Minimize Creditor Challenges to Self-Settled Spendthrift Trusts

In May, we published an article in this journal entitled “Alaska Supreme Court Invalidates Exclusive Jurisdiction Provision,”¹ concerning the Alaska Supreme Court’s decision in Toni 1 Trust v. Wacker (Toni 1 Trust).²  That decision held that Section 34.40.110(k) of the Alaska Trust Act, which purported to grant Alaska courts exclusive jurisdiction over fraudulent transfer actions against Alaska self-settled spendthrift trusts, was an ineffective exercise of the Alaska legislature’s authority and couldn’t control the jurisdictional question that it sought to control. The Toni 1 Trust decision confirmed an earlier decision of the Montana courts to the effect that a transfer of Montana real estate to an Alaska self-settled spendthrift trust during the pendency of a lawsuit was, of course, a fraudulent transfer.

Our earlier article examined the Toni 1 Trust decision as to why, pursuant to U.S. Supreme Court precedent, the Alaska legislature didn’t have legal authority to usurp subject matter jurisdiction through the enactment of AS Section 34.40.110(k). However, the article also examined the implications of the Toni 1 Trust decision as they related to the typical scenario involving the effectiveness of a self-settled spendthrift trust for estate and asset protection planning purposes when the trust is settled by an out-of-state settlor.

The simple conclusion we reached in the earlier article, concerning the effectiveness of such a trust as a question of fraudulent transfer law, was that because every jurisdiction provides for the negation of fraudulent transfers, the issue of whether the fraudulent transfer law of this jurisdiction, or that jurisdiction, is to apply in connection with a transfer by an out-of-state settlor to a self-settled spendthrift trust will have significance only at the periphery and not for the vast majority of transfers to self-settled spendthrift trusts.³ Of course, we didn’t mean to thereby suggest that certain trust structures, and/or the manner of administering those structures, might not prove better at that periphery than others, and we now examine what might be done to lessen the likelihood of a fraudulent transfer being found (or an otherwise unfavorable decision being rendered on other grounds), irrespective of what jurisdiction’s law is to apply.⁴ 

Nest Egg Approach

One method for minimizing the risk of a fraudulent transfer finding is to use a so-called “nest egg approach” to asset protection planning with a self-settled spendthrift trust. This requires that the client check his natural instinct to protect all of his assets by a massive transfer of all such assets into a self-settled spendthrift trust and instead fund the trust much more modestly with a simple nest egg intended to facilitate a new start should all other non-exempt financial resources ultimately be lost to creditor claims. This approach assumes, not without good reason, that a more aggressive transfer of assets (in terms of the size of that transfer relative to the client’s other assets) will make it more likely that a court (in Montana, Alaska or indeed anywhere) will find on some basis or another that the transfer to the trust is fraudulent, providing less protection for the transfer. 

In this regard, take note of the language at the heart of the Uniform Voidable Transactions Act (UVTA), which is Section 4, entitled “Transfer or Obligation Voidable as to Present or Future Creditor.” More specifically, Section 4(a)(1) of the UVTA provides that, “[a] transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation…with actual intent to hinder, delay, or defraud any creditor of the debtor.” The crux of the question thus is, and always has been, how to determine the debtor’s “actual” intent.

Significantly, Section 4(b) of the UVTA provides a non-exclusive list of factors, often called “badges of fraud” that a trier of fact might consider in determining the debtor’s actual intent, including, under Section 4(b)(5) of the UVTA, whether “…the transfer was of substantially all the debtor’s assets.”⁵ Also applicable is Section 4(b)(9) of the UVTA, which provides that the trier of fact might also consider whether “…the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred,” which speaks, albeit less directly, to the quantum of the transfer. To be clear, a nest egg approach, which by its very nature involves substantially less than all of the debtor’s assets, won’t implicate Section 4(b)(5)
of the UVTA and, if it doesn’t render the debtor insolvent, will also avoid implicating Section 4(b)(9) of the UVTA.

