Selection of Asset Protection Trust Jurisdiction

By Monte L. Schatz

A lawsuit for wrongful death and negligence was filed February of 2017 in the Los Angeles Superior Court by parents of their 21 year old son who drowned July of 2015 in the pool of celebrity Demi Moore’s Beverly Hills residence. The suit is being filed against two individuals (Demi Moore’s employees who managed the house) as well as the Tree House Trust. Moore’s property was strategically titled in this trust for asset protection purposes. Moore is not likely to be named individually in the lawsuit because of her residence being held in an asset protection trust.

Most clients should consider effective asset protection strategies. Asset protection requires many legal and tax considerations unique for each client’s situation.

Historically, many trusts placed heavy reliance upon trust spendthrift clauses. These clauses often protected the trust from creditors from satisfying judgments against property held within the trust. However, once a distribution is made from the trust to a beneficiary, the creditor can attach those distributed trust assets to satisfy their judgments. Also, many states exempt certain classes of creditors as a matter of public policy from spendthrift provision. Examples include creditors who have provided essential services, or individuals who have judgments for unpaid alimony or child support liens.

Irrevocable asset protection trusts can provide additional protection from creditor claims. Asset protection trusts can be “domestic” or “offshore”. Before 1997, most asset protection trusts were set up in “offshore jurisdictions” outside the United States and generally were used by only the extremely wealthy. In 1997, Alaska adopted the first state laws for “domestic asset protection” statutes. Many states have since adopted similar laws and other states are considering adopting asset protection laws. The primary differences between the two types of asset protection trusts is that domestic asset protection trusts are not as likely to raise concerns with the IRS as offshore asset protection funds. Creditors may have a more ability to attack a domestic asset protection trust as they are within United States jurisdiction, the fact remains assets are kept offshore in a secure account is something that will raise IRS scrutiny due to prior historical IRS tax evasion scams utilizing offshore trusts.

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