The Aftermath of Battley v. Mortensen

I recently blogged about the decision in Battley v. Mortensen where a federal bankruptcy court hearing invalidated a self-settled spend thrift trust, making the trust property fair game to creditors. Now lawyers from across the nation are left wondering whether this class of trusts can be invalidated in a routine bankruptcy hearing.

Many lawyers maintain that the Battley ruling is not the end of asset protection trusts. These lawyers claim it was simply a case of extreme facts that caused the trust assets of Mortensen (the settlor-debtor) to become available to his creditors.

Mortensen’s trust was “seasoned” in 2009 after Alaska’s four year statute of limitations was satisfied. However, filing for bankruptcy exposed Mortensen’s trust to the Bankruptcy Code’s 2005 revisions which extend the statute of limitations to ten years in cases where it appears a transfer occurred to shield assets from creditors. Mortensen financial situation was already declining when he created the trust, and the court found this to be suspicious.

Taking into consideration the the specific facts of the case, many attorneys assert that asset protection trusts remain a valid way to protect assets even in light of the Battley holding.

See Scott Martin, Trust Experts Say Judge Made “Bad Law” in Landmark Asset Protection Case, The Trust Advisor Blog, Oct. 29, 2011; Brian Spring, Alaska Bankruptcy Court Invalidates Domestic Asset Protection Trusts, Wealth Strategies Journal 2.0, Oct. 31, 2011.  

Special thanks to Lee-ford Tritt(Assistant Professor of Law, University of Florida Fredric G. Levin College of Law) and Jim Hillhouse (WealthCounsel) for bringing this article to my attention.