The idea that a nest egg planning approach may optimize the asset protection because an overly aggressive transfer of assets into a self-settled spendthrift trust is self-defeating is by no means merely theoretical. For example, in the bankruptcy proceeding of Stephan Jay Lawrence,⁶ the Bankruptcy Court stated that:

…the Debtor testified that when the trust was settled, the assets transferred to the trust represented in excess of ninety percent (90%) of his liquid assets...This Court finds it impossible to believe that the Debtor surrendered ninety percent (90%) of his assets to a stranger on the other side of the world without maintaining some control over the assets.⁷

Similarly, in Federal Trade Commission v. Affordable Media, LLC, et al.,⁸ the U.S. Court of Appeals for the Ninth Circuit stated that, “[w]hile it is possible that a rational person would send millions of dollars overseas and retain absolutely no control over the assets, we share the district court’s skepticism.”⁹ 

The question raised in Lawrence and Affordable Media LLC as to whether the debtor would really have relinquished control over such a substantial transfer of assets is relevant to the fraudulent transfer question because Section 4(b)(2) of the UVTA provides that whether “…the debtor retained possession or control of the property transferred after the transfer” is a further badge of fraud for consideration by the trier of fact in determining whether a fraudulent transfer exists. Thus, the questions of the quantum of the transfer and the likelihood that the transferor has given up control over the assets are interrelated. 

Other benefits also are likely to arise out of a nest egg transfer should the fraudulent transfer question ever be raised. First, the inverse of a more modest amount of assets being transferred into trust is that the transferor has retained more assets in his personal name than might otherwise have been the case, which means that the transferor’s then-existing debts are more likely to actually be repaid. Even with regard to those debts that the transferor may ultimately find himself unable to satisfy in full, the creditor’s claim is less likely to come to a head within the statutory limitations period and thus is more likely to be time-barred even though the transfer may actually be found to be fraudulent.¹⁰

Self-Settled Spendthrift Trust 

The risk of a fraudulent transfer being found is also lessened when some other, non-fraudulent, purpose exists for the transfer of assets to a self-settled spendthrift trust. Although it’s very likely that the vast majority of self-settled spendthrift trusts are structured so that a transfer to the trust by the settlor will be an incomplete gift for purposes of the gift tax and, therefore, includible in the settlor’s taxable estate at death, because such trusts are seemingly most often created for no purpose other than asset protection, the trust needn’t be structured in that manner.¹¹ Instead, a self-settled spendthrift trust can be structured so that a transfer to the trust by the settlor will be a completed gift for gift tax purposes and almost certainly outside of the settlor’s taxable estate at death.¹² Thus, to enhance the asset protection, consider using the self-settled spendthrift trust for a primary objective of estate tax savings and a merely incidental asset protection benefit, rather than for the sole purpose of asset protection.  

In this regard, and by way of background, Treasury Regulations Section 25.2511-2(b) provides that a gift is complete when “…the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another,” and Internal Revenue CodeSection 2036(a)(1) will only cause estate tax inclusion of transferred property when “…the transferor has retained the right to possession or enjoyment, or the right to income, for a period not ascertainable without reference to his or her death.”¹³ Therefore, in a jurisdiction that doesn’t provide for self-settled spendthrift trusts, IRC Section 2036(a)(1) will apply to cause the estate inclusion of property held in a discretionary trust created by a person for his own benefit because such a jurisdiction still applies the historic self-settled trust rule that, “[w]here a person creates a trust for his own benefit, a trust for support or a discretionary trust, his creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit,”¹⁴ and it follows that when a settlor’s creditors can reach the settlor’s interest in the trust, the settlor will be deemed, at least indirectly, to have retained the use and enjoyment of the transferred assets.¹⁵

In contrast, in a jurisdiction that provides self-settled spendthrift trust protections, as 17 states now do, the settlor’s creditors won’t be able to reach the trust’s assets, and a transfer of property by the settlor to the trust will be a completed gift. The Internal Revenue Service has acknowledged this result in Revenue Ruling 76-103, in which it provided that:

If and when the grantor’s dominion and control of the trust assets ceases, such as by the trustee’s decision to move the situs of the trust to a State where the grantor’s creditors cannot reach the trust assets, then the gift is complete for Federal gift tax purposes under the rules set forth in [Regs.] §25.2511-2.¹⁶

As a completed gift, the transferred property should be outside of the settlor’s taxable estate because by dint of being a completed gift, the settlor has necessarily  “…so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another.”¹⁷

Of course, though the law may permit the creation of a self-settled spendthrift trust that won’t be included in the taxable estate of the settlor, this isn’t to say that every settlor can create a self-settled spendthrift trust for the purpose of estate tax planning. Not every would-be settlor of a self-settled spendthrift trust will have: (1) an estate that will be large enough to be subject to estate tax under any reasonably anticipated formulation of the tax, or
(2) non-charitable beneficiaries whom the settlor might care to actually benefit from his estate free of an excess of estate tax. The creation of a self-settled spendthrift trust for estate tax planning, not simply asset protection
planning, requires a relatively large estate and, in most cases, one or more beneficiaries whose relationship to the settlor reasonably justifies the time, expense and complexity of the planning that was undertaken; absent these factors, it seems unlikely that a trier of fact would give credence to the idea that the settlor’s actual intent in creating the trust was something other than to avoid creditors.

