1. ”Asset Protection in California: Pitfalls & Opportunities”
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”Asset Protection in California: Pitfalls & Opportunities”
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2. Your Instructor: Francis Burton Doyle, Esq., WealthPLAN
Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities”
Your Instructor: Francis Burton Doyle, Esq., WealthPLAN
Member, State Bar of California. Certified Legal Specialist, California State Bar, Taxation Law and Probate Estate Planning & Trust Law
Founder, WealthPLAN, 30 years of experience in Tax, Estate Planning, Probate Trust Administration & Litigation
Instructor, Continuing Legal Education Organizations including National Business Institute (NBI) & Lorman Education
Professor; Lincoln Law School of San Jose, Wills & Trusts and Real Property
Past President, Santa Clara County Estate Planning Council
Past President, Silicon Valley Planning Giving Council
Past Chair, Planning Committee, Annual Jerry A. Kasner Symposium, Santa Clara University, School of Law
JD, University of San Francisco Law School, MS, Taxation, Golden Gate University, BA Santa Clara University

3. ”Asset Protection in California: Pitfalls & Opportunities”
Advanced Legal Training Institute presents…
”Asset Protection in California: Pitfalls & Opportunities”
Instructor
Francis Burton Doyle, Esq., WealthPLAN
Program Director
Mary G. Anderson, Advanced Legal Training Institute

4. Introduction & Overview of the Presentation
Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities”
Introduction & Overview of the Presentation
Definition of Asset Protection Planning
For our purposes, the term “asset protection planning” will refer to the adoption of advance planning techniques that tend to place assets beyond the reach of future potential creditors.
Asset protection planning must not involve hiding assets, committing fraud or perjury, or engaging in fraudulent transfers.
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5. Fraudulent Conveyance Rules
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Fraudulent Conveyance Rules
California has enacted a version of the Uniform Fraudulent Transfer Act in Civil Code Sections §
A “fraudulent conveyance” is a transfer made with the intent to hinder, delay, or defraud a creditor.
A “fraudulent conveyance” is voidable.
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6. Fraudulent Conveyance Rules
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Fraudulent Conveyance Rules
In addition to a transfer made with the actual intent to hinder, delay, or defraud any creditor, a transfer made without fair consideration by a person who is insolvent, or who will be rendered insolvent by reason of the transfer, is also deemed to be a “fraudulent conveyance”.
Under the UFTA, “[a] debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation.”
A person is also deemed insolvent under the UFTA if he or she is generally not paying his or her debts as they become due.
A fraudulent conveyance will be found, where the transfer is made without fair consideration by a person who is engaged in a business, or who is about to be engaged in a business, for which the transferor's remaining property is unreasonably small in relation to the business or transaction.
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7. Two types of “fraudulent conveyance”
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Two types of “fraudulent conveyance”
“Actual”- a transfer which can be proven to have been with the intent to “hinder, delay or defraud “ any creditor;
“Constructive”- transfer without “reasonably equivalent value” or a transfer made prior to an undertaking which the debtor knew would result in insolvency or near insolvency
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8. “Badges of Fraud” Transfer was to an insider;
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“Badges of Fraud”
Transfer was to an insider;
Debtor retained possession or control after transfer;
Transfer undisclosed
Transfer was made after obligation or liability incurred
Transfer of “substantially all” of debtors assets
Debtor absconded;
Debtor concealed assets;
Consideration for transfer not “reasonably equivalent value”;
Debtor insolvent at time of transfer or transfer made debtor insolvent;
Transfer made shortly before or after debt or liability incurred;
Transfer to lienholder who transferred assets to an insider.
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9. Welcome to the Webinar “Asset Protection Planning in California: Pitfalls & Opportunities”
Who is a “creditor”?
Cal Civil Code § (c) defines a “creditor” as anyone with a “claim.”
“Claim” is defined as a “right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” Cal. Civil Code § (b)
Only “unforeseen, future creditors” fall outside this definition.
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10. Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities”
Super Creditors
The following creditors are given priority over all other creditors as a matter of law:
United States Federal Government (most particularly the IRS)
State of California (most particularly the Franchise Tax Board)
Spouses and children with reference to support orders
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11. Asset Protection vs. Pre-Bankruptcy Planning
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Asset Protection vs. Pre-Bankruptcy Planning
Bankruptcy Code has its own “fraudulent transfer” and “preferential transfer” rules
Bankruptcy Code “fraudulent transfer” rules are modeled after Uniform Fraudulent Transfer Act
Bankruptcy Code “preferential transfer” rules are strict and mechanical (e.g.: transfer made within 90 days of filing Bankruptcy Petition) no “badge of fraud” or debtor intent need be shown
Bankruptcy Trustee or a creditor in the Bankruptcy can use state law fraudulent conveyance rules to void transfers and make them part of the bankruptcy estate
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12. Welcome to the Webinar “Asset Protection in California: Pitfalls & Opportunities”
Criminal Liability
Cal. Penal Code §531 makes every person (including lawyers, accountants and advisors) who participates in a fraudulent transfer guilty of a misdemeanor
Cal. Bus. & Professions Code §6128(a) provides that any attorney guilty of any deceit or collusions or consents to any deceit or collusion with intent to deceive the court or any party is guilty of a misdemeanor
Bankruptcy Code § criminalizes participation in transfers “designed to defeat the Bankruptcy Code”
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13. Aiding and abetting a fraud Participating in a Fraudulent Conveyance
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Civil Liability
Conspiracy to defraud
Aiding and abetting a fraud
Participating in a Fraudulent Conveyance
Malpractice
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14. Ethical Prohibitions Cal. Rule of Professional Conduct 3-210 states,
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Ethical Prohibitions
Cal. Rule of Professional Conduct states,
“A member shall not advise the violation of any law, rule, or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid.”
