ASSET PROTECTION ISSUE:
Is a Domestic Asset Protection Trust (DAPT) set up in Alaska effective regarding a Montana fraudulent transfer action?
CASE SUMMARY:
Donald Tagwell sued the Wackers in Montana state court in 2007. The Wackers counter-sued Mr. Tagwell as well as several other related parties, including his wife and mother-in-law Toni Bertran. The Wackers won and received judgments against Tagwell and Bertran in 2010. Shortly before the judgment was entered the Bertran’s set up the Toni 1 Trust, a DAPT based in Alaska. Mrs. Bertran then filed Bankruptcy in Alaska in an attempt to secure Alaska as a jurisdiction and to stop the Montana sheriff from seizing property held by the trust in Montana.
The transfer was a pretty clear case of fraudulent transfer and the BK court found exactly that. The interesting issue that the court dealt with which is instructive from an asset protection standpoint is related to the Alaska DAPT Statute itself, Alaska § 34.40.110(k), specifically states:
“A court of this state has 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 trust that is the subject of this section.”
In other words, the Alaska statute purports to have sole control over determining whether any transfers to the trust shall be deemed fraudulent. This is quite a bold attempt by the Alaska legislature, as it is already well-established by the Supremacy Clause of the U.S. Constitution that Federal law is controlling over State law. Add to that, the Full Faith and Credit Clause of Article IV Section I of the Constitution, which states that the States must respect the judicial proceedings of the other states, and one can see that Alaska was really reaching.
TRIAL RESULT:
The BK TRIAL RESULT was as expected. The Bankruptcy court analyzed the Alaska statute and found that there was very clear legislative intent by the Alaska legislature and that indeed the purpose of the statute was to seize all control of the determination of transfers. Nevertheless, the court rejected that Alaska had the power to remove another States rights to make a determination, specifically regarding property in that other state. Considering both the Full Faith and Credit Clause as well as the Supremacy Clause, this was both predictable and expected.
ASSET PROTECTION SUMMARY:
From an Asset Protection standpoint, this case has one very big point – You cannot rely on the DAPT statue of any State, nor the Trust document or recitals to establish JURISDICTION! In the end the COURT which has the case in front of it, whether State, Federal or Bankruptcy, will determine which law applies, regardless of what the Trust document, and now even the DAPT Statute itself attempts to establish. In this respect the Wacker case follows both the Dahl Case and the Huber Case in its disregard for the stated jurisdiction of the Trust.
TAKE AWAY:
DO NOT USE A DOMESTIC ONLY ASSET PROTECTION TRUST (DAPT)!!! Unless you like the idea of lots of uncertainty and lengthy legal proceeding which costs lots of money, and the fact that if anything is not perfect your client is likely to lose their assets, just don’t use a DAPT. It has become exceedingly clear that relying on a DAPT gives your clients little to no predictability when it comes to the actual defense of the Trust and the courts continue to show that they will do what they wish to achieve the result they want! Either use a fully Foreign Asset Protection Trust (FAPT), OR use a BRIDGE TRUST ® , which combines the ease of maintenance of a domestic trust with the superior protection of a Foreign Trust.
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