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Chapter 1 A Closer Look at U.S. Asset Protection Trusts 1 Elizabeth M. Schurig Amy P. Jetel Background and Current Trends 1 The Uniform Fraudulent Transfer Act 3 Domestic Venue Asset Protection Legislation 5 The Alaska Trusts Act 5 The Delaware Qualified Dispositions in Trust Act 10 The Spendthrift Trust Act of Nevada 13 The Rhode Island Qualified Dispositions in Trust Act 14 The Utah Self-Settled Spendthrift Trust 18 Oklahoma: The Newest Domestic Venue? 20 Domestic Venue Asset Protection Trust Vulnerabilities 22 Judicial Vulnerabilities 22 Constitutional Vulnerabilities 25 Conclusion 33 Chapter 2 Anatomy of a Fraudulent Transfer 47 Jay D. Adkisson Christopher Riser Overarching Concepts 48 Creditor vs. Transferee 48 The UFTA Expands Creditors' Remedies 49 Manipulating Certainty 49 What Statute of Limitations? 49 No Judgment Required 50 Transactions with Insiders Are Suspect 50 Transfers by Insolvent Debtors Are Suspect 51 Transfers Lacking Value Are Suspect 51 What Is Not Covered by the UFTA 52 Valid Liens 53 Assets Exempt Under State Law 53 Tenancy by the Entireties Assets if Only One Tenant Subject to the Claim 53 The Three-Step/Four-Test Analysis 53 Fraudulent Transfers and Civil Conspiracy 60 Elements of a Civil Conspiracy Claim 60 Immunity 62 Inadequate Remedy and Damages 63 The Duty to Disclose 63 Civil Conspiracy and Fraud 64 Transference of Legal Wrong 65 Conclusions 65 Chapter 3 Protecting a Child's Inheritance 73 Part I: Protecting a Child's Inheritance from an Estranged Spouse Under Common Law 73 Mark Merric I. Non-Self-Settled Trusts 74 II. Summary Analysis 75 A. Current Distribution Analysis--Non-UTC State 75 B. Remainder Interest Analysis--Non-UTC State 78 III. Creditor Remedies Prior to the UTC 80 IV. Drafting Beneficial Interests in a Trust--Non-UTC States 81 A. Definitions 81 B. Distribution Standard (Type of Distribution Interest) 84 V. What Is a Property Interest? The Beginning of the Analysis 91 A. Distribution Standard and the Current Beneficial Interest 93 B. Interest After an Event Date 95 VI. Spendthrift Provisions 99 A. Discretionary Dynasty Trust 100 B. Support Trust's Assets 100 C. Conflicting Distribution Language 101 D. Hybrid Trust 104 E. Remainder Interest 104 F. Distributions Received from a Trust 104 VII. Control and Dominion Issues 106 A. Courts Held the Beneficiary Controlled the Trust 106 B. Courts Held the Beneficiary Did Not Control the Trust 107 C. The Grey Area 107 VIII. Nuances Under State Domestic Relations Law 108 A. Support Trust 108 B. Remainder Interest 109 C. Discretionary Distributions Imputed in Computing Alimony 114 IX. Conclusion 115 Part II: The Uniform Trust Code's Effect on Protecting a Child's Inheritance 116 I. Understanding the UTC--Skeleton, Tendons, and Flesh 117 II. Changing the Threshold Standard of Review to an Enforceable Right 118 A. The Cornerstone of Common Law 118 III. Is Asset Protection for Discretionary and Support Trusts Now the Same? 123 IV. Continuum of Discretionary Trusts More Protective? 124 V. Expansion of Exception Creditors? 126 A. Restatement (Second) of Trusts 126 B. Uniform Trust Code 127 VI. Increase in Remedies Available for a Creditor 134 A. Attachment of the Beneficial Interest 136 B. Reaching the Underlying Trust Assets 137 C. Judicial Foreclosure Sale of the Beneficiary's Interest 138 D. Equitable Power of the Courts 138 E. Summary of Interests Subject to Remedies Under the UTC 139 VII. Can All Creditors Sue for a Mandatory Distribution? 