Asset Protection Law Journal

Asset Protection Law Journal

Helping individuals and businesses take advantage of asset protection laws

2018 Year-End Review: Part Four: Georgia Vetoes DAPT legislation

Posted in Asset Protection Strategies/Alternatives, Benefits of Asset Protection Planning

In April of 2018, the Georgia legislature presented to Governor Nathan Deal HB 441 for signature, which permitted the use of DAPTs in Georgia. The statute contained many of the similar flavors of other DAPT statutes, with a few notable exceptions like allowing tort creditors to reach assets in the DAPT. A few days after being presented with HB 441, Governor Deal vetoed the bill.

In his press release, the Governor cited potential unintended consequences of the bill and that the state of Georgia wished to ensure that the creditor-debtor relationship is equitable and facilitates economic prosperity and mobility. The Governor thus concluded that DAPTs without proper safeguards have the potential to negatively impact the creditor-debtor balance.

Taking a step back, it is interesting that the Governor cites the potential to disturb the debtor-creditor balance for his veto. Much of the criticism against DAPTs fixates on the thought that DAPTs allow a debtor to “stiff” a creditor, and it would appear the Governor bought that line of criticism. However, a cursory review of DAPT case law shows that time and time again, DAPTs are unwound at even the faintest hint of fraud. Indeed, fraudulent transfer law already protects against a debtor stiffing his or her creditors, so the Governor’s criticism seems misplaced. It will be interesting to follow whether DAPT legislation is introduced again in Georgia and presented to incoming Governor Brian Kemp.

2018 Year-End Review: Part Three: Embassy Healthcare v. Bell

Posted in Asset Protection Strategies/Alternatives, Benefits of Asset Protection Planning

Our last case law discussion comes to us from the Ohio Supreme Court in Embassy Healthcare v. Bell. This case provides a great illustration of facts that many may one day encounter: a nursing home sought payment from a surviving spouse of a decedent spouse’s outstanding bill. But where this case is particularly interesting is the method by which the nursing home sought payment.

Husband was admitted to Embassy Healthcare nursing home. Wife signed the admission agreement as a “responsible party.” The agreement contained a clause explicitly stating that the responsible party is not personally liable for the resident’s debts. Husband dies, and 6 months and 3 days later, nursing home sent a letter to Wife, as fiduciary, indicating they were asserting a claim for an unpaid balance of $1,678 (but again reiterated they were not seeking payment from Wife, only the estate of Husband). No estate was ever opened for Husband. It is critically important that the nursing home sent a letter to Wife 6 months and 3 days later, because Ohio law requires creditors to assert all claims against a decedent within 6 months, or else the claim is forever barred.

Roughly 7 months after their first letter, nursing home sues Wife individually for the unpaid balance. Nursing home argued that an obscure provision in Ohio law required Wife to pay the outstanding balance. The provision is called the “necessaries doctrine” which essentially requires a married individual to provide necessary care for their spouse when their spouse cannot care for himself/herself. But additionally, the law dictates that if a third party provides the care a spouse is required to provide, the third party can receive reimbursement from the spouse that should be providing care. Thus, the nursing home argued they provided necessary care to Husband that Wife was obligated to provide, and as a result Wife must reimburse nursing home.

The case wound its way through the Ohio courts, and the Ohio Supreme Court held that before attempting to seek reimbursement from the spouse, nursing home was required to present a claim against the Husband’s estate and demonstrate Husband could not pay for the care before liability for the balance could shift to Wife. However, because nursing home failed to timely present the claim within 6 months of the date of death, their claim was barred against both the estate and the spouse.

The Ohio Supreme Court is thus establishing a bright line rule: creditors must present a claim to the estate of the decedent spouse before a creditor can, in any way, attempt to collect from the surviving spouse under the doctrine of necessaries. Accordingly, executors, spouses, and attorneys should all be mindful of both the 6 month claims window and the requirement that a creditor present a claim first before they can sue a spouse individually. But perhaps most importantly, this case illustrates the creative methods creditors will use to seek payment of their claims.

2018 Year-End Review: Part Two: Toni 1 v. Wacker

Posted in Asset Protection Strategies/Alternatives, Benefits of Asset Protection Planning

Our second decision comes from the Supreme Court of Alaska. This decision is a core illustration of the potential problems with establishing a domestic asset protection trust (DAPT) for a resident of a state that does not allow DAPTs.

The case involves a lawsuit between the Wacker family and Tangwall family. After litigation between the families, a series of default judgments were issued against the Tangwall family in Montana state court. As the last of the default judgments came down, the Tangwalls transferred their Montana real estate into an Alaska DAPT. The Wackers alleged the transfer was fraudulent and sued to unwind the transfer to the Alaska DAPT. In response to the suit challenging their transfer, the Tangwalls argued that Alaska law (Alaska Statute 34.40.110) mandated that any fraudulent transfer actions against an Alaska DAPT must be brought in Alaska. The Alaska Supreme Court agreed in its reading and indicated that the statute did purport to grant exclusive jurisdiction to Alaska Courts to hear fraudulent transfer claims against Alaska DAPTs.

