Delaware Court Says Domestic Asset Protection Trust is Protected

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

Delaware Domestic Asset Protection Trust

Delaware is one of the leading Domestic Asset Protection Trust (“DAPT”) jurisdictions, only behind the two guerrillas in the industry—Nevada and South Dakota—and arguably also behind up-and-comer Tennessee.

This recent case involved a Delaware DAPT.

The Facts of the Case

In a case before the Court of Chancery of the State of Delaware, In the matter of the CES 2007 Trust, C.A. No. 2023-0925-SEM, Can IV Packard Square, LLC (the “Petitioner”) sought an order from the Court either declaring the spendthrift provision in a DAPT created under the laws of the State of Delaware called the CES 2007 Trust (“the Trust”) void, or invalidating the Trust altogether. In doing so, the Petitioner argued that the Trust is a “sham,” and more specifically, a shell to prevent Craig Schubiner (the “Respondent”) from paying to the Petitioner a judgment awarded in Michigan.

On or around December 16, 2019, a Michigan Court entered a nearly $14 million judgment in favor of the Petitioner and against the Respondent.

The Respondent has maintained that he has no personal assets to satisfy the Judgment, and it remains unpaid.

The Trust’s assets include a ninety-percent interest in three Delaware limited liability companies, two of which own real property located in Michigan and the other owns real property located in Colorado.

The Respondent is the manager of all three LLCs.

Terms of the Trust

The Respondent established the Trust, as grantor, on April 30, 2007, naming the U.S. Trust Company of Delaware as trustee. After a fee dispute more than a decade after the trust was established, U.S. Trust Company of Delaware was able to resign and was replaced by First State Trust Company.

The trustee’s power came alongside power that the Respondent: (1) retained for himself as the “Advisor” with “full power to manage the investments of the trusts” “in a fiduciary capacity[,]” and (2) gave to his brother as the “initial Trust Protector,” to remove the trustee, appoint a successor trustee, appoint a successor advisor, and appoint co trustees or co-advisors.

Within this trust agreement, the Respondent set two limitations: (1) the trustee retained sole and absolute discretion at any time to distribute the net income and the principal of the Trust as the trustee determines for the benefit of the beneficiaries, and (2) the Respondent, as the grantor, barred himself from acting as trustee.

By its terms, the Trust was set up for the benefit of its beneficiaries, namely the Respondent’s wife (if any), parents, and issue thereof, if alive. The parties agreed that the Respondent was currently unmarried with one minor daughter, one living parent, and two brothers. The trustee bears sole responsibility and discretion regarding distribution to the beneficiaries.

The Trust Assets were Protected

The Petitioner argued that the Respondent was the de facto trustee because he was serving as manager of the three LLCs. In doing so, the Petitioner argued that the Respondent’s retention of control under the Trust’s agreement undermines the trustee’s authority.

The Court disagreed and said:

“As advisor, the Respondent has the power to manage investments and delegate authority in accordance with his fiduciary duties. Such is in line with what the Act, which permits the settlor/grantor to appoint advisors and protectors with rights, including but not limited to: (1) removing the trustee and appointing a new qualified trustee, and (2) directing, consenting to, or disapproving distributions.”

The Petitioner also argued that the Trust was not a qualified DAPT under Delaware’s statutes. However, the Court shot that argument down too.

Therefore, the trust assets in the Trust were protected and the Petitioner was unable to obtain payment.

DAPT Owning an LLC or LP Interest

It is not uncommon for a DAPT to own interests in the settlor’s LLC or LP.

There is absolutely nothing wrong with the settlor serving as manager of an LLC or as general partner of an LP that is owned by a DAPT. The settlor of a DAPT can serve as investment trustee of the DAPT, so why would there be an issue with the settlor managing an LLC (or LP) that is owned partially by a DAPT?

The Court got this right!


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ABOUT THE AUTHOR

Steven-Oshins43721143

Steven J. Oshins, Esq., AEP (Distinguished)  is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020, 2022 and 2024. He was named the “Estate Planning GOAT (Greatest Of All-Time)” by an internet poll conducted by the Ultimate Estate Planner in March of 2024. He can be reached at 702-341-6000, ext. 2 or [email protected]. His law firm’s website is www.oshins.com

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