Georgia Assembly Passes DAPT Legislation–Sends to Governor

The Georgia Assembly passes HB 441/AP which would allow the creation of Domestic Asset Protection Trusts (“DAPT”) in state. Georgia has long allowed traditional spendthrift trusts so long as such weren’t self-settled. A DAPT allows a self-settled spendthrift trust. Most states enacting DAPT laws have done so with the intent of encouraging assets to flow into the state’s trust companies. However, at least one opponent of DAPTs has opined that this DAPT law will have the exact opposite effect under Georgia’s legislation. Here’s what HB 441 would and would not do:
1. Allow spouses, parents, lineal descendants of the settlor, employer, any business entity in which the holdings of the settlor represent at least 30% of the total voting power of all interests entitled to vote, or siblings, to serve as an “independent qualified trustee”;
2. Requires at least one beneficiary other than the settlor to whom income and principal may be distributed as a “qualified interest”;
3. A “qualified interest” means that interest of the settlor of the self-settled DAPT to which such settlor is entitled to receive as a distribution of principal or income in the discretion of one or more independent qualified trustee”;
4. Would not protect from creditors of the settlor the following obligations:
a. Alimony or child support;
b. Taxes or other governmental obligations;
c. Tort judgments;
d. Judgments or orders for restitution as a result of a criminal conviction of the beneficiary; or
e. Judgments for necessaries;
f. Financial institutions to the extent that assets of the DAPT were reported to such institution as
belonging to the settlor for the purposes of obtaining or extending credit from such institution.

As we can clearly see, the exceptions may indeed swallow the whole. So, if the legislative intent was to encourage creation of DAPTs in Georgia, the exact opposite may occur: parties desiring to create such trusts may be well-advised to do so in another jurisdiction such as Nevada or Delaware and move their assets to such jurisdictions to actually obtain any such protection from creditors. NOTE: Georgia’s governor has not signed this bill into law as of the date of this writing.

So, what’s a person desiring to engage in lawful estate planning to do? Fear not, WRNicholsLaw has solutions that will accommodate both Georgia law and the desires of those persons. While nothing is fool-proof, our designs are created to comport with longstanding Georgia law and allow you to keep the assets in question invested in Georgia. If you don’t have an estate plan, Book an Appointment by clicking on the widget and schedule a time to speak with us about your planning–you’ll love doing business with WRNicholsLaw!

Some Thoughts on Asset Protection and Liability Limitation Strategies: What OJ & Lance Armstrong Did

Retirement plans offer some long-term protection even in the event of a Black-Swan event such as a bankruptcy. While the discussion of 401(k) plans and Roth IRAs generally revolve around tax-deferred growth benefits, these devices, along with insurance-based vehicles, really show their true potential in terms of their respectively available asset protection features–even in the event of a bankruptcy.

OJ Simpson has had a judgment of $33 million plus against him since 1997. Yet, Simpson’s NFL defined benefit plan still holds over $4 million that is sheltered under ERISA law from his creditors on that judgment: the Ronald Goldman and Nicole Brown-Simpson families.

Similarly, Lance Armstrong has faced several lawsuits from entities seeking to recoup their payments to him after Lance admitted to doping while winning seven Tour de France races. These creditors even include the US Government and the US Postal Service! Yet, because Armstrong did a lot of asset protection planning in the form of trusts to help shield his assets, his retirement assets will likely stay away from the reach of creditors.

Currently, 401(k) plan assets are protected in an unlimited dollar amount against creditors in bankruptcy proceedings. Upon retirement, if the employee/investor transfers the 401(k) balance into a rollover IRA, and doesn’t commingle those same funds with personal contributions to the same IRA, the protection from creditors remains unlimited. But, IRAs comprised only of traditional IRA contributions and IRAs comprised of rollovers from an employer plan commingled with personal IRA contributions are capped at a maximum of $1.245 million (continues to be inflation-adjusted from 2005 basis).

Several states like California have become increasingly aggressive in pursuing traditional IRA assets in liability cases. So, investors should seek to keep as much as possible in segregated ERISA-sponsored retirement investments, as they still provide unlimited protection for the assets in the plan, even against these aggressive states.

Bottom line:  good asset protection planning can start with such a simple move as keeping proper form in your retirement plan assets.