However, the Court found that Alaska cannot limit the scope of other states’, or of a federal court’s, jurisdiction. The Court relied on a 100 year old Supreme Court precedent as relevant authority in its holding. Accordingly, the Court held that the Tangwalls could be sued in Montana state court to unwind their (pretty clearly) fraudulent transfer.

In examining this case, we again see that a creditor’s principal weapon against a DAPT is unwinding the transfer of property to the trust as fraudulent. And furthermore, we gain from Toni 1 that a debtor with property in a Non-DAPT state cannot establish a DAPT in some distant state like Alaska and force a creditor in their home state to bring a fraudulent transfer action in the state where the DAPT resides. Accordingly, clients and attorneys should again be wary of both a) attempting to use a DAPT when claims already exist, and b) establishing a DAPT for a non-DAPT state resident.

2018 Year-End Review: Part One: In re Olson

Posted in Asset Protection Strategies/Alternatives, Benefits of Asset Protection Planning

Part One: In re Olson

Part one of our 2018 asset protection year-end review begins with the case of In re Olson. This case is yet another reminder that it is critically important to engage in asset protection planning before you have a creditor problem.

The decision comes to us from a U.S. District Bankruptcy Court in California. Olson was married to a NASA engineer who formed a startup company that sought to specialize in surveying for oil using an airplane and other specialized technology. The startup received hundreds of millions of dollars in investor capital, but when the price of oil collapsed, so too did the company. As a result of the collapse, Olson was served with a lawsuit from a creditor. After being served, she transferred $4.6 million in assets into a Cook Islands trust.

The creditor received a judgment for $6 million against Olson, and after years of legal maneuvering, Olson declared bankruptcy. She then directed the Cook Islands Trustee to change the name of the trust and reported to the Bankruptcy Court that the trust under its old name did not exist and had no assets. After the Bankruptcy Court ordered she repatriate the assets, Olson used specific language to signal to the Cook Islands Trustee she was under duress when she requested the Trustee repatriate the assets. When the Bankruptcy Court found out about this, the Court found her in contempt and sentenced her to jail.

However, Olson held out. She remained in federal jail as weeks turned into months and months turned into a year. Sensing a stalemate, the bankruptcy trustee struck a deal with Olson: repatriate the assets, and the trustee would allow 20% (about $960,000) to go to Olson’s children and the remainder would go to the creditor. The Bankruptcy Court approved the deal, but as one might imagine, the Creditor was less than pleased with almost $1 million dollars going to Olson’s children. The Creditor appealed the decision to the federal District Court.

The District Court reversed the bankruptcy court’s approval of the deal. The District Court attacked the Bankruptcy Court’s reasoning and held that the Bankruptcy Court “clearly believed it had some equitable duty to approve the settlement after Olson relied on the deal and repatriated the assets.” The District Court held that the bankruptcy court failed its fundamental duty of being independent.

In looking at the case, a number of issues jump out. But paramount among them is one of timing, which we talk about again and again in asset protection planning. Olson waited until after being served with the creditor lawsuit to fund the Cook Islands trust, and as a result her transfer to the trust was clearly fraudulent. If she had transferred the assets prior to undertaking the startup, the creditor would have had much less ammunition to attack the transfer. But when the transfer of assets is made to a Cook Islands trust after notice of a lawsuit, one should expect to either repatriate assets or be held in contempt.

2018 Year-End Review

Posted in Asset Protection Strategies/Alternatives, Benefits of Asset Protection Planning

2018 saw a number of interesting cases and developments in asset protection law. I would like to discuss and summarize many of these key developments in a 2018 asset protection law year-end review. To prevent posting one very lengthy and detailed post, I will break the series into four parts. Parts 1-3 will summarize and analyze three relevant asset protection cases decided this year, In re Olson, Toni 1 Trust v. Wacker, and Embassy Healthcare v. Bell, and part 4 will discuss recent asset protection legislative developments in Georgia.

I hope you find the following posts informative, and if you have any questions or would like to discuss anything further, please do not hesitate to contact myself, Ken Laino, or Paul Fidler.

Ohio Ranked in the Top 5 For Asset Protection Trust Laws

Posted in Domestic Asset Protection Trusts

A recent release by a well-known Nevada asset protection lawyer ranks states by their domestic asset protection trust laws.  Ohio was ranked in the top 5 nationwide, at number 4 (behind only Nevada – in which the ranking lawyer lives and practices law, South Dakota, and Tennessee).

This ranking provides a good reminder that some states are much better than others with respect to asset protection.

The release, the 8th Annual Domestic Asset Protection Trust State Rankings Chart, also provides a quick summary comparison of state laws pertaining to domestic asset protection trusts.

By authorizing certain kinds of trusts and providing other ways to shelter assets, a state can more easily attract lucrative trust business.  States can also enact LLC statutes and other laws that help protect businesses and individuals.  Physicians, business owners and others who are at high risk of being sued should explore asset protection alternatives in states that provide the best protection.

