Risk Management Flashcards
What is charging order?
Charging order is an order issued by a court, (that subjects a debtors interest in an entity to a creditors debt judgement) where the creditor only gets distributions from the entity to the extent of debt
What is the general statute of limitation’s for fraudulent transfers for existing creditors, bankruptcy, and most states?
The statue of limitations on fraudulent transfer claims in most states is four years from the transfer, or for existing creditors within one year of when the transfer could reasonably have been discovered
A bankruptcy trustee can have a fraudulent transfer set aside if the transfer is made within two years of bankruptcy, certain transfers to self settled, trust, or similar device subject to a ten-year statue of limitation.
What is a self settled trust?
Self settled trust or asset protection trusts that are available in Delaware, Alaska, Rhode Island, Nevada, Colorado, and Missouri specific to state statues. Must be establish for 10 or more years. Cannot be use to avoid child support or alimony. Creditor claims arising prior to transcreation or conduct fraudulent conveyances
What is a traditional domestic asset protection trust?
Typically create it as discretionary spendthrift. Trust may offer, substantial protection.
Restrictions: support or alimony for former spouse, except in Alaska. Creditor claims arising prior to trust creation. Fraudulent conveyance.
What is the dynasty trust?
Created to shift wealth over generations terms are allowed to extend for many generations in some states like Alaska, Delaware, South Dakota, and Nevada where is 99 years.
in states with traditional laws. It is common for the dynasty. Trust to last 21 years past the life of the last living beneficiary who is alive on the trust is establish.
These trust are irrevocable
They often include a spendthrift provision
How is the US legal system different from other western legal systems in terms of asset protection laws?
Contingency fees are allowed in the US, while not allowed in most countries.
Pleadings are protected speech
Punitive damages are allowed in civil cases against individuals, unlike other countries, it is only corporate product liability.
There is no bond requirement, except for appeals.
There is a no “ loser pay“ system in the US
What are the benefits of an offshore asset protection trust?
- Creditor must retain offshore council
- Contingency fee not allowed. Must pay attorney upfront.
- Losing party may have to pay winning party’s attorney fees
- Offshore creditor normally must file suit an offshore jurisdiction
- Statue of limitation’s may be very short
- Creditor may have burden of proving fraudulent transfer.
- May have to pay a bond
- Can’t sue for punitive damages.
- Typically don’t recognize jurisdiction or rulings of foreign courts.
What are offshore trust tax ramifications?
Grantor, seller or beneficiary must pay income tax on all worldwide assets
All items of income, deduction, and credit flow through to grantor
Incomplete gift trust; no tax on appreciated asset at Grantor’s death, no tax on transfers of appreciated assets. When trust is a grantor trust.
Completed gift trust: tax on transfer of appreciated assets when trust is a grantor trust. Tax on appreciated assets at Grantor’s death.
Gift tax: gifts can be either complete (gift tax do on transfers) or incomplete (no gift tax do); incomplete gift requires retention by grantor of special power of appointment.
Estate tax: assets not includable in the estate for federal estate tax purposes.
If there was a incomplete gift made at time of transfer. Assets are included if there is a completed gift.
What is a domestic asset protection trust?
It is also known as a self settled trust and is typically created as a discretionary spendthrift trust.
Delaware, Alaska, Rhode Island, Nevada, and colorado and Missouri have more protective domestic self settled, trust, state, specific statues. And may offer substantial protection.
-Restrictions include child, support, and alimony, except in Alaska
-Creditor claims arising prior to trust creation
-Fraudulent conveyances
529 college savings accounts
Some states exempt assets in 529’s from creditors if the owner resides in the state.
States like Texas exempt plan assets, regardless of where the assets are held
Bankruptcy code exempts 529 funds but disallows contributions made one year before bankruptcy and contributions that exceed $5000 to two years before bankruptcy.
In states that allow debtors to choose state rather than federal bankruptcy, plans may be fully exempt.
- 529 plans have no tax on account growth if conditions are met, contributions may be deductible for state income tax and the limit on the number of times one can change investments is twice per year per beneficiary.
What is the fraudulent transfer law?
Gratuitous transfer of property with the actual or constructive intent to avoid creditors, is fraudulent, and may be satisfied by creditors.
Three classes of creditors
- Present creditor – solvency analysis
- Potential subsequent creditor – badges a fraud
- unknown future creditor
What is the statue of limitation’s for fraudulent transfers law
The statue of limitation on fraudulent transfer claims in MOST STATES IS FOUR YEARS
Or within one year of when the transfer could reasonably have been discovered
- Bankruptcy trustee can set aside fraudulent transfers, meet within two years of bankruptcy
SELF SETTLED TRUST is subject to a TEN-YEAR STATUE OF LIMITATION’S
What is a spendthrift trust
Is a trust, primarily establish for asset protection purposes.
Where beneficiaries precluded from voluntary or involuntary transfers of trust assets.
In most states, settlers cannot utilize a spendthrift trust to protect assets from settlers creditors.
In qualified domestic relations orders who is the “alternative payee“?
The person designated to receive a benefit who is not the plan participant.
The alternative payee must be a spouse, former spouse, child, or other dependent other participant.
“Transfer incident to divorce” is used to split assets between divorcing couples for IRAs.
The risk quantification process compares loss, exposure relative to the following criteria:
Probability of loss, impact and cost of insurance.
Also said as: loss frequencies versus loss severity and the cost of insurance.
