Jay Adkisson, blogging for Forbes, today describes a bankruptcy case illustrating one of the points in my column yesterday on the ineffectiveness of most asset-protection gimmicks, “Do Not Get Suckered by the Asset Protection Racket.” His column, “Mortensen: Alaska Asset Protection Trust Funded By Solvent Settlor Completely Fails To Protect Assets In Bankruptcy Against Future Creditors,” http://goo.gl/9SPZt, demonstrates why foreign and domestic asset protection trusts are often ineffective at defending against creditors. The case, Battley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011, permitted the invasion of the corpus of an Alaska asset protection trust for the benefit of creditors.
In 2005, Thomas Mortensen put assets into a trust that was advertised to protect against creditors. Shortly after he funded the trust, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, which established a 10-year clawback rule for self-settled asset protection trusts. It was this 10-year clawback rule that the court was interpreting.
The bankruptcy court held that the bankruptcy trustee could claim the trust corpus since Mortensen funded the trust less than 10 years earlier, intending it as a barrier to protect his assets from the claims of creditors. As Mortensen learned to his chagrin, bankruptcy judges are better at defeating asset protection than creditors are at creating them.
John B. Payne, Attorney
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