139 VIII. The Beginning of the End of Third-Party Medicaid Trusts or Special Needs Trusts Planning 140 A. Attaching the Beneficial Interest in a Trust 140 IX. Dominion and Control--May All Creditors Attach a Beneficiary's Interest if He or She Is the Sole Trustee? 141 X. Greater Rights in the Domestic Relations Context 142 A. Discretionary Trust Case Analysis 142 B. Remainder Interests 144 C. Other Methods of Recovery 144 XI. Do All Creditor Cases Get to Go to Court? 145 A. Which Equitable Remedies Should Apply? 145 B. What Is the Definition of a "Continuum of Discretionary Trusts"? 146 XII. Planning Around the UTC and Restatement (Third) of Trusts 146 A. Drafting Recommendations 146 B. UTC Automatic Flee Clauses 148 C. Forum Shopping 148 D. Flight of Capital 149 XIII. Conclusion 149 Chapter 4 Selected Drafting Issues with Asset Protection Trusts 167 Daniel S. Rubin Introduction 167 Drafting for a So-called "Hybrid" Foreign Trust 168 Introduction 168 Definitions 169 The "Court Test" 170 The "Control Test" 174 Drafting for the Possibility of Duress 178 Introduction 178 The Anti-Duress Clause 179 The Contempt of Court Issue 181 Drafting in Consideration of U.S. Gift and Estate Taxes 183 Incomplete Gifts 183 Completed Gifts 185 Internal Revenue Code Section 684 186 Conclusion 187 Chapter 5 Special Drafting Considerations for Asset Protection Trusts: The Offspring of Offshore Trusts 191 Melissa Langa I. Introduction 191 II. The Protector 192 A. The Problem 192 B. The Solution 192 C. Sample Provision 193 III. Contingent Payment Clause 197 A. The Problem 197 B. The Solution 197 C. Sample Provision 199 IV. Special Jurisdictional Clause 200 A. The Problem 200 B. The Solution 200 C. Sample Provision 201 V. Powers of Appointment 203 A. The Problem 203 B. The Solution 203 C. Sample Provisions 204 Chapter 6 The Trust Protector: Friend or Fiduciary? 207 Alexander A. Bove, Jr. I. Just What Is a Protector and Why Has the Concept Become So Popular? 207 II. Is the Protector Lying About His Age? 209 III. The Protector and the Asset Protection Trust 210 IV. What Powers Should Be Given the Protector? 212 V. What Is the Relationship Between the Protector and Trustee? 214 VI. Who May Serve as Protector, and, Once and for All, Is the Protector a Fiduciary? 216 VII. Professional Protectors 221 VIII. Can the Protector's Fiduciary Duty Be Legislated Away? Or Drafted Away? Or Both? 222 IX. Is the Protector Subject to Court Supervision? 225 X. What Are the Rights of the Protector? 227 XI. What Are the U.S. Tax Implications of the Role of Protector? 229 XII. What Special Drafting Issues Are Brought into Play Along with a Protector? 231 XIII. Conclusion 233 Chapter 7 Use of Offshore Limited Partnerships and Limited Liability Companies in Asset Protection Planning 239 Mario A. Mata I. Introduction 239 II. The "Charging Order" Limitation 241 III. The Consequences of "Assignee" Status 242 IV. The Offshore Limited Partnership 243 A. Bahamas 244 B. Cayman Islands 245 C. British Virgin Islands 246 D. St. Kitts 246 E. Bermuda 247 F. Gibraltar 248 G. Jersey 248 H. The Marshall Islands 249 V. Offshore Limited Liability Companies 249 A. Nevis 250 B. Anguilla 251 C. The Marshall Islands 252 D. Isle of Man 253 VI. Redomiciliation of Domestic LP or LLC 254 VII. Beware of Single-Member LLCs 255 VIII. Drafting Strategies 257 A. Protective Language in Partnership Agreement 257 B. Use of an LLC vs. IBC as FLP General Partner 258 C. Use of an Offshore Trust as Limited Partner 258 IX. U.S. Tax Treatment of the Offshore LP and LLC 261 X. Summary 262 Chapter 8 Singular Problems with Single-Member