Along these lines, one could reasonably question whether the pool of prospective settlors who might today undertake the creation of a self-settled spendthrift trust, or indeed any trust, for the purpose of estate tax planning is extremely limited due to the historically high exemption of $11.18 million per person and the possibility of portability of one’s unused exemption to one’s surviving spouse under IRC Section 2010. While it’s no doubt the case that the increased federal exemption has shrunk the pool of prospective settlors of self-settled spendthrift trusts created for estate tax planning purposes, a number of reasons still exist that justify the creation of such trusts, including: (1) the increased estate tax exemption is scheduled to automatically expire at the end of 2025, if not previously used through gifting, and (2) a significant number of jurisdictions impose an estate tax, and the jurisdiction’s estate tax exemption wasn’t increased in line with the federal exemption. Other prospective settlors of a self-settled spendthrift trust whose intent to create such a trust for estate tax planning purposes might not be reasonably justified by the above (especially those who are relatively young and with good earning potential) might yet create such a trust for estate tax planning purposes based on the prospect of some day having a large taxable estate, as well as descendants.

Finally, a self-settled spendthrift trust that’s created for a primary purpose of estate tax savings, with the asset protection benefit being merely incidental, creates a situation in which the settlor need never suffer buyer’s remorse, as silly as that might sound, should an incidental creditor concern fail to actually materialize as a real financial problem.

Use Only Resident Trustees 

The vast majority of jurisdictions that permit self-settled spendthrift trusts to be created under their own laws require a trustee resident in that jurisdiction. An example of that rule is contained in Delaware’s Qualified Dispositions in Trust Act,¹⁸ which requires that the transfer be to one or more trustees, at least one of which is a “qualified trustee,”¹⁹ which is defined as being  “…[a natural person who] is a resident of this State other than the transferor or, in all other cases, is authorized by the law of this State to act as a trustee and whose activities are subject to supervision by the Bank Commissioner of the State, the Federal Deposit Insurance Corporation, or the Comptroller of the Currency.”²⁰

Clearly, the Delaware act, like the law of most jurisdictions that permit self-settled spendthrift trusts to be created under local law, doesn’t require that all trustees be “qualified trustees,” and a settlor who doesn’t have the option of using a close friend or family member as his Delaware-sitused trustee, because no such person happens to be living in Delaware (or such other jurisdiction as may permit the creation of a self-settled spendthrift trust under local law), may well find comfort in the idea that not all trustees need to be located in that jurisdiction.  

However, notwithstanding the terms of the governing self-settled spendthrift trust legislation, if all trustees aren’t actually resident in the jurisdiction, or in one of the other jurisdictions that provides for an ability to create a self-settled spendthrift trust under local law, the trust may be less effective in its goal of asset protection. 

More specifically, the issue here isn’t that of subject matter jurisdiction, the issue on which the Toni 1 Trust case was decided,²¹ but rather that of personal jurisdiction. The law is well settled that the presence of a trustee in a particular jurisdiction means that the trust will be deemed subject to personal jurisdiction in that jurisdiction.²² This is potentially problematic at the periphery because a jurisdiction that’s enacted self-settled spendthrift trust legislation will almost certainly have also tailored its fraudulent transfer law to limit the broadest possible application of that law to situations in which the transfer was other than to a self-settled spendthrift trust.

