Illinois Ruling Strikes a Blow at Asset Protection Trusts
- 11-07-2012
12:36
PM - Author:
In Rush University v. Sessions, et al [enhanced version available to lexis.com subscribers], 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!
Gregory
Herman-Giddens, JD, LLM, TEP, CFP, Attorney at Law (NC, FL, TN),
Board Certified Specialist in Estate Planning and Probate Law (NC). North
Carolina Registered Guardian, Solicitor, England and Wales. Follow
his blog, North Carolina Estate
Planning Blog..
….
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