LLCs 265 Christopher M. Riser Tax Classification of Single-Member LLCs 265 Foreign LLCs--Tax Traps 266 Reporting Issues 267 New Foreign Disregarded Entity Information-Reporting Requirements 268 Employer Identification Number Issues 269 Multimember Disregarded LLCs 270 Single-Member LLCs and Charging Order Protection 271 Conclusion 275 Chapter 9 The Purpose of Purpose Trusts 277 Alexander A. Bove, Jr. Concept and Background 277 The Modern Purpose Trust 279 Purpose Trusts in the United States 280 Offshore Purpose Trusts for U.S. Purposes 281 Requirements of a Valid Purpose Trust 282 Other Drafting Considerations 284 Which Offshore Jurisdiction? 285 For What Purpose the Purpose Trust? 285 U.S. Income Tax Issues 286 U.S. Gift and Estate Tax Issues 287 U.S. Generation-Skipping Tax Issues 289 Review of Grantor vs. Non-Grantor Purpose Trust Tax Consequences 290 Conclusion 291 Chapter 10 Life and Death Tax Issues with Asset Protection Trusts 295 Jeffrey T. Getty Introduction 295 Federal Income Tax 295 Federal Estate and Gift Taxes 298 Gift Tax 300 Estate Tax 302 Section 2036(a) Transfers with Retained Life Estate 302 Implied Agreement 303 Rights of Creditors 304 Section 2038(a) Revocable Transfers 308 Conclusion 309 Chapter 11 Asset Protection Strategies as Applied to Federal Tax Liabilities 315 Howard S. Fisher William K. Norman Introduction 315 State Statutory Limitations on Asset Protection 316 Federal Statutory Limitations on Asset Protection 318 Federal Tax Liens and Levies to Collect Taxes 330 Limited Tax Liens and Levies to Collect Taxes 333 Traditional Asset Protection Concepts as Applied to Tax 336 Attorney-Client Privilege and Certain Asset Protection Planning 344 Ethical Considerations 344 Use of Bankruptcy to Minimize Tax Liability 348 Concluding Thoughts 349 Chapter 12 Use of Civil Law Foundations for Asset Protection 355 Howard S. Fisher Dennis A. Kleinfeld Samuel M. Lohman Introduction 355 Asset Protection--A Brief Summary 355 History of the Civil Law Foundation 357 The Foundation 359 Benefits of the Foundation Over the Trust 362 An Offshore Foundation Is Not a Charitable Foundation 363 Legal Systems 364 Fraudulent Transfers and Foundations 367 Common Law Trusts 368 Nature of a Trust 368 History of the Common Law Trust 369 Few Typical Countries Have Foundation Laws 369 Foundation Regimes 370 Designer Laws 374 Limitation on the Use of Foundations 375 Entity Classification for U.S. Tax Purposes 375 Why You Need an Entity Such as a Trust or a Foundation 378 The Strategy of Avoiding Unreliable Juries 378 Considerations in Selecting a Jurisdiction to Form the Foundation 379 Concluding Comments 381 Chapter 13 Administration of an Offshore Asset Protection Trust--Selected Aspects from the Trustee's Viewpoint 383 John G. McFadzien Solvency of the Settlor 383 The Effect of Fraud on Attorney/Client Privilege 384 Enforcement Against Settlor of Penal Revenue or Public Laws 387 Actions Generally--the Mareva Injunction 388 Foreign Judgments 390 Limitations of Time 391 Burden of Proof 392 Chapter 7 Trustees 392 Claims for Exemplary Damages 392 Validity of Dispositions to the Trust 393 Settlor Control of Trust Administration 395 Conclusion 398 Chapter 14 Funding the Foreign Asset Protection Trust--Onshore v. Offshore 401 Gideon Rothschild Introduction 401 Discussion 402 Issue One: The Specter of a Fraudulent Conveyance 403 Issue Two: Attorney Culpability 404 Issue Three: The Threat of Provisional Remedies 405 Issue Four: The Prospect of Contempt 406 Conclusion 407 Chapter 15 Asset Protection Offered by Swiss Annuities 409 Alexander A. Bove, Jr. The Swiss Annuity--As Good as Their Chocolate? 