee is required.

Nevada also has no income or estate tax.

 

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