“Alaska Asset Protection Trust Deemed Invalid Under Washington Law” - Moses & Singer LLP Attorneys Gideon Rothschild and Daniel Rubin Comment on Recent Case

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Estate planners take heed - Trust laws in some states may conflict with laws in other states possibly invalidating the trust. Moses & Singer LLP attorneys Rothschild and Rubin weigh in on the facts.

Trust and estate advisers rely on asset protection trusts as devices to help clients transfer wealth while mitigating the effects of taxation, divorce and bankruptcy. But, what happens when states have different standards affecting the legality of certain types of trusts?

“Until now, no conflict of laws case has involved domestic asset protection trusts,” observed Gideon Rothschild and Daniel Rubin, attorneys in the Asset Protection Practice and Trusts and Estates Practice at Moses & Singer LLP. In their recent article published in WealthManagement.com they analyze the recent decision of the Bankruptcy Court for the Western district of Washington, In re Huber. In this case “we now have the first decision addressing the conflict of laws issue with regard to a domestic asset protection trust.”

The Huber case (In Re Huber, 201 B.R. 685 (Bankr. W.D. WA May 17, 2013) involved the creation of an Alaska asset protection trust by a Washington real estate developer threatened by a “collapsing housing market” whose prospects for repayment of several substantial loans were found by the court to be “fragile at best.” On these facts the court unsurprisingly found the trust funding to be a fraudulent transfer.

Huber also held the trust invalid under a “conflict of laws” analysis according to the court decision. “If correct, this ruling would invalidate every self-settled spendthrift trust created by a Washington resident,” note Rothschild and Rubin. “Whether Huber’s analysis was correct however is subject to dispute.”

Rothschild and Rubin note that, "it's unfortunate that the first case to address a conflict of laws between states with regard to domestic asset protection trusts involved fraudulent transfers, which seemingly impacted the court's decision." The question remains open as to whether the court would have ruled similarly in the absence of the fraudulent transfers.

"We expect that there will be more decisions in the future that will address the conflict of law issue without the baggage presented by the fraudulent transfer." Nonetheless both attorneys agree on the need for estate planners to consider state laws supporting or invalidating domestic trusts, taking note of conflicting laws in states where the settlor lives or does business. "Any individual concerned about his or her estate and trust planning should take heed of the various state laws in creating a dynamic strategy for asset protection."

For more details about this case as well as related articles about asset protection, trusts and estate planning, see the articles written by Gideon Rothschild and Daniel Rubin.

Gideon Rothschild and Daniel Rubin are Partners at Moses & Singer LLP in the practice of Trust & Estates and Asset Protection law. Moses & Singer LLP, a law firm founded in 1919, serves the legal needs of prominent businesses and high net worth individuals in New York City and nationwide.

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