Domestic Asset Protection Trusts Continue to Falter
May 2014
Mississippi has joined the bandwagon of states selling domestic asset-protection trusts. The case law continues to confirm what the firm has long maintained.
The firm warned practitioners about the passage of Ohio’s domestic asset-protection trust statute the year prior. Mississippi has now joined the bandwagon, selling DAPTs as if the Mississippi courts will go to the ends of the earth to defend a New York resident who titles his Arizona real estate and Texas-sitused investment account in a Mississippi DAPT. Mississippi’s DAPT statute is as much snake oil as the Alaska and Nevada DAPT laws that have been struck down when challenged by creditors.
A Las Vegas attorney who holds himself out as a DAPT specialist (and helped author the Nevada DAPT) has challenged anyone to find a single case in which a DAPT was overturned outside of bankruptcy court. He contends that DAPTs in standard civil proceedings are more likely to withstand creditor attack. The firm published the answer the year prior: in Kilker v. Stillman, 2012 WL 5902348 (Cal.App. 4th Dist., Nov. 26, 2012), a non-bankruptcy California court held that the selection of Nevada law for a DAPT was inherently fraudulent as against creditors, rendering all contributions to the trust invalid as fraudulent transfers. A California resident who persists in DAPT planning is, on present authority, wasting the planning fee.
Domestic LLC asset-protection planning has shown the same pattern. In In re Cutuli, 2013 WL 5236711 (S.D. Fla., Sept. 16, 2013), a bankruptcy court took apart a debtor’s funding of a Wyoming LLC marketed as an asset-protection vehicle. The facts in Cutuli were egregious; the loss was so catastrophic that the creditor seized all of the debtor’s assets in the state-court proceeding. Cutuli is not so much a case about the efficacy of the Wyoming LLC as a witness to the reality that asset-protection planning does not work for those seeking to evade existing creditors.
When the legal community is invited to produce a ruling showing a civil court overturning a DAPT, the question ought to run the other direction. Show a ruling in which a civil court has sustained a DAPT against a creditor attack. There is none.