An example of this issue, highlighted in our earlier article, is a subtle, yet important, distinction relating to the debtor’s intent to defraud. For example, Alaska law provides that:

If a trust contains a transfer restriction allowed under (a) of this section [relating to self-settled spendthrift trusts], the transfer restriction prevents a creditor existing when the trust is created or a person who subsequently becomes a creditor from satisfying a claim out of the beneficiary’s interest in the trust, unless the creditor is a creditor of the settlor and…the settlor’s transfer of property in trust was made with the intent to defraud that creditor…²³

In contrast, the comparable provision of the UVTA provides that a fraudulent transfer can be found “…if the debtor made the transfer or incurred the obligation…with actual intent to hinder, delay, or defraud any creditor of the debtor.”²⁴

The important distinction highlighted here is that Alaska law requires, for a fraudulent transfer to be found, that the debtor’s intent be specifically directed against the creditor who’s brought the action (that is, “…the settlor’s transfer of property in trust was made with the intent to defraud that creditor…”), whereas under the UVTA, a fraudulent transfer is found if the debtor’s intent was directed against any creditor (that is, “…the debtor made the transfer or incurred the obligation…to hinder, delay, or defraud any creditor of the debtor”).

Thus, to ensure the greatest possible asset protection, it may be important to limit the jurisdictions that might have personal jurisdiction over the self-settled spendthrift trust to those that permit the creation of such trusts under local law. This, in turn, likely requires that all trustees be resident in such jurisdictions (that is, “qualified trustees” to use the terminology of the Delaware act), even though the law of the self-settled spendthrift trust jurisdiction may not be so limiting.²⁵

Assets to Fund the Trust

In Toni 1 Trust, the property transferred into trust was real property located in Montana. Although the court in that case didn’t delve into the significance of that fact, inasmuch as the contest related instead to a conflicts-of-law issue, the fact that some or all of a self-settled spendthrift trust’s property is located in a jurisdiction that doesn’t permit the creation of such a trust under local law would likely be a significant fact in a case at the periphery. Specifically, the issue is one of in rem jurisdiction, whereby a creditor’s ability to access such property would be governed by the law of the situs of the property, rather than the law set forth by the settlor within the trust instrument as being the governing law of the trust.²⁶ For this reason, a self-settled spendthrift trust should be funded with intangible property, rather than real or personal property, unless the real or personal property has a situs within one of the jurisdictions that permit the creation of self-settled spendthrift trusts under local law.

If Possible, Avoid Bankruptcy

Bankruptcy Code Section 541(c)(2) provides that, “[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.” It’s this section of the Bankruptcy Code that keeps assets held in a trust that’s a spendthrift trust under applicable nonbankruptcy law (read, “state law”) outside of the bankruptcy estate. Unlike most third-party settled trusts, however, a self-settled spendthrift trust is more likely to be challenged by arguing that the funding of the trust by the debtor was a fraudulent transfer of property.

The fraudulent transfer question is governed in bankruptcy by Bankruptcy Code Section 548(a)(1), which provides that the bankruptcy trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, if the debtor: “…made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted…”²⁷  In the first instance, note that this is a broader application of the law of fraudulent transfers than would typically apply within a state that’s tweaked its law to accommodate the fact that state law also permits the creation of self-settled spendthrift trusts under local law. Specifically, the debtor’s actual intent can be to “hinder, delay or defraud,” not simply “defraud,” and the debtor’s actual intent can be directed against any creditor.

In addition, following perceived abuses by prominent celebrity debtors, Bankruptcy Code Section 548(e) was amended in 2005 through the Bankruptcy Abuse Prevention and Consumer Protection Act²⁸ (the 2005 Act) to provide for an unusually long statute of limitations period for fraudulent transfers into self-settled spendthrift trusts. Specifically, the 2005 Act added a new Section 548(e), which provides that the trustee of the bankruptcy estate can avoid a fraudulent transfer to a “self-settled trust or similar device” when “[t]he transfer was made within ten years before the date of the filing of the bankruptcy petition.”²⁹

To date, the 10-year statute under the Bankruptcy Code has proved relevant in only one known case, In re Mortensen.³⁰ In that case, Thomas Mortensen, a resident of Alaska, without the aid of counsel, drafted a trust document in 2005 called the “Mortensen Seldovia Trust (An Alaska Asset Preservation Trust),” intending for the trust to qualify as an asset protection trust under Alaska law. Following his creation and funding of the trust, Thomas’ financial condition deteriorated, his income became “sporadic” and he ultimately filed for bankruptcy. Although the Bankruptcy Court concluded that Thomas wasn’t insolvent when he established and funded the trust, due to the specific circumstances of the case, the Bankruptcy Court nevertheless held that Thomas’ funding of the trust still fell under Bankruptcy Code Section 548(e) as a fraudulent transfer to a self-settled trust made within 10 years prior to his bankruptcy filing. Of note, however, is the fact that at the time of the filing of the bankruptcy petition, Thomas’ transfer of property to the trust was outside of Alaska’s own fraudulent transfer statute of limitations period, which would have led to a completely different result had the matter been determined under state, rather than federal, law.

