Paul Deloughery - Magellan Law - April 2019



APRIL 2019


... EVENWHEN YOUWERE TOLD YOU HAD NOTHING TOWORRY ABOUT W elcome to the first edition of my monthly newsletter. • Assets are removed from your personal ownership and from any disclosure as your personal assets.

he ended up in bankruptcy court. The court applied federal bankruptcy law instead of Alaska law and, therefore, ruled that the trust assets were reachable by his creditors under Section 548 E of the federal bankruptcy code. The DAPT did him no good. DAPTs are also problematic if a potential lawsuit arises in a state that does not recognize or protect self-settled trusts (for example, Arizona). In Dexia Credit Local v. Rogan, the 7th Circuit Court ruled that Illinois law applied instead of the law of the DAPT state in which the asset protection trust was created, and the person concerned couldn’t protect their assets from the claim. This also happened in 2013 in Waldron v. Huber, in which, among other things, Washington state law applied rather than Alaska law, where the DAPT was formed. The result — again — was that the assets in the trust were not protected. What many do not know is that there is an alternative that has been around for over 100 years. But trust companies in Nevada and Alaska can’t make as much money off of this alternative, so it isn’t marketed. I call it an “asset vault trust,” and here are the advantages:

Each month, I’ll be sharing stories that will highlight how, over the past 20 years, I’ve seen both hardworking business owners and wealthy individuals put themselves at risk by being unprepared, badly advised, or both. This month, I’d like to uncover the truth about one of the most misunderstood but widely marketed “solutions” for protecting wealthy individuals from lawsuits — the Domestic Asset Protection Trust (DAPT). The premise of this scheme is that you can set up a trust for your own benefit that will protect your assets from your creditors. There are currently 17 states with legislation on the books that permit this kind of trust. So, what’s the problem with a DAPT? ANSWER: They create an expectation of rock solidness but have a history of failure when tested (challenged in a U.S. court). In other words, like everything that looks too good to be true ... they are! For example, federal bankruptcy law can defeat a DAPT — even in those 17 states that actually recognize, protect, and advocate their use. In one case from Alaska, a state resident created a self-settled trust under ideal circumstances and Alaska’s domestic asset protection trust statute. When he created it, he was solvent and there were no judgments against him. Several years later,

• It can protect any type of asset in any location from any type of liability, including lawsuits, bankruptcy, tax liens, divorce, or government actions. • Its terms, conditions, and beneficiaries can be changed, and the assets can be returned to you without any cost or tax effect at any time. • It can be set up quickly and requires no appraisals, no gift taxes, no extra tax returns, and no ongoing maintenance fees. You can transfer any asset into or out of the trust without any tax consequences. Our trusts do not increase or decrease your income taxes, and we will coordinate with your CPA to be sure they understand and agree with the tax treatment.

• It is supported by generations of legal precedent.

On the other hand — despite heavy marketing — both history and too many

court cases to list prove that offshore trusts and DAPTS fail to protect assets as promised.

• It is supported by state and federal statutes throughout the country.

• It is a private document and it cannot be discovered through any public records.

–Paul Deloughery, Esq.

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