International Business, Tax, Estate and Asset Preservation Planning


March 2013

Stephen A. Malley
Malley photo
Stephen A. Malley has for over 40 years specialized in the areas of international business, tax and finance, transnational estate, tax, and asset protection planning,  and pre-immigration and expatriation planning. Mr. Malley's  practice includes domestic and foreign licensing of intellectual property,  and  the formation of  captive liability insurance companies.


Clients include:


*U.S. companies with or developing foreign operations


*U.S. citizens with foreign assets or conducting business and investing overseas


*Foreign individuals with U.S. assets and/or U.S. business.


*Transnational Estate and asset preservation planning.

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Prior Newsletters




In litigious California, sheltering assets from the risks of business, from ownership of real estate, and from ordinary living, should be considered with both business and personal estate planning. Professionals often advise clients that asset protection and preservation planning well in advance of any "known or anticipated creditor" is the best defense against an adverse judgment. Under State Statues, including California, it is commonly understood that transfers of assets to "hinder, delay or defraud" a known or reasonably anticipated creditor could be set aside by the Courts as a fraudulent conveyance. Depending on the facts, there are limited defenses to a creditor's claim to set aside a transfer as a fraudulent conveyance, such as transfers for fair value, or retention of sufficient assets to satisfy the anticipated claim.


A discussion of the fraudulent conveyance statues and cases is beyond the scope of this Letter, but one must remember that fraudulent conveyances can carry serious consequences.


The purpose of this letter is to briefly discuss a recent unpublished California case (Kilker v. Stillman), upheld on appeal. This Case highlights a concern long held by those professional advisors familiar with the statutes. The defendant ­Stillman transferred certain assets to a trust before he had any known creditor. While the facts of the case are important and troublesome to Stillman, the significant point for this discussion is that the Court in this case set aside Stallman's transfer of assets as a fraudulent conveyance, apparently, it seems, based on Stallman's admission that he transferred assets "for asset protection".


The pertinent California code section (3439.04) provides in effect that a transfer can be set aside as fraudulent as to a future and unknown creditor if the transfer was made with "actual intent to hinder, delay or defraud a creditor..." In other words, there may be no such thing as a timely transfer of assets, before any creditor is known or anticipated, if it is admitted to be for "asset protection"; indeed, this Case would seem to establish that the admission of itself is the requisite "intent to defraud" as required by the statute.


A timely transfer of assets to a domestic irrevocable trust as part of a long term estate plan should continue to acceptable planning. If the individuals prefer to possibly benefit from the transferred assets, several States have legislation protecting "self settled" trusts whereunder the transferors could be potential beneficiaries (legal details are important), but California is not one of those States. Limited Liability Companies, in the right jurisdictions, can be prudent and provide acceptable levels of protection.


Transfers of assets as premiums for a domestic or offshore but U.S. compliant insurance policy or annuity, with protective provisions, should be considered a transfer for value, while affording access to cash values through permitted borrowing. There are other prudent planning possibilities, depending of course on circumstances.


With the IRS so focused on foreign transactions, an individual may be justifiably reluctant to avoid the use of offshore "asset protection" trusts, with the extensive reporting requirements. However, , the foreign trust might now have more appeal, but only for the right situation;  most popular jurisdictions for these trusts (usually with no tax), have strong anti-creditor statutes designed to protect the trust assets from creditors, including very short time limits for bringing claims, and usually at substantial expense. Of course, such offshore trusts must be properly established and maintained, and be part of business and estate planning, and be properly reported to the IRS.


In summation, asset protection and asset preservation planning should certainly be a consideration and it is most important that it be integrated with estate and business planning, and/or that transfers of assets meet the other safe harbors, such as transfers for reasonable value. Perhaps the phrase "asset protection" should be excluded from the estate planning vocabulary, at least in California.





This Newsletter is not intended as legal advice and may not be relied on as legal advice. This letter briefly discusses a complex area of the law and of business planning.

Stephen A. Malley
A Professional Corporation


2013 Stephen A. Malley, J.D.