A trust is the right to the effective enjoyment of assets over which another person has legal title; a property interest held by one person (the trustee) at the request of another (the settlor) for the benefit of another (the beneficiary). Trusts have different names depending on their purpose, i.e. land trusts, charitable remainder trusts, irrevocable trusts, etc.

Trusts are usually promoted by lawyers or non-lawyers who work under their supervision. Two-hour seminars are held at small hotels across the country promoting the use of family trusts and limited partnerships for “ultimate asset protection.” In law school, there is a class called Trusts, which is why many lawyers think (mistakenly) that this is the best entity available for privacy and asset protection. Although they may have some value for estate planning purposes, they are completely useless as vehicles for asset protection. The problem is this: any entity or asset that is visible can be attacked by private lawyers at least or, in the worst case, instantly seized by a Federal Judge.

Let me give you a real life example to demonstrate the pitfalls of trusts. In the 1990s, Stephen Hilbert was the high-flying CEO of Conseco, Inc., the insurance and financial services giant. He had it all, a 33-acre walled estate in Indiana, the racehorses in Kentucky, and the 18,500-square-foot vacation home on St. Martin in the Caribbean. When all was going well at the height of the bull market in the 1990s, Mr. Hilbert, with the consent of his Board of Directors, borrowed more than $175 million to reload his company’s stock. His company guaranteed most of these loans.

Things began to unravel when Conseco agreed to acquire Green Tree Financial Corp, a Minneapolis mobile home builder for $6.4 billion in stock in 1998. The mobile home market and Conseco’s stock quickly tanked, losing 90% of its share. its value. The Board of Directors forced Hilbert out in 2000 and gave him until the end of 2003 to pay off at least part of his loan package. He paid around $7 million and then stopped paying altogether. His silk stocking lawyers advised him to set up a series of trusts to “protect his assets” from any possible collection demands by his former company. They suggested that he appoint his wife as Trustee to control the assets in the Trusts. He was charged several hundred thousand dollars for this prophetic advice.

Divorced five times, Mr. Hilbert had no wife, so he quickly married the stripper who appeared at his adult son’s bachelor party. His name is Tomisue. (In Las Vegas, any woman with two names is supposed to be in the adult business, but let’s not get catty.)

Tomisue became a trustee of several family trusts and named his minor children as beneficiaries. From 2001 to 2003, Mr. Hilbert transferred more than $100 million in assets to his wife individually and to trusts controlled by her. Conseco’s lawyers were not amused. They filed a lawsuit against Hilbert, Tomisue and their two minor children to recover the unpaid portion of the loans. The lawsuit claimed that Mr. Hilbert fraudulently transferred assets to his wife and their trusts to “avoid paying” his creditors. He tried to reverse those transfers and foreclose on his primary residence. They named their two minor children as defendants “solely because they have beneficial interests” in a family trust called the Hilber Residence Trust. In response to the lawsuit, Mr. Hilbert lamented, “I feel like what they did to me and my family, to sue my 9-year-old son, to sue my 13-year-old son, was purely an attempt to intimidate me.” (Do you think your lawyers warned you about this possibility?)

Conseco brought in a tight-fisted collection attorney, Mr. Oslan, to help with his collection efforts against the Hilberts. Mr. Oslan stated matter-of-factly, “Our view is that these are either fraudulent transfers or Hilbert has enough control over the assets that they are not actual transfers. She (Tomisue) is not free to do with the assets as she wishes.” wants”. see the settings. Maintain control. Trusts are a sham.”

Where are Mr. Hilbert’s lawyers during this mess? They smile all the way to the bank! They first sold Hilbert the Trusts for millions upon thousands of dollars (and the idea that they would provide him with asset protection) and then charge him thousands more each month to defend him, Tomisue, the Trusts and their children. Their double dip is completely ethical.

The outcome of this litigation has not been resolved. Mr. Hilbert has voluntarily relinquished some of his assets to Plaintiff like an olive branch in trying to resolve the matter to no avail. Mr. Oslan is working on a contingency basis and knows there is more meat left on this bone, so he is scouring the courts hoping to get more meat under his fingernails. And Mr. Hilbert continues to pay his lawyers to defend him.

The point is this: Both family trusts and limited partnerships are visible, both typically employ family members, and can be attacked by private attorneys like Mr. Oslan or seized outright by any federal judge. When I was a collection attorney, I always sued trusts, the trustee, beneficiaries, spouses, family members, children, babies, everyone. I wasn’t always successful in convincing a judge to void the trust or void all the transfers, but at least I usually got a big settlement. With any litigation, a Defendant has to weigh what they are spending on attorneys’ fees to defend a lawsuit against what they can pay the Plaintiff to end the litigation (and the pain). It is a purely economic decision. The facts and merits of the case are irrelevant.

For these reasons, we advise our clients that to protect their assets they must have complete financial privacy and never use family members as part of an asset protection strategy. Trusts and family limited partnerships violate both principles.

(C) 2006 William S. Reed, Juris Doctor

Related links:

[http://www.thewayiseeitbybillreed.com]

[http://www.thewayiseeitwithbillreed.com]

[http://www.billreedassetprotection.com]

[http://www.assetprotectionforums.com]

[http://www.apgnv.com]

http://www.apcg.net

http://billreed.squarespace.com

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