A recent case in Alaska highlights a way that an asset protection trust could fail to protect against future creditors (even if the settlor was solvent at the time of trust creation). Applying a 2005 federal law which prevents bankruptcy abuse, the bankruptcy court in Alaska voided certain transfers into the trust. This was because it found the settlor had created and maintained the trust with the intent to defraud his future creditors -- and not for its purpose as stated in the trust document. The court reached this conclusion by closely examining the specific facts presented instead of attacking the validity of asset protection trusts in general. The case is Battley v. Mortensen (Bankr. D. Alaska 2011).
See Jay Adkisson, "Mortensen: Alaska Asset Protection Trust Funded By Solvent Settlor Completely Fails To Protect Assets In Bankruptcy Against Future Creditors," forbes.com (Oct. 19, 2011).
Posted by Andrew Hodes, Associate Editor, Wealth Strategies Journal.
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