Boston, MA (PRWEB) January 24, 2013
Douglas Brown created what he thought to be a fortress of asset protection but he lost in the federal court case [In re: Brown, Bankruptcy No. 09-22962, US Bankruptcy Ct., D. Utah (2012)]. Like many, he thought that merely setting up irrevocable trusts would safeguard his assets for his family. . According to the case, creditors fought his drafted asset protection trusts and Mr. Brown left the courtroom defeated and his family was left with significantly less assets.
Although ultimately the trusts fell in regards to his case, Mr. Brown built his asset protection fortress on solid foundation. He built his foundation in the form of several irrevocable trusts meant to protect his assets. Estate Street Partners, creators of the UltraTrust irrevocable trust, explains a properly drafted irrevocable trust and sheds light on how to avoid similar mistakes.
A properly executed irrevocable trust is analogous to a walled fortress where one can hold assets. These assets stay within the walls of the fortress and are property of the trust, not the individual who placed them there. The assets are controlled by a trustee in accordance with the written rules of the trust.
Once an individual correctly places assets in the fortress, the individual does not own the assets anymore; the trust does. This keeps the assets safe from anyone trying to collect them from an individual (although sometimes there is a 60 month look-back period in cases of Medicaid look-back) because a creditor can’t collect something that the debtor doesn’t own. Assets in an irrevocable trust are safe for future generations.
The fortress of an irrevocable trust which Mr. Brown apparently had is in marked contrast to the revocable living trust which is similar to an unfortified castle. The revocable living trust does not protect assets from creditors.
So why did Mr. Brown’s irrevocable trusts fail?
In reference to his specific instance, Mr. Brown apparently didn't upkeep his trusts. This particular battle ended on May 30th, 2012, when a federal bankruptcy court in Utah decided the case. According to the case (Brown, Bankruptcy No. 09-22962, US Bankruptcy Ct., D. Utah (2012), the mismanagement of the trusts, not the underlying theory of irrevocable trust’s caused him to lose the case.
Douglas Brown, while apparently being investigated and tried by the IRS for back taxes, created several trusts in which he placed a vacation home and a business. Mr. Brown then filed for bankruptcy and claimed that he did not own these assets; rather, they were owned by the trusts. His creditors seemingly went after the trusts for payment of Mr. Brown’s debts, because Mr. Brown did not have enough assets to pay his debts.
Although the assets were placed in the fortress on paper according to his case, Mr. Brown was still controlling the assets as if they were not. The trustee allowed Mr. Brown to do as he pleased with trust assets and the trustee did not participate in the management of the trusts. The creditors evidently noticed this crack in the fortress wall and pierced it by claiming that Mr. Brown controlled the assets directly.
The creditors then claimed that since he had direct access to the assets, he was able to pay his debts. The bankruptcy court agreed and gave Mr. Brown’s creditors access to the trust assets. Mr. Beatrice from Estate Street Partners reflects, “Even if Mr. Brown had not treated the assets as his own by ignoring the trusts, he would have had to deal with the issue of fraudulent conveyance,” explains Mr. Beatrice. “Setting up these types of trusts and making sure they are managed correctly is very important and should be done in consultation with an experienced expert.”
Estate Street Partners offers the Brown case as an example of cases that are attempting to minimize the use of irrevocable trusts for asset protection. “An irrevocable trust is an excellent way to do estate planning and to protect assets for the benefit of your family, but only if drafted, executed, and funded correctly,” explains Rocco Beatrice of Estate Street Partners, LLC. “Many wealthy families successfully use an irrevocable trust to protect and pass assets to their beneficiaries.”
In the event of a lawsuit or bankruptcy, creditors increasingly search for a crack in the irrevocable trust fortress. “A solid trust is a great start, but you need ongoing support from someone who knows what you need to do to honor the trust,” warns Mr. Beatrice.
“If a trust creator missteps and creates a situation where there is some doubt as to whether the trust is real or a fiction on paper, the trust could be in jeopardy.” Mr. Beatrice believes that many lawyers that draft trusts, do not sufficiently explain how they work or what one can or cannot do to help them remain intact, and they do not follow up with the client.
Creditors search to find mistakes in the trust document or mistakes relating to how the person creating the trust treats the assets. “As the creator of a trust, one can receive some benefits of the trust, but you have to honor the trust for it to stand. You can’t just have a trust on paper. The trust needs to own and control the assets,” explains Mr. Beatrice.
“When done correctly, an irrevocable trust is one of the best ways to control, protect and bestow assets to your family.”
About Estate Street Partners (UltraTrust.com):
For 30 years, Estate Street Partners has been helping clients protect assets from frivolous lawsuits while eliminating estate taxes and probate and ensuring superior Medicaid asset protection for both parents and children with their Premium UltraTrust® Irrevocable Trust. Call (888) 938-5872 to learn how one can save hundreds of thousands of dollars.