Thursday, October 30, 2014

82980840In the case, In re Indenture of Trust dated January 13, 1964, the Settlor’s grandson Milton learned that, just like on the playground, there are no take backs, even when the trust for his benefit contained a spendthrift provision that prohibited voluntary and involuntary transfer of his interest. As the blog, Dumb Little Man Tips for Life, describes the rule, “Once you give something, you can’t ask for it back. Whether it’s a physical gift, a gift of money, or a gift of time, asking for a takeback is pointless. It shows bad faith and makes you untrustworthy.”

While it may seem counter-intuitive to the purpose of a spendthrift provision, in certain circumstances, it may be desirable for a beneficiary of a spendthrift trust to make an assignment of his or her interest in the trust to accomplish other estate planning goals.

The trust at issue was created for the benefit of the Settlor’s three grandchildren, Milton, Steven and Carrie, and included a spendthrift provision prohibiting voluntary and involuntary transfer of a beneficiary’s interest in the trust. In 2000, Milton assigned his entire interest in the trust to his siblings, as trustees of a continuing trust for the benefit of their children, and the trustee distributed $75,000 to Milton in return for this assignment. (more…)

Friday, June 28, 2013

The Bankruptcy Court for the Western District of Washington has now joined other states in invalidating transfers to a self-settled trust on a variety of grounds in the latest asset protection self settled trust case, In re Huber, 2012 Bankr. LEXIS 2038 (May 17, 2013). The Trustee in this case successfully obtained a summary judgment invalidating Donald Huber’s transfers to the Donald Huber Family Trust made shortly before he filed bankruptcy, on the grounds that: (1) the Trust was invalid under applicable state law, (2) Huber’s transfers were fraudulent under § 548 (e)(1) of the Bankruptcy Code, and (3) Huber’s transfers were fraudulent transfers under the Washington State Fraudulent Transfers Act.

Donald Huber was a real estate developer who had been involved with real estate development in the State of Washington for over 40 years. He resided in Washington, his principal place of business was Washington, and almost all of his assets were located in Washington. In 2008, due to the economic downturn, particularly in the real estate market, Huber sought to raise additional cash for his business, but was unsuccessful in that endeavor. He fell behind in most of his loans and by mid 2008 most of his creditors were threatening foreclosure and litigation. (more…)

Thursday, June 27, 2013

What is the extent of the settlor’s intent required to find that a transfer to an irrevocable asset protection trust is a transfer in fraud of creditors? If the trustee has been directed to pay the settlor’s current creditors, is that sufficient to negate a finding that the transfer to the trust was a fraudulent transfer? That was what the Court was called on to decide in United States v. Spencer, 2012 U.S. Dist. LEXIS 142195 (October 2, 2012).

In this case, Anthony Spencer (“Spencer”) pleaded guilty to 37 criminal tax offenses and was sentenced to 63 months in the Federal penitentiary. Just before Spencer’s report date, the IRS sent him the “Tax Examination Changes” showing tax due of just under $500,000. Shortly thereafter and just before he began serving his sentence, Spencer received a $600,000 divorce settlement payment from his former wife, which he placed in an account titled jointly with his accountant and co-defendant in this case, Patrick Walters (“Walters”). Walters then used $495,000 from this account to create and fund the Spencer Irrevocable Trust (“Trust”), of which Walters was serving as sole Trustee. Spencer provided Walters with written instructions regarding the Trust administration, directing Walters as Trustee “to take my entire worth and invest, then reinvest it, and do this over and over till you either make me enough to pay the IRS or lose it all trying.” The Trust instrument designated Spencer as the beneficiary, to receive the residue of the Trust once the income tax liability had been paid, with the payment to be made in four years. (more…)

Wednesday, June 26, 2013

In a case of first impression, the Illinois Supreme Court has ruled in Rush University Medical Center v. Sessions, 2012 WL 4127261 (Ill., Sept. 20, 2012), that a self settled spendthrift trust is void as to the settlor’s creditors, so that Rush University Medical Center (“Rush”) was entitled to recover the unfulfilled pledge made by the settlor from the trust assets after the death of the settlor. The question of the relationship between a state’s law regarding self settled spendthrift trusts and its Fraudulent Transfers Act is again examined by this Court, but with a different twist than with the Kilker court.

Here, Robert Sessions (“Sessions”), created the Sessions Family Trust (“Trust”) in the Cook Islands in 1994, and transferred to the trust, among other property, certain real property located in Illinois, which at the time of his death had a value of about $2.7 Million. The Trust authorized distributions from income and principal to Sessions on a broad standard, named Sessions as Trust Protector, authorized him to change beneficiaries by Will, and contained a spendthrift provision prohibiting the payment of his creditors or the creditors of his estate. (more…)

Tuesday, June 25, 2013

Is the transfer of assets to a revocable trust by a terminally-ill settlor a fraudulent transfer or a constructively fraudulent transfer under the District of Columbia Uniform Fraudulent Transfer Act (DC-UFTA)? Can a bank that is a decedent’s creditor enjoin the decedent’s widow or other trust beneficiary from selling assets she received from the decedent? Can a decedent’s creditor collect a decedent’s debt from the decedent’s widow and beneficiary of the decedent’s revocable trust? These are among the issues the Federal District Court in the District of Columbia decided in TD Bank, N.A. v. Pearl, 891 F. Supp. 2d 103 (D.D.C., Sept 19, 2012). What is amazing is that this case was filed, given the outcome and the somewhat humorous dress-down the Court gave the bank.

In September of 2010, Mr. Pearl’s company borrowed $17.5 Million in an unsecured loan from TD Bank, N.A. (“Bank”), and Mr. Pearl guaranteed the loan. About a year after the loan was closed, Mr. Pearl was diagnosed with late stage lung cancer, causing Mr. Pearl to get his affairs in order, which included the creation of a revocable trust, with his wife as the beneficiary, funded with his interest in the company. At the same time, Mr. Pearl sought to restructure the loan with the Bank. The opinion reflects that the terms of the loan restructuring were finally agreed to and the new loan was closed with Mr. Pearl about 9 days after he died (although this may have been a typo in the opinion). In the paperwork documenting the loan restructuring, Mr. Pearl represented and warranted that “he had good and marketable title to all of his assets.” (more…)

Monday, June 24, 2013

The California Court of Appeals in Kilker v. Stillman, 2012 WL 5902348 (Cal. App. 4 Dist., Unpublished), Nov. 26, 2012, found that a fraudulent transfer had occurred when a California resident created an asset protection trust in Nevada, even though the trust was created several years prior to the litigation giving rise to the judgment creditor.

Here, the defendant, Frank Stillman (“Stillman”), a soil engineer, created the Walla Walla Group Trust in 2004 and funded the Trust with virtually all of his assets, for “asset protection” at a time when he had no known current creditors, “because soil engineers are frequently sued.” The initial trustee of the trust was the Nevada accountant who helped Stillman set up the trust, but Stillman had removed the initial trustee and replaced him with a trusted employee. Even though Stillman was not the Trustee, he managed all of the trust assets, which he used to pay his own personal expenses even though Stillman’s brother was the named beneficiary of the Trust. Thus, notwithstanding the actual provisions of the Trust, Stillman handled the Trust as if it were his alter ego. (more…)