Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, January 14, 2012

A Case of Bad Facts?

Gavel 2The controversial ruling in Battley v. Mortensen (2011), a case out of the United States Bankruptcy Court for the District of Alaska, has caused many estate planners to question whether the case invalided thousands of domestic asset protection trusts (DAPTs). In this landmark federal bankruptcy case, the court set aside Mortensen’s transfer of real property to an Alaskan DAPT as a fraudulent conveyance. Mortensen was deemed solvent at the time of the transfer, and the state’s four year statute of limitation had already run.

The court applied the federal ten-year statute of limitations, instead, which runs from the date of the filing of the bankruptcy petition for setting aside fraudulent transfers made with “actual intent to hinder, delay, or defraud.” The terms of the DAPT stated that its purpose was “to maximize the protection of trust estate or estates from creditor’s claims.” The court found the trust terms revealed that Mortensen made the transfer with the clear intent to hinder, delay, or defraud his creditors.

Had Mortensen not filed for bankruptcy (without consulting an attorney), he would not have made himself subject to the Bankruptcy Code’s ten-year “clawback” rule. Though the outcome of this case seems to put to question the validity of DAPTs, many estate planners argue that this is simply a case of bad facts.   

See Jennifer L. Moccia, An Overview of Battley v. Mortensen: The End of Domestic Asset Protection Trusts?, WealthCounsel, Jan. 11, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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