Toni 1 Trust v. Wacker: A Rare Domestic Asset Protection Trust Case

By Steven J. Oshins, Esq., AEP (Distinguished)

To this date, there still isn’t even one DAPT case where a creditor reached into the trust and grabbed assets in a non-bankruptcy, non-fraudulent conveyance scenario.

Let me repeat this:  To this date, there still isn’t even one DAPT case where a creditor reached into the trust and grabbed assets in a non-bankruptcy, non-fraudulent conveyance scenario.

Toni 1 Trust v. Wacker

A new court decision in the Supreme Court of Alaska was issued on March 2nd.  A handful of asset protection planners who promote foreign asset protection trusts wrote articles and blogs about it claiming that this is the end of DAPTs and that everybody should use FAPTs.  As usual, the case said nothing remotely close to this.

Specifically, in Toni 1 Trust v. Wacker, 2018 WL 1125033 (Alaska, Mar. 2, 2018), the Supreme Court of Alaska ruled on an Alaska statute purporting to grant the State of Alaska exclusive jurisdiction over fraudulent transfer actions against an Alaska trust.  The Court ruled that it cannot.

The specific statute is Alaska Statute 34.40.110(k) which provides in part that Alaska courts have “exclusive jurisdiction over an action brought under a cause of action or claim for relief that is based on a transfer of property to a [self-settled spendthrift] trust” — a class that obviously includes fraudulent transfer actions.”

Toni 1 Trust v. Wacker addresses one primary issue:  Which state’s fraudulent transfer rules apply when the fraudulent transfer issue is litigated in another state’s court?  The court doesn’t even contemplate the question of whether a DAPT set up by a resident of a non-DAPT state can effectively protect its assets from the settlor’s creditors.  There was no discussion of this issue.  Zero.  Zilch.  Nada.

Use a Hybrid DAPT Instead of a Regular DAPT Anyway!!!

Even though regular DAPTs have so far worked beautifully, since there’s still so little case law saying yes, it works or no, it doesn’t work, it is prudent to be more creative and use a Hybrid DAPT instead.

A Hybrid DAPT is a third-party trust in which a person sets the trust up for the benefit of the settlor’s spouse and the descendants.  A Trust Protector can be added who has the power to add and remove beneficiaries, including adding the settlor (and removing the settlor).

Only in an extreme emergency will the settlor ever actually be added as a beneficiary.  And only if the coast is clear.  As long as the settlor isn’t added, the trust is a third-party trust that isn’t susceptible to the traditional DAPT attacks.

Even though regular DAPTs have enjoyed an unblemished record in a non-bankruptcy, non-fraudulent transfer scenario, still, why, why, why do planners continue to set up regular DAPTs for residents of non-DAPT states?  Why take the risk if there is a more protective alternative?  Certainly, in some situations there is no viable option or the client makes the choice to take the added risk, but still, that should be the small minority of such trusts.


RELATED EDUCATION

Join me on Tuesday, May 1, 2018 at 9am Pacific Time (12pm Eastern Time) for a 60-minute presentation where I will go over the Hybrid DAPT, how it works, why you should consider this strategy with your clients, and much more.  For more information and to register, click here.


ABOUT THE AUTHOR

Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at [email protected] or at his firm’s website, www.oshins.com.

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