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Domestic Asset Protection Trusts

By Rob Lambert - Email Editor

Date : 26-July-2007

A week doesn’t go by without at least three calls from some ill-advised potential client stuck on Domestic Asset Protection Trusts. A number of states have enacted statutes blessing domestic self-settled spendthrift trusts (a.k.a. Domestic Asset Protection Trusts). These statutes are being widely touted as a panacea: The cheap and effective way to protect assets from creditors. After all, the peddlers of this tripe point out, if it is good enough for Alaska or Delaware (or some other state), it ought to be good enough for you.

BULL.

The guys pushing this untested technology simply ignore Article IV, Section 1 of the United States Constitution. It is a short provision known as The Full Faith and Credit Clause. I suspect most of you have never read it or, if you have, you have forgotten what it says…so here it goes again. This famous little clause says:

Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.

Read the simple words.

In a nutshell, here is the problem with Domestic Asset Protection Trusts. To be effective, you have to assume that a statute enacted by a State Legislature trumps the U.S. Constitution. This is simply not going to happen.

We know that the U.S. Constitution forces each of the 50 states to honor judgments from each of the other 50 states. PERIOD. This is not negotiable.

If you think a California court is not going to enforce a judgment from one of its judges, or a judge in any other state against assets in some domestic self-settled trust because of some legislation in Alaska, I have a bridge to sell you in New York. This just is not going to happen. If any of the peddlers of this untested and ineffective technology can prove me wrong and present a solid case showing these domestic trusts to be effective throughout the USA, I offer a forum to our subscribers interested in the subject. Prepare a compelling newsletter, and I will publish it.

In the meanwhile, I urge my subscribers to not hold their breath. I suspect I will not hear from anybody, other than a few hate letters or perhaps a lawyer or two trying to convince me that an Alaska court might not give effect to an Alaska judgment with respect to assets in Alaska. Hooey. That is not solid protection at all.

So, please read the Full Faith And Credit Clause again; stop searching for cheap alternatives to solid offshore Asset Protection Planning; be mindful of what you read on the Internet (most of what I read is more junk than truth), and have a healthy and protected week.

Best,

Rob Lambert

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ABOUT THIS EDITOR:

Rob Lambert, Founder and former law professor is considered to be foremost expert on tax compliant asset protection structures. A contributing editor to Lexus Nexus debtor creditors series of law books Rob's passion is implement client wealth plans that stand the test of time and hold up under duress.

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