Consider Foreign Trust Situs

Given the largely unfavorable opinion that domestic courts (and some commentators and authorities)³¹ have to date expressed when confronted with self-settled spendthrift trusts (albeit often involving obvious fraudulent transfers), consider settling the trust under the laws of one of the dozen or so foreign jurisdictions with favorable self-settled spendthrift trust legislation.³² Assuming that the trust’s assets, the trust protector and all of the trustees are situated outside of the United States, creditors should be unable to attach the trust’s assets without proceeding (at presumably great difficulty and expense) in the courts of a foreign jurisdiction. 

Irrelevant Issue?

There’s nothing surprising to be found within Toni 1 Trust. It is, again, simply a case of a fraudulent transfer of property that no one, anywhere, should worry will be respected as being valid. But, beyond being unsurprising, the issue of which state’s law should have governed the fraudulent transfer question in Toni 1 Trust (or, indeed, in most cases) also isn’t particularly relevant. Once one realizes that a transfer of property during the pendency of a lawsuit, as was the case in Toni 1 Trust, is practically a per se fraudulent transfer (as, in fact, it actually is under New York law, where we practice),³³ the issue becomes relevant only at the periphery. Where, however, the issue is relevant, the thoughtful structuring of the self-settled spendthrift trust can make all the difference in the world. 

Endnotes

1. Gideon Rothschild and Daniel S. Rubin, “Alaska Supreme Court Invalidates Exclusive Jurisdiction Provision,” Trusts & Estates (May 2018). 

2. Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018).

3. “Toni 1 Trust changes nothing in the proposition that, to the extent that the funding of the trust wasn’t a fraudulent transfer, the trust will serve its purpose of protecting assets from the settlor’s potential future creditors.”

4. Although this article will speak solely to self-settled spendthrift trusts, planners shouldn’t overlook the potential advantages that non-self-settled spendthrift trusts, such as spousal lifetime access trusts, might offer. In this regard, some might recommend a trust structured so that an independent third party, acting in a non-fiduciary capacity, can add the settlor as an additional discretionary beneficiary at some later time or on the occurrence of some contingency, such as after the 10-year statute of limitations under the Bankruptcy Code has expired or if the settlor’s spouse has predeceased him. 

5. Uniform Voidable Transactions Act (UVTA) Section 4(b)(5).

6. In re Stephan Jay Lawrence, 227 B.R. 907 (Bkrtcy.S.D.Fla. 1998).

7. Ibid., at p. 913.

8. Federal Trade Commission v. Affordable Media, LLC, et al., 179 F.3d 1228 (1999).

9. Ibid., at p. 1241.

10. Section 9 of the UVTA provides, in pertinent part, that “[a] claim for relief with respect to a transfer or obligation under this [Act] is extinguished unless action is brought…not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant.”

11. In general, a self-settled spendthrift trust created solely for asset protection purposes will be intentionally structured so that a transfer to the trust will constitute an “incomplete gift” for gift tax purposes because such a structure avoids any funding limitations inherent in the settlor’s concurrent desire to avoid the imposition of gift tax.

12. A self-settled spendthrift trust structured so that a transfer of property to the trust by the settlor will be a completed gift for gift tax purposes is actually the natural state of the self-settled spendthrift trust because the draftsperson would have to proactively include certain retained powers in the settlor (most commonly, and at a minimum, an inter vivos and/or testamentary non-general power of appointment together with a right to veto distributions to the beneficiaries), in order that a transfer of property to the trust will be considered an “incomplete gift.” 

13. Similarly, Internal Revenue Code Section 2038 provides that the transferor’s gross estate includes the value of any transferred property where the enjoyment thereof was subject at the date of the transferor’s death to any change through the exercise of a power by the transferor (either alone or in conjunction with any other person), to alter, amend, revoke or terminate.

