Dec 1, 2011 12:00 PM

Does the bankruptcy court's decision in In re Mortensen spell the end of the asset protection trust?

By John E. Sullivan III, Mark Merric, Robert D. Gillen, Alexander A. Bove, Jr. & Richard W. Nenno

The first bankruptcy case involving an Alaska asset protection trust (APT), In re Mortensen,¹ has been decided. This case (we'll refer to it as Mortensen II, as it was the second of three related rulings) revolved around the February 2005 settlement of an Alaska APT by Thomas Mortensen and his transfer of a Seldovia, Alaska real estate parcel into the APT at the time of settlement. Thomas thereafter filed bankruptcy in August 2009, and the bankruptcy trustee sued to set aside the Seldovia transaction on the grounds that it was a fraudulent transfer. Relying on Section 548(e) of the Bankruptcy Code, the bankruptcy court agreed with the trustee and avoided the transfer.

Some claim that Mortensen II stands for the proposition that any transfer to an APT is a per se fraudulent transfer and can survive a settlor's bankruptcy only if challenges are barred by the 10-year statute of limitations, created by Section 548(e), for APTs. If this per se view is correct, then many domestic asset protection structures may be endangered, both in and out of bankruptcy. Others argue that Section 548(e) merely extends the limitations period for fraudulent transfer suits and that the 10-year limitation period is a concern only in the bankruptcy context.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

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