4.4.12 Makeups: Friday 10-12, this week and next week.

VH 218 (taped) Domestic Asset Protection Trusts Delaware Asset Protection Statute (p630) 3572: no action of any kind shall be brought for an attachment against property that is the subject of a qualified disposition [unless claim is a fraudulent transfer claim] If you are creditor, the statutes bar doesnt apply if there is a fraudulent transfer into the trust. If fraudulent transfer then trust loses the asset protection under the statute 3570: definitions o Qualified disposition is disposition to qualified trustee into a trust instrument (as defined in the statute) o Qualified trustee: person/entity domiciled in DE. Litigators will look to forum shop to another jx to avoid the DE law provisions. Litigator in NY will try to get in rem jx over the trustee (which you couldnt do for the off-shore trustees). NY laws may apply if trustee is institutional bank w/ offices in NY. Also may look for assets outside the jx to attach (like a home in NY) 3572(g): tries to make it impossible to get jx over the trustee if the foreign ct doesnt honor DE law. o But if another ct chooses not to follow DE law, why would they look to this part of the DE statute? Prof says this is weak sauce Problems p 635 Objectives of the trust: provide maximum control and access to the trust to the settlor w/o violating the terms of the statute 1a: key provisions of DE asset protection trust o Need a DE qualified trustee o DE law applies o irrevocable: no ct will give asset protection w/ a trust that settlor can just revoke at any time o must have spendthrift clause 1b(1): trust instrument cannot name Dr. Ames as sole trustee qualified trustee cannot be transferor. o Can she be a co-trustee? She can be an advisor under the statute but not a trustee. A trustee has the power to make distributions and thus has too much power. o DE statute contemplates that settlor cannot be named a trustee. Prof says you should never name settlor trustee if you want the instrument to function as an asset protection mechanism 1b(2): 3750(10)(b)(3) can receive income. Prof says difficult to determine what is attributed to income vs principal bc of complex structures 1b(3) 3750(10)(b)(5) What you receive cannot exceed 5% of initial value of trust.

1c: 3750(10)(b)(6) trustee can have discretionary powers to distribute principal. But settlor cannot have unfettered right to principal. o Must be like a support trust. Even if settlor is an advisor, can only have veto powers under (9)(d). Cannot demand payments. o We dont know if advisors are fiduciaries or should be. How much control? o Can direct investments if she want to, or veto investments or veto distributions (if she created more than one beneficiary). Can receive all the income. Can receive the right to 5% of principal per year. Also has the right to remove/replace trustees. Removing trustees is a huge power bc will ensure that they do whatever the settlor wants. Ordinarily beneficiaries cant fire trustees w/o breach of fid duty thus this power is huge. 2: looks like a fraudulent transfer. 1304(a)(1): actual intent to delay or fraud. (b) tells you how to determine actual intent the badges of fraud. (b)(10) transfer after debt; (b)(5) substantially all assets; (b)(9) debtor became/was insolvent; (b)(3): concealed assets. o Not arguing the trust is invalid, only arguing that the transfer of assets into the trust was invalid. 2b: want to know whether the person is solvent or will become insolvent as a result of the transfer. If someone becomes insolvent and says they have no creditors looks sketchy. 2c: exceptions 3573(1) protects alimony and child support. 2d: personal injury suit after creation of the trust. 3573(2) tort needs to be on or before date of qualified disposition. Want to see transfer occurring because of the tort (or after tort) in order to attach funds.

Planning for Incapacity and/or Costs of Institutional Care Using a revocable living trust to provide the standard for determining when incompetency occurs (p640) o No difficulty as long as settlor agrees they lack capacity. Problems occur when you have to fight the settlor to declare them incapacitated breaks up families, etc o Can have dr (or two or more) certify that settlor is incapacitated and transfer to successor trustee. Thus avoid guardianship proceeding. Estate of Gist (p642) state claimed it was owed thousands of dollars in care the beneficiary of a discretionary trust received while in under care for many years. Trust provides trustee discretion to distribute for reasonable standard of living and contained spendthrift provision. State code says medical assistance is a debt due on individuals death o Trust is discretionary bc beneficiary has right to require support. State is entitled to reimbursement o State code does not contain an exception to spendthrift protection for necessities, but state common law does [Dodge case]. State provided w/ nec goods which falls under reasonable std of living o Class notes: Discretionary support trust w/ spendthrift clause. Under ordinary circumstances, a provider of med care would have the right to seek medical payments

Absent spendthrift: nec med expenses fall under the support standard. Trustee would have to pay Even w/ spendthrift: exception in spendthrift clauses for providers of necessaries (either common law or statutory exception) Statute doesnt make you have to go broke before giving you Medicaid trying to strike a balance. More problems will happen if we bankrupt ppl for medical care.