In other words, a person exploring asset protection options might choose to create a domestic asset protection trust in Ohio, based on Ohio’s comparatively “strong” laws, rather than proceeding in his or her home state, which may have weaker laws or may not allow at all for creation of domestic asset protection trusts.

Finally, the same rankings release provides this Comparison Map, illustrating that only a minority of states nationwide even allow for the creation of self-settled domestic asset protection trusts, such as the type of trusts allowed under Ohio law.

Asset Protection Beyond the Grave: Claims Against a Deceased Person’s Assets

Posted in Asset Protection Strategies/Alternatives, Estate Planning, Ohio law

In 2017 there have been a variety of discussions among leading estate planning attorneys about the extent to which Ohio law now protects a deceased person’s assets from the claims of a creditor.  For many years it has been clear that a creditor could make claims against the probate assets (assets passing under a will) of the deceased person, at least so long as the claim is made timely (i.e., within six months of death) and presented appropriately (e.g., to an executor appointed by the probate court).  Ohio’s procedures are friendlier to estates and more hostile to creditors than some other states, but the general ideas are similar.

Until recently, however, it appeared that assets owned by the trust of a deceased person were generally protected from the deceased person’s creditors.  This situation was different from the situation in most states, which generally subject trust-owned assets to the claims of creditors.  Recent developments have made Ohio law far less clear on this point.

Now, at least until Ohio law is clarified, a patchwork of obscure laws apply for the following “uneven” results when someone dies:

  • If the asset was owned by the deceased person alone (probate asset, passing under a will), then a creditor can make a claim against that asset, as long as the creditor carefully follows a set procedure;
  • If the asset was owned by the deceased person’s trust, or passed to the trust at death, then the law is unclear as to whether a creditor can make a claim against that asset, how the claim is properly made, or how the creditor can even find out about the asset or, for that matter, about the trust;
  • If the asset was owned solely or jointly by the deceased person, but passes by “contract” to someone else (e.g., jointly owned bank accounts; life insurance; retirement assets; assets passing by transfer on death or payable on death designations), then a still more complicated patchwork of state and/or federal laws applies on a case-by-case basis to determine whether a creditor can make a claim against that asset, and how.

If you think all of this sounds very confusing and that it does not make sense, you are right on both scores!  Stay tuned over the next few years to find out whether either the courts or the Ohio legislature provide more clarity.

Reflections on 2016 Ohio Asset Protection Developments

Posted in Limited Liability Company, Ohio law, Ohio Legacy Trusts

During 2016, Ohio continued to stand out as one of the best asset protection jurisdictions in the country.  I have noticed that more people are becoming aware of the significant opportunities offered by Ohio’s Legacy Trust statute.  As I have mentioned in earlier posts, an Ohio Legacy Trust is an excellent way to protect your assets – – while still maintaining a meaningful degree of control over those assets.

Changes made to Ohio’s LLC statute have made it even more effective from an asset protection standpoint.  These changes became effective on July 6.

Nationally, there has also been a trend among the states to offer more asset protection alternatives.  Years ago, anyone interested in an asset protection trust might have to go offshore in order to obtain any meaningful protection.  Now more than fifteen states have domestic asset protection statutes.  While offshore trusts remain a reasonable alternative for a certain limited class of individuals, domestic asset protection trusts (such as an Ohio Legacy Trust) can provide substantial protection at a much lower cost.

Ohio continues to be an excellent state for asset protection – – and Ohio residents should take full advantage of the rights given to us by some very favorable state statutes.

Ohio Statute Specifically Covers Single Member LLCs

Posted in Limited Liability Company, Ohio law

Ohio amended its limited liability company statute earlier this year.  As I explained in prior posts on June 16 and July 15, 2016, the amendments strengthened the asset protection provisions of the statute.

One of the most important changes was the addition of Ohio Revised Code §1705.031.  This section specifically provides that Ohio’s limited liability company statute applies to all LLCs formed in Ohio – – whether the LLC has one member or more than one member. There had been some lingering questions about whether certain protections of the statute applied when a limited liability company had only one member.  The amendment eliminates all doubt:  the provisions of the Ohio statute apply to single member LLCs.

This is just one of many provisions of the Ohio LLC law that make it favorable from an asset protection standpoint.

Settlor Can Retain a Lot of Control Over an Ohio Legacy Trust

Posted in Domestic Asset Protection Trusts, Ohio Legacy Trusts

As I previously noted in a post back in 2013, you can establish an Ohio Legacy Trust without giving up complete control of your assets.  Your Trust must be irrevocable and you cannot serve as your own Trustee.  But you can still maintain significant control over the assets in the Trust if you want to do so.

Ohio Revised Code §5816.05 specifically states that the Settlor (the person establishing the Trust) can reserve quite a few rights, including the right to:

  • veto distributions
  • remove the Trustee and appoint a new Trustee
  • remove any advisor and appoint a new advisor
  • receive trust income

Asset protection laws vary a lot from state to state.  But the other fifteen or so states that have domestic asset protection trust statutes also have provisions allowing the Settlor to retain a variety of powers when establishing such a Trust.