Advising a client to engage in a “fraudulent conveyance” would fall within the scope of this prohibition.
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15. Importance of Properly Vetting the Client
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Importance of Properly Vetting the Client
Does the client plan to file for Bankruptcy protection?
Is the client susceptible to involuntary bankruptcy?
Is the client insolvent?
Is there any “badge of fraud” involved in the client’s situation?
Does the client have a “Super Creditor” who is unpaid or is pursuing action against the client?
Why is the client seeking asset protection planning?
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16. Importance of the Engagement Letter
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Importance of the Engagement Letter
Defining the scope of services
Good faith reliance on the client’s information and representations
Excluding specific services
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17. Asset Protection Planning in the Context of Normal Estate Planning
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Asset Protection Planning in the Context of Normal Estate Planning
Non-grantor trusts- See Cal. Probate Code §15304
Spendthrift Provisions- Authorized by Probate Code §§
Discretionary Distributions-Authorized by Probate Code §15303
Support Trusts-Authorized by Probate Code §15302
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18. Exceptions to the Spendthrift, Discretionary, Support Trust Protection
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Exceptions to the Spendthrift, Discretionary, Support Trust Protection
Claims for Child or Spousal Support-- Cal Probate Code §15305
Restitution Judgments Resulting From the Commission of a Felony-- Cal Probate Code §
Liability to State of California or local public entity for public support-- Cal Probate Code §15306
Court Order in favor of Judgment Creditor or Creditors for 25% of Trust Distributions under Cal Probate Code § and CCP §
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19. California vs. Other Jurisdictions Regarding Trust Protection
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California vs. Other Jurisdictions Regarding Trust Protection
Non-existent or More Lenient Fraudulent Conveyance Rules
Express Allowance of Self-Settled Asset Protection Trusts
Federal Bankruptcy Rules Apply to US jurisdictions
Federal Trade Commission vs. Affordable Media, LLC; (1999) 179 F.3d 1228
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20. Qualified Personal Residence Trust
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Qualified Personal Residence Trust
Standard estate planning technique authorized by IRC §2702
Preserves equity in residence or vacation home for descendants
Superior to a Statutory Homestead Exemption
Cal Probate Code §15304 would only apply to grantor’s right to live in residence
Future Appreciation is out of grantor’s gross estate of federal estate tax purposes
The remainder interest given when the irrevocable trust is established is a taxable gift and must be reported to IRS on a Form 709
Grantor must pay fair market value rent at the end of the trust term
Descendants inherit the grantor’s low “basis” in the property for income tax purposes [IRC §1015]
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21. Family Limited Partnerships
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Family Limited Partnerships
Standard estate and business succession planning technique
Protects underlying assets of FLP from lien or attachment
Exclusive remedy of creditor of limited partner is a “charging order”
Creditor who obtains “charging order” is only an assignee and is not a limited partner and does not have the rights of a limited partner
FLP provisions can allow for buy out of debtor-limited partner in the event of a “charging order”, insolvency or bankruptcy subject to the fraudulent conveyance rules
Establishment of an FLP could under certain circumstances be a fraudulent transfer
Limited Partner not liable for debts of FLP beyond limited partnership interest
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22. Limited Liability Companies
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Limited Liability Companies
Standard estate and business succession planning technique
Protects underlying assets of LLC from lien or attachment
Exclusive remedy of creditor of member of LLC is a charging order
Creditor who obtains a “charging order” is not a member of the LLC
LLC provisions can allow for buyout of debtor member in the event of a “charging order”, insolvency or bankruptcy subject to fraudulent conveyance rules
Establishment of an LLC could under certain circumstances be a fraudulent transfer
Member is not liable for the debts of the LLC beyond the member’s interest
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23. Family Corporations Standard business organization
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Family Corporations
Standard business organization
Subject to the alter ego doctrine: unity of interests and ownership plus inequitable result
Protects underlying assets of Corporation from lien or attachment
Shares of debtor subject to lien and attachment
Creditor may become shareholder of the Corporation with shareholder rights
Shareholder agreement can provide for buyout in the event of lien, attachment, insolvency or bankruptcy subject to fraudulent conveyance rules
Corporation can be capitalized with voting and non-voting shares
Formation of the corporation may under certain circumstances be a fraudulent conveyance
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24. Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities”
Retirement Plans
IRC §401 plans subject to ERISA are completely exempt from attachment. Patterson v. Shumate 112 S.CT 2242 (1992)
