Asset Protection Law Journal: “One of the best known international tax havens — the Cayman Islands — is being forced to consider something that would have been unthinkable only a couple years ago: raising taxes. This may be yet another blow to Americans who hold assets in offshore accounts. As reported in a recent New York Times article by Landon Thomas, Jr., there is “no getting around the fact that the balmy days for exotic offshore financial centers like the Caymans could be coming to an end.'”
There are fraudulent conveyance laws that prohibit a debtor from transferring the debtor’s assets for less than adequate consideration if: (i) the transfer makes the debtor insolvent, or (ii) the transfer occurs when the debtor is insolvent. One of the remedies available to a creditor who proves that a transfer of property was a fraudulent conveyance, is to set aside the transfer so that the creditor can use the legal collection process to realize the value of the property transferred.
Debtors who engage in fraudulent conveyances expose themselves and their co-conspirators, if any, to substantial legal problems and liabilities. A fraudulent conveyance can also be a crime.
Seattle real estate developer Michael R. Mastro filed for bankruptcy in what may be Western Washington state’s biggest personal bankruptcy. His schedules filed with the court listed total debts of $587 million and assets of $249 million.
The bankruptcy trustee James Rigby sued Mr. Mastro to set aside transfers of property that Mr. Mastro made before filing for bankruptcy.
In his suit, filed in federal bankruptcy court, Rigby says the transfers of the mansion, car and jewelry were done “with actual intent to hinder, delay or defraud creditors” after Mastro sensed his real-estate empire was collapsing. Mastro and his wife bought the mansion on Evergreen Point Road in 2006, according to county records. Through a series of transfers that began in June 2008 and involved no money, the home ended up under the ownership of a Delaware limited liability corporation.
The assets transferred include a mansion purchased for $15 million, a Rolls Royce and jewelry including five rings containing diamonds ranging from 9.68 to 27.8 carats. Sounds like Mr. Mastro has a whole lot a ‘splainin to do.
Asset Protection Law Journal: “Here are a few of the things a judgment creditor may be able to do:
- Garnish your wages
- Attach your bank accounts
- File a lien against your home and/or other real estate that you own
- Force a sale of your home and/or other real estate that you own
- Attach your personal property”
USA Today: American tax-evaders who have used offshore bank accounts have more time to voluntarily disclose assets under an extension of an IRS amnesty program.
The leniency program, originally due to expire Wednesday, will continue until Oct. 15, said government officials with direct knowledge of the decision. The officials were granted anonymity because they weren’t authorized to discuss the issue before the announcement.
See also “IRS Announces Reduced-Penalty Program for Taxpayers Who Voluntarily Disclose Offshore Accounts.”
Attorney Robert Moshman wrote an article that gives an overview of a relatively new type of trust called a “Domestic Asset Protection Trust” or DAPT. The article is about Nevada’s new law that authorizes the creation of a Nevada based-trust called the “Nevada Asset Protection Trust (NAPT).” Several states including, Alaska, Delaware and Wyoming have passed DAPT statutes.
The DAPT is a special type of irrevocable (not amendable) trust the purpose of which is to protect the assets of the trust creator (also know as the “settlor”). Until recently, the laws of all fifty states did not allow people to avoid paying their creditors by creating a trust for their benefit and transferring ownership of their assets to the trust. There is a sound economic principle behind this rule, i.e., commerce would cease to exist as we know it if a person could borrow money, put it in a DAPT and then avoid paying the creditor.
The DAPT and the NAPT sounds good on paper, but to date there have not been any appellate level cases that have respected the DAPTs when the DAPT is formed in one state, owns property in a different state and the lawsuit is filed.
Jay Adkinson, a nationally known asset protection lawyer, is not a fan of this type of trust. See Jay’s article called “Analysis of Domestic Asset Protection Trusts a/k/a ‘Alaska Trust’ or ‘Nevada Trust’ or ‘Delaware Trusts'” and “Domestic Asset Protection Trusts.” At the beginning of each of his articles, Jay has the following text in red:
Domestic Asset Protection Trusts Neutered by Bankruptcy Reform
The 2005 changes to the Bankruptcy Code have created a new 10-year limitations period for transfers to self-settled trusts which are meant to hinder, delay or defraud creditors. This effectively means that all transfers to domestic asset protection trusts will be suspect for the 10 years prior to the date that a bankruptcy petition is filed. Because of this, domestic asset protection trusts should not be considered for asset protection planning and, indeed, in most circumstances it might be malpractice per se for an advisor to form a DAPT for his client if asset protection is a concern.