Scope of the Richstar decision

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Scope of the Richstar decision’ at the following link -  http://youtu.be/N2VpKrws93c

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

It’s fair to say Richstar is seen as probably the high watermark in relation to how the assets of a trust may be exposed in the context of some sort of bankruptcy litigation. Interestingly, it has remained almost as an outlier decision.

There really haven't been any decisions that have supported the landing the court reached in relation to Richstar. On top of that, the cases like Smith which have come down since Richstar, effectively completely ignore Richstar and go to the extent of saying it doesn't actually represent good law.

Ultimately, pragmatically and practically what the position seems to be is as long as a trust is structured appropriately it will provide a very good level of asset protection from creditors and should be seen as probably the choice structure in an estate planning exercise under a will - in other words, the use of a testamentary discretionary trust - in order to provide an adequate level of protection.

Until next week.

Impact of Richstar on discretionary trusts

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Impact of Richstar on discretionary trusts’. If you would like a link to the video please email me.

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

Probably the most interesting part of Richstar is that in some respects counter-intuitively, it confirms that trusts remain a very robust structure from an asset protection perspective.

If you actually take a helicopter view of where the court landed in Richstar, it certainly supports this idea that just because an individual happens to be the trustee and beneficiary and appointor will not of itself mean that the trust is ignored and that the assets of the trust will automatically be deemed to be those of the relevant individual.

In contrast however, and the flipside to this argument is that if you do fulfil a number of those roles and the court feels as though that’s enough in combination to create a scenario where a person is effectively the alter ego of the trust, then indeed the trust structure will not provide you any asset protection and the assets will be potentially exposed.

Until next week.

Image credit: Jasper Nance cc

Is appointorship an asset?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Is appointorship an asset?’ If you would like a link to the video please email me.

As usual, a transcript of the presentation for those that cannot (or choose not to) view the presentation is below –

Whether the appointor role is an asset on the holder’s bankruptcy is probably one of the most contentious issues to have arisen in recent years. Certainly, the feeling amongst lawyers that act on behalf of trustees in bankruptcy or creditors is that absolutely the role is a potential asset.

If it is an asset, then it forms part of the bankrupts’ estate. The reality however when you actually look at the decisions that have been handed down is the exact opposite. So in other words, the role of an appointor is a personal role, akin to a directorship. Therefore, that’s not an asset that can be handed onto creditors.

Having said this, the issue does not seem to be going away and the conservative view would be that you would try, when setting up this type of structure, to ensure that you do one of a myriad of things.

So for example, making sure that if there is an at risk person that is needing to fulfil the role of appointor or principal, that they don’t fulfil that role individually and solely, that ideally there's some other person acting with them.

Secondly, the way in which the role is structured, it's embedded under the trust instrument, whether it be a family trust or a testamentary discretionary trust, the appointor is automatically disqualified in the event of committing an act of bankruptcy.
Until next week.

Importance of minimising loan accounts to at risk beneficiaries

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Importance of minimising loan accounts to at risk beneficiaries’.  If you would like a copy of the video link please email me.

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

The reality in relation to beneficiary loan accounts is that sometimes they're unavoidable.

If distributions are being made by the trustee down to an at risk beneficiary and those amounts aren't physically paid, then they’ll sit on the balance sheet either as a credit loan or an unpaid present entitlement.

In either scenario, that’s clearly an asset of the at risk beneficiary. So it’s really important that on a regular basis those potential assets are reviewed and steps are taken to ideally quarantine them away into a protected environment.

The simplest approach, assuming that you can't avoid the distributions coming down to that person, will be to forgive that debt, or as an alternative, making sure that the outstanding amount is gifted across to a protected environment whether that be a spouse, some other family member or perhaps some other related structure.

The critical thing in all of that, quite aside from the pure bankruptcy issues is however that there must be a particular effort applied to the related issues. That is, things like the commercial debt forgiveness rules, wider tax planning issues and the stamp duty rules, that are unfortunately different in every jurisdiction around the country, are all potentially relevant before any step can be taken to quarantine the loan account wealth. 

Until next week.

Segregating assets via multiple TDTs

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Segregating assets via multiple TDTs’ at the following link - http://youtu.be/9_dgi85kC0s

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

TDTs or testamentary discretionary trusts have historically been considered almost immune from anything in relation to wider asset protection issues, simply because they're set up under the will of the will maker.

What we've seen over time however is that what has been a fairly traditional approach in terms of having very passive assets sit inside the trust has gradually expanded. It’s not unusual to have business run through a testamentary trust or a partnership interest through a testamentary trust. In any of those scenarios, all of the normal principles that apply to asset protection and limited liability equally apply to testamentary discretionary trusts.

As there's no extra protection provided by the testamentary trust, basic structuring issues such as utilising a corporate trustee to provide limited liability for the structure, or more importantly, ideally, using separate special purpose vehicles to undertake each uniquely risky business activity is strongly preferred.

Until next week.