541 Trust® – Better Asset Protection

 

Better Asset Protection: The 541 Trust® provides the best asset protection while affording maximum flexibility. It is proven by generations of legal precedent to work better than offshore trusts (or trusts which transfer offshore at the first sign of duress), domestic asset protection trusts (DAPTS), FLPs, and other strategies. All of these other strategies have a history of court cases exposing their flaws. While promoters of offshore trusts (or trusts which transfer offshore at the first sign of duress) claim that the foreign jurisdiction does not respect US Court judgments, those promoters fail to tell you that the US Courts have still been able to successfully attack them. If you want the best protection possible, don’t take our word for it. Simply see what the courts have said. We have carefully researched generations of legal precedent right here in the U.S. to find what has always worked and we designed our 541 Trust® in compliance.

Better Experience: Because we have used the 541 Trust® strategy for more than a decade, we have more experience using it than anyone else. We are the modern pioneers of a strategy upheld for generations and have prepared more 541 Trusts™ than anyone else. We understand how they work better than anyone else and our 541 Trusts™ have a proven track record of success. Our 541 Trusts™ have survived challenges in lawsuits, bankruptcies, and IRS audits, and have never failed. The great value comes with our qualifications and experience. Because we developed the 541 Trust® strategy and have employed it for over a decade, we are the best equipped to implement it.

Satisfied Clients: Our satisfied clients include hundreds with modest wealth as well as many high profile or high net worth clients including well known entertainers who have produced over 59 gold and platinum records, #1 singles in US and UK, and the tour producer for Michael Jackson, owners of internationally recognized businesses, and professional athletes (Yankees, Angels, Dodgers, Royals, Cubs, Orioles, White Sox, Lakers, Jazz, Buffalo Bills).

The 541 Trust® provides all of the following benefits:

The best asset protection strategies eliminate personal ownership by placing valuable assets in an irrevocable trust. This is crucial. If you get sued or go bankrupt, you will be asked to disclose everything you own. If your assets are in one of our 541 Trusts™, they don’t need to be disclosed because you don’t own them. (“By establishing an irrevocable trust in favor of another, a settlor, in effect, gives her assets to the third party as a gift. Once conveyed, the assets no longer belong to the settlor and are no more subject to the claims of her creditors than if the settlor had directly transferred title to the third party.” In re Jane McLean Brown, D. C. Docket No. 01-14026-CV-DLG (11th Cir. 2002)).

Example A. – Failure: Mr. Anderson was advised to put most of his valuable assets in a family limited partnership in order to protect them from future creditors. As part of this plan, he and his children were the owners and partners in the partnership. When his son had financial problems and filed for bankruptcy, Mr. Anderson had to pay $80,000 to buy his son’s partnership interest out of the bankruptcy. The asset protection planner declared this a victory because the partnership interest was worth much more than $80,000. Mr. Anderson said, “I shell out $80,000 due to my son’s bankruptcy, and you call this asset protection?”

Example B. – Success: Mr. Walton transferred a home and some cash into a 541 Trust® prepared by our firm at a time when he had no liability problems. Years later, his business went bankrupt and he too fell into personal bankruptcy. The bankruptcy questionnaire asked him to disclose everything he owned. He did not need to disclose the trust or the home and cash because they were in the 541 Trust® he didn’t own them. (See 11 USC 541(b)(1)). Thanks to our trust, the Waltons came through bankruptcy without losing their savings and their home.

Many people use asset protection strategies such as Offshore Trusts (or trusts which transfer offshore at the first sign of duress), Self-Settled Domestic Asset Protection Trusts (DAPTs), Wyoming LLCs or Nevada corporations based on advertising which leads them to believe that they can take advantage of another jurisdiction’s asset protection laws.  Recent case law shows that relying on the laws of another jurisdiction may give you a false sense of security. See the examples below of failed attempts at these strategies. Promoters of Offshore Trusts claim that the only way to protect assets is to use the laws of a foreign jurisdiction such as Cook Islands. The court cases prove this strategy to be flawed. The reason Offshore Trusts want to use the laws of a foreign jurisdiction is because the offshore trust is created against US public policy and the laws of most of the states. The 541 Trust® is not created to avoid US laws, but in compliance with them and works in all 50 States and the Federal Bankruptcy Code. There is no reason to avoid a US court jurisdiction if your trust complies with that system. The 541 Trust® is supported by US court cases and statutes dating back to at least 1806 to present.