IRA plans are formed under IRC 408 and are not subject to ERISA and do not have the exemption protection of the Patterson case. IRA accounts are only exempt to the extent “reasonably necessary to support the debtor and the debtor’s family” per CCP §
Non-qualified retirement plans are also only exempt to the extent allowed by CCP §
Bankruptcy Code allows complete exemption for “tax qualified” retirement plans under both IRC §§ 401 and 408
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25. Finally, other techniques include:
Welcome to the Webinar ”Asset Protection in California: Pitfalls & Opportunities”
Finally, other techniques include:
Grantor retained annuity trusts-subject to Cal. Probate Code §15304
Private annuities-subject to fraudulent conveyance rules
Inter-family installment notes-subject to fraudulent conveyance rules
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26. SECTION 1.1 DISTRIBUTION OF INCOME AND PRINCIPAL
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Trust Provisions:
SECTION DISTRIBUTION OF INCOME AND PRINCIPAL
So long as the child is living, the Trustee may from time to time pay to or apply for the benefit of the child so much of the net income of the Trust as the Trustee, in his or her sole and absolute discretion, shall deem reasonably necessary for the proper health, education, support or maintenance of the child. At the end of each calendar year, any of the net income not so distributed shall be accumulated and added to principal. If the Trustee considers such income payments insufficient, the Trustee may pay to or for the benefit of the child those sums from principal as the Trustee, in his her or her absolute discretion, considers necessary for the child's proper health, education, support or maintenance, after taking into consideration, to the extent the Trustee considers advisable, any other income or resources of the beneficiary's made known to the Trustee and reasonably available for those purposes.
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27. SECTION 2 Spendthrift Clause
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Trust Provisions:
SECTION 2 Spendthrift Clause
Each and every beneficiary's interest in both the income and principal of this Trust or any trust established pursuant to this Agreement, with the exception of the Trustor, as to whom this provision shall have no application, is not subject to voluntary or involuntary transfer, and a beneficiary's interest in both the income and principal may not be anticipated, assigned, encumbered, transferred or subjected to creditor's claim, legal process, or enforcement of a money judgment until actually paid to the beneficiary. Accordingly, no beneficiary of this Trust shall have any right, power, or authority to sell, assign, pledge, mortgage or in any other manner to encumber, alienate, or impair all or any part of his or her interest in the trust or in the principal or income of the trust. The beneficial and legal interest in, and the principal and income of, the trust and every part of it shall be free from the interference or control of any creditor of any Beneficiary of the trust and shall not be subject to the claims of any such creditor nor liable to attachment, execution, bankruptcy, or any other process of law.
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28. SECTION 2 Spendthrift Clause (Continued)
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Trust Provisions:
SECTION 2 Spendthrift Clause (Continued)
The income and principal of the trust shall be paid over to the Beneficiary in person, or in the event of the minority or incompetency of the Beneficiary, to any guardian of the person of that Beneficiary, or to or for the benefit of the Beneficiary, in such manner as in the Trustee's discretion seems most advisable at the time and in the manner provided by the terms of the trust, and not upon any written or oral order nor upon any assignment or transfer by the Beneficiary nor by operation of law.
If the creditor of any Beneficiary who is entitled to any distributions from a Trust established under this instrument attempts by any means to subject to the satisfaction of his or her claim that Beneficiary's interest in any distribution, then, notwithstanding any other provision in this instrument, until the release of the writ of attachment or garnishment or other process, the distribution set aside for such beneficiary shall be disposed of as follows:
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29. SECTION 2 Spendthrift Clause (continued)
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Trust Provisions:
SECTION 2 Spendthrift Clause (continued)
1) The Trustee, in the Trustee’s sole and absolute discretion, may pay to or apply for the
benefit of the Beneficiary all sums the Trustee determines to be necessary for the reasonable health, education (including study at an institution of higher learning or vocational school), support or maintenance of the Beneficiary according to his or her accustomed mode of life; and
2) The portion of any distribution that the Trustee determines to exceed the amount necessary for health, education (including study at an institution of higher learning or vocation school), support or maintenance shall be delayed until one month after the release of the writ of attachment or garnishment or other process.
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30. Welcome to the Webinar “Asset Protection Planning in California: Pitfalls & Opportunities”
Summary & Conclusion
Top three tasks for you to consider – call to action…
Q&A
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31. Questions & Answers ”Asset Protection in California: Pitfalls & Opportunities”
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