410 Protection Dependent on Beneficiary Designation 411 Naming a Trust as Beneficiary 413 Avoid a U.S. Tax Trap 414 Tax-Free Exchange--The Protective Swap 415 Fraudulent Transfer Rules--U.S. and Swiss 416 Anti-Duress Rule 417 Which Laws Will Apply in an Attack--U.S. or Swiss? 417 U.S. Tax Issues 419 Income Tax 419 Excise Tax 420 Estate Tax 420 Swiss Taxes 421 Cost Considerations 421 U.S. Courts' Attitude 422 Conclusion 422 Chapter 16 When Worlds Collide: The Dubious Value of U.S. Judgments in Offshore Jurisdictions 425 Hans Christian Beyer Introduction 425 Of Treaties, Sovereignty, and Comity 426 Distinguishing Between Offshore and Foreign Jurisdictions 428 Protecting Assets Through the Use of Offshore Financial Centers 429 The Interrelationship of Comity, Fraudulent Transfer Law, and Offshore Jurisdictions 431 Attributes of Popular Offshore Financial Centers 434 Cook Islands 434 Belize 437 Liechtenstein 438 Turks and Caicos 439 Gibraltar 440 Cayman Islands 441 Channel Islands 442 Isle of Man 444 Bahamas 445 Bermuda 446 Other Offshore Financial Centers 447 Other Considerations 448 Monetary Judgments versus Arbitral Awards 448 Judgment Triangulation 449 Some Final Thoughts 449 Chapter 17 Attorney Liability for Assisting in Asset Protection 453 Robert D. Gillen Introduction 453 Questions and Concerns 455 Overview of Legal Malpractice 455 The ABA Model Rules 457 Disciplinary Concerns 458 Liability for Not Discussing Asset Protection Planning 461 Attorney Liability Does Exist Today 462 Fraudulent Transfers 463 Criminal Liability 466 Conspiracy to Defraud the United States 467 RICO Claims 467 Aiding and Abetting 469 Fraudulent Conveyance and Conspiracy Claims 470 Conspiracy to Commit Fraud 472 Misprision of a Felony 473 Mail, Wire, and Bank Fraud 473 Federal Tax Crimes 474 No Attorney Liability Cases 477 In re Portnoy 477 Stephen Jay Lawrence 478 In re Anderson 480 Concluding Thoughts 480 Chapter 18 Money Laundering, RICO, Aiding and Abetting, and Related Due Diligence Concerns for U.S. Asset Protection Planners (Or Why What You Don't Know Can Really Hurt You) 487 John E. Sullivan III Introduction 487 Issue 1: AML Laws as a Creditor Tool 490 The Starting Point: Money Laundering as a "Bootstrap" Offense 490 So Why Even Worry? (Or, Fraudulent Transfers as SUAs) 490 More U.S. AML Laws: BSA, RICO, Section 1957, and Other Laws 495 Issue 2: Due Diligence Steps to Help Prevent Client Money Laundering 507 Data From the Client 507 Data From Third-Party Sources 510 The Impact of Due Diligence--In Theory and in Two Case Studies 513 Building Your File 516 Conclusion 517 Appendix 1: Mail and Wire Fraud 519 Appendix 2: Some Basic History and Background: U.S. AML Leadership and the BSA 523 Chapter 19 Attorney Ethical Liability in the Application of the Terms "Fraud" versus "Fraudulent Transfers" Under the Uniform Fraudulent Transfer Act 541 Denis A. Kleinfeld An Introduction and Summary 541 Discussion of Common Law Fraud 544 Discussion of Fraudulent Transfer--A Legal Remedy 547 Criminal Fraudulent Transfer Statutes 552 Fraud v. Fraudulent Conveyance--Attorney Ethics and Liability 553 Is an Attorney Liable as an Aider and Abettor, or in Conspiracy Under the UFTA? 556 The "New" Tort of Creditor Fraud 566 Conclusion 568 Index 571
Library of Congress Subject Headings for this publication:
Executions (Law) -- United States.
Debtor and creditor -- United States.
Trusts and trustees -- United States.
Tax havens -- United States.
Estate planning -- United States.