Example A. Failure:  Mr. Robbins created several Delaware LLCs believing that Delaware LLCs have better charging order protection.  However, when he was sued in Utah, the Utah court ignored Delaware law and used Utah’s charging order law which allows foreclosure of an LLC interest as well as court orders for accountings and directions which give creditors greater access and control over the LLC.  (American Institutional Partners, LLC v. Fairstar Resources, Ltd., 2011 WL 1230074 (D.Del., Mar. 31, 2011) (“Utah law applies to all execution proceedings in this matter, including the foreclosure of a member’s interest in a limited liability , whether such company is domestic or foreign”).

Example B. – Failure: Thomas Mortensen, a resident of Alaska, created an Alaska asset protection trust and funded it with cash and real estate.  Four years later, he went bankrupt and the assets in the self-settled Alaska asset protection trust (DAPT) were lost in the bankruptcy.  The bankruptcy court applied federal bankruptcy law instead of Alaska law, noting that “Only five states allow their citizens to establish self-settled trusts.  Section 548(e) was enacted to close this “self-settled trust loophole.”  Battley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011.

Example C. Success: Rather than attempting to use another states laws, a client of ours formed on our our 541 Trusts™ in their state of California. Some time later, the client was sued in California. The creditor attempted to also sue the 541 Trust®. The California court threw out the case stating that the assets in the 541 Trust® were unreachable by the creditor.

Many asset protection providers recommend offshore trusts, trusts which transfer offshore at the first sign of duress, or self-settled domestic asset protection trusts (DAPTs), claiming that they are bullet proof.  These providers completely ignore the fact that US courts have a long list of legal precedent to authorize them to order a person to repatriate offshore trust assets or go to prison. There are dozens of cases defeating offshore trusts, including cases quashing trusts which transfer to an offshore jurisdiction when under duress. Likewise, the only cases to date challenging DAPTs have shown the trusts to fail in bankruptcy. Critics of the 541 Trust® provide no legal support for their claims. Don’t listen to us or them. Listen to the courts. Our 541 Trust® is supported by generations of legal precedent.

Offshore trust promoters claim that a court will not threaten you with jail time for contempt unless you are a criminal or you make a last second fraudulent transfer.  This completely ignores the oft-repeated court rulings to the contrary: “It is irrelevant that the settlor was solvent the time of the creation of the trust and did not intend to defraud creditors for ‘it is against public policy to permit the settlor-beneficiary to tie up her own property in such a way that she can still enjoy it but can prevent her creditors form reaching it’.”  In re Portnoy, 201 B.R. 685 (1996), citing Herzog v. CIR, 116 F.2d 591 (2d Cir. )).  Also see In re Brooks, 217 B.R. 98 (D.Conn. Bkrpt. 1998), In re Cameron, 223 B.R. 20 (Bankr. S.D. Fla. 1998), and In re Lawrence, 279 F.3d 1294 (11th Cir. 2002).

In a recent case  Victor Fink transferred assets to a Cook Islands trust provided by one of the popular asset protection providers found on the internet who claimed that the control could be shifted offshore in the event of duress.  The plaintiffs were able to obtain temporary restraining orders which prevented the trustees and protectors from shifting the control to the offshore trustee (South Pac Trust International, Inc.) and the bank accounts were all frozen. See Indiana Investors, LLC v. Hammon-Whiting Medical Center, LLC No. 45D02-0807-CT-201 (Lake Superior Court, Lake County, Indiana); Indiana Investors v. Victor Fink, No. 12-CH-02253 (Circuit Court of Cook County, Illinois, Chancery Division).

DAPTs also have a dismal record in court challenges. While there are only a few court cases dealing with DAPTs, the trust has been defeated in each case because a DAPT will not will not protect assets in bankruptcy nor will it protect assets if you are sued in one of the majority of US states that does not recognize DAPTs . See In re Mortensen, Battley v. Mortensen, (Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011) and Waldron v. Huber (In re Huber), 2013 WL 2154218  (Bk.W.D.Wa., Slip Copy, May 17, 2013). Unlike all the offshore trust or DAPT providers, we use asset protection strategies that are upheld by recent court cases and generations of precedent.

