A recent Washington bankruptcy case is a reminder of the need to structure asset protection trusts with care. In the case, the court allowed creditors to reach the assets of an Alaska asset protection trust set up by a real estate developer. The court based its decision on a number of factors. Few trust assets were located in Alaska and several badges of fraud were present. The court applied Washington law despite the fact that the trust recited that Alaska law applied.
In structuring an asset protection trust, settlors should have or create a relationship with the state where the trust is being established. An asset protection trust will provide its best protection if created and funded when creditors are not pounding down the door.
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