¶ 5501
Overview
Scope of the chapter. The reported cases on asset protection are mostly cases in which the plan failed. A plan that works seldom produces a reported decision, because the creditor examines the structure, concludes that it cannot be reached at an acceptable cost, and settles. The failures are litigated, appealed and cited. This chapter collects the leading failures and arranges them by the reason the plan failed: transfers made too late, control retained by the settlor, self-settled trusts tested in the settlor's home forum, entity structures that did not hold, and plans that led to contempt and incarceration, criminal prosecution, and liability for advisers. It ends with the plans that held, and with the lessons of the cases arranged in the Threat Matrix.
Reading the failed cases. Three cautions apply. First, the failed cases are a biased sample. They show what courts do with plans that reach litigation, and most of them involve debtors whose conduct would have doomed any plan: fraud proceeds, transfers made during trial, perjury, and defiance of orders. A planner should not conclude from them that every structure fails. Second, the outcome in a reported case is often the debtor's loss without the creditor's gain. In several of the leading cases the assets stayed offshore while the debtor was jailed, denied a discharge or convicted. The structure held and the client did not. Third, many of the decisions rest on facts found against the debtor after evidence of evasion. They teach conduct along with law.
The recurring facts. The failed plans share a small number of facts that recur across jurisdictions and structures. The transfer came after the claim was visible. The settlor kept control, as co-trustee, protector or member of an advisory committee, or through a spouse or nominee. The settlor's disclosure in discovery or bankruptcy was evasive or false. The settlor's home forum applied its own law in place of the law chosen in the trust. And, in the cases that ended in confinement, the settlor treated the structure as a reason to disobey a court order. The plans that held were funded long before any claim, were administered by an independent trustee, left the settlor solvent, and were never used to defy an order.
Relationship to other chapters. Many of the cases discussed here were introduced in earlier chapters for particular points: the timing of transfers (see supra ch. 5), voidable transfer law (see supra chs. 6, 7), bankruptcy (see supra ch. 8), self-settled trusts (see supra ch. 18), conflict of laws (see supra ch. 35), and contempt (see supra ch. 39). This chapter reads them together to identify the patterns. The maintenance practices that address many of the failures are described in chapter 54 (see supra ch. 54).