Washington Court Deems A Resident’s Asset Protection Trust Invalid

As I have previously discussed, a few state legislatures haveconstructed asset protection trust statutes that permit a grantor to create atrust that is shielded from the grantor’s creditors even though thegrantor is be a beneficiary. Recently, a court in Washington addressed theissue concerning asset protection trust. In 2008, a Washington resident createdan Alaska asset protection trust. He created the trust because of a failing market and seriousfinancial hardship. 

In re Huber, thecourt held that the funding of the trust was considered fraudulent under theBankruptcy Code. Moreover, the court held the trust was not valid because ofthe Conflict of Laws provision. The effects of this disputed analysis mean thatevery self- settled spendthrift trust made by a Washington domiciliary would beinvalid no matter what circumstance. The court reasoned that the trust had asignificant relationship with Washington, which had negative public policy onasset protection trusts. Some speculate that absent the fraud the outcome ofthe case may have been different.

See Gideon Rothschild and Daniel S. Rubin, Alaska Asset Protection Trust Deemed Invalid Under Washington Law, WealthManagement.com, May 23, 2013.