14. Restatement (Third) of Trusts Section 60 and cmts. (2003).

15. See, e.g., Paxton v. Commissioner, 86 T.C. 785 (1986); German Est. v. U.S., 7 Cl. Ct. 641 (1985); Outwin Est. v. Comm’r., 76 T.C. 153 (1981), acq., 1981-2 C.B. 2; Paolozzi v. Comm’r., 23 T.C. 182, 187 (1954), acq., 1962-1 C.B. 4 (“petitioner’s creditors could at any time look to the trust of which she was settlor-beneficiary for settlement of their claims to the full extent of the income thereof. This being true, it follows that petitioner…could at any time obtain the enjoyment and economic benefit of the full amount of the trust income”). Similarly, “[w]here a settlor’s creditors can reach the settlor’s interest in the trust, the settlor may also be deemed to have an indirect power to revoke or terminate the transfer of assets by incurring debts and leaving his or her creditors no recourse other than to the transferred property.” German Est., 7 Cl. Ct. 641.

16. Revenue Ruling 76-103.

17. Treasury Regulations Section 25.2511-2(b) and Rev. Rul. 76-103. Note, however, that in Private Letter Ruling 9837007 (1998) the Internal Revenue Service refused to rule on the issue of estate tax exclusion stating, in essence, that excludability from the settlor’s estate of the assets in an Alaska self-settled spendthrift trust is dependent on the facts and circumstances existing at the settlor’s death, and in PLR 200944002 (July 15, 2009), the IRS again refused to rule on the issue, stating that evidence of an understanding or pre-existing arrangement between the settlor and the trustee regarding the exercise of the trustee’s discretion could cause inclusion of the trust’s assets in the settlor’s gross estate for federal estate tax purposes under IRC Section 2036.

18. Del. Code Ann. Tit. 12, Sections 3570-3576.

19. Ibid., Section 3570(7).

20. Ibid., Section 3570(8).

21. “We agree with the Court of Chancery and with those courts that have reached similar conclusions…AS 34.40.110(k)’s assertion of exclusive jurisdiction does not render a fraudulent transfer judgment against an Alaska trust from a Montana court void for lack of subject matter jurisdiction.”  Toni 1 Trust,  supra note 2, at pp. 1205-1206.

22. See, e.g., Uniform Trust Code Section 202(a).

23. AS Section 34.40.110(b).

24. UVTA Section 4(a)(1).

25. A further consideration might be the residence of any other person who’s designated as an “advisor” or  “protector” (or the like), as such persons may themselves be found to subject the trust to personal jurisdiction outside of the state that permits self-settled spendthrift trusts to be formed under local law. This issue may be exacerbated when such person has affirmative power (as opposed to merely negative, or veto, power), over the trustees’ administration of the trust, as a court might feel empowered to order such person to exercise such power contrary to the protection of the trust fund.

26. It would seem as though there should be no question under the conflicts of law that whether a self-settled trust is available to the settlor’s creditors is a question governed by the law set forth by the settlor within the trust instrument as being its governing law. Specifically, the Restatement (Second) of Conflict of Laws Section 273 (1971) provides without qualification that: “[w]hether the interest of a beneficiary of [an inter-vivos] trust of movables is assignable by him and can be reached by his creditors is determined…by the local law of the state, if any, in which the settlor has manifested an intention that the trust is to be administered, and otherwise by the local law of the state to which the administration of the trust is most substantially related.”

27. 11 U.S. Code Section 548(a)(1).

28. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, PL 109–8 (April 20, 2005), 119 Stat. 23.

29. 11 U.S. Code Section 548(e).

30. In re Mortensen (Battley v. Mortensen, Adv. D., Alaska, No. A09-90036-DMD, May 26, 2011).

31. For example, the official comments to the UVTA seem to suggest that the transfer of property to a self-settled spendthrift trust by an out-of-state settlor is, incredibly, a per se fraudulent transfer, irrespective of the settlor’s intent or insolvency. For an analysis of this issue, see George D. Karibjanian, Richard W. Nenno and Daniel S. Rubin, “The Uniform Voidable Transactions Act: Why Transfers to Self-Settled Spendthrift Trusts by Settlors in Non-APT States Are Not Voidable Transfers Per Se,” Tax Management Estates, Gifts, and Trusts Journal, Vol. 42, No. 4, at p. 173 (July 14, 2017).

32. For example, the Cook Islands, Nevis, the Bahamas and the Cayman Islands.

33. New York State Debtor and Creditor Law Section 273-a provides that, “[e]very conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.”