Unlike our competitors, we can actually send you court cases where the 541 Trusts™ we have created have been upheld in court.

It is important to know that our 541 Trusts™ are designed to provide simplicity and flexibility. This includes the ability to access trust assets. Our 541 Trusts™ are tailored to your unique circumstances and allows for simple access to trust assets without jeopardizing the asset protection benefits.

Every plan we create is uniquely tailored to each client. We never put a client into a cookie cutter plan nor do we recommend a 541 Trust® if it doesn’t conform with the clients situation, goals, or needs. We always structure a plan to meet the specific needs and goals of the client. No two plans are exactly alike.

We would not want an asset protection plan that is expensive, difficult to maintain, or difficult to get out of. Offshore trusts can cost between $20,000 to $40,000 to implement and $5,000 to $10,000 per year to maintain and require extensive IRS reporting each year. Our 541 Trust® is about 1/4 the cost of an offshore trust and requires no annual maintenance fees. We can send you diagrams, examples, and answers to frequently asked questions that make our strategy easy to understand. Our 541 Trust® is so simple to implement that we can usually complete the entire plan within about a week. Our 541 Trust® involves little to no ongoing maintenance. Most importantly, our 541 Trust® is easy to modify or unwind if your circumstances change.

If you search the internet for asset protection strategies, you will see that almost every provider talks about equity stripping, but their equity stripping plans fail to protect the majority of the equity because the lien is based on a minimal loan or a line of credit.  We have a better equity stripping strategy which protects the entire value of the asset at all times.

Example A. Failure:  Mrs. Johnson owns an apartment building in an LLC.  She puts a lien on the apartment building in order to protect it.  The lien is based on a line of credit from a friendly source. Liens based on loans or lines of credit require that funds actually be borrowed to be effective. The lien is only as large as the amount of debt. If you do not borrow against the line of credit, no equity is stripped. If a customer slips in her parking lot and sues the LLC, they can get all the equity except for the amount actually borrowed on the line of credit.  The lien was a smokescreen, but it was not an effective asset protection strategy.

Example B. Success:  Mrs. Johnson owns an apartment building in an LLC.  She creates one of our Irrevocable Trusts which owns an Investment LLC.  The Investment LLC puts a lien on her apartment based on our exclusive equity stripping strategy.  If a customer slips in her parking lot and sues the LLC, they cannot get any of the equity because it is completely protected by a legitimate lien on the entire value of the asset.  All of the equity in the apartment building is protected for as long as the lien remains in place.

We created a 541 Trust® for a client who was a business owner. He funded the 541 Trust® with a paid off home and a brokerage account. Years later during the economic downturn of 2008 the client’s business began to fail. As a result, the client and his business ultimately went bankrupt. If the client owned the home and brokerage account they would have been lost in bankruptcy. The bankruptcy trustee knew about the trust but still agreed that the assets in the trust were protected. Even though the client lost their business due to the bad economy and declared personal bankruptcy, none of the trust assets were lost. They had a home to live in and had funds to get back on their feet again. They continue to thank us years later. This is one of many success stories.

In 2009 several of our clients transferred their homes and other investment assets into trusts designed by McCullough Sparks.  In 2011 their business borrowed from a group that later turned out to be a Ponzi scheme.  When this group went under it also took our client’s business down with it. Even though our clients were victims of this Ponzi scheme, a court appointed receiver was a assigned to attempt to collect over $13,000,000 from our clients individually because each had borrowed money from the Ponzi scheme and had personally guaranteed the debt. Our clients fully disclosed all of their financial affairs including substantial assets held by their trusts.  After concluding that the trust assets were not reachable, the receiver settled the case for a minimal amount remaining in their business but agreed that it could not collect anything from the individuals. All of the trust assets were protected.

Our opinion and the opinions of others are of little importance if the courts don’t agree.  What is ultimately most important is whether the strategy is upheld when challenged. We’re confident that our 541 Trust® strategy provides the best asset protection because of the enormous body of law supporting it. We’ve seen the 541 Trust® successfully tested time and time again. The legal precedent supporting the 541 Trust® speaks for itself.