Revocable Living Trusts in New Jersey: A Summary

For a variety of reasons, Revocable Living Trusts ("RLTs") are used less frequently in New Jersey than in other states as substitutes for a will. The purpose of this post is to link to the pros and cons of using Revocable Living Trusts (also sometimes called just "living trusts") in this state.

For the downsides of using a Revocable Living Trust in New Jersey, click here.

For the upside of using a Revocable Living Trust in New Jersey, click here.

As always, if you have any questions after reading, feel free to contact me.

TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice.

DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter. 

About the Author

Return to Law Offices of Jeff Vandrew Jr, Attorney-CPA Homepage

Tannen v. Tannen Decided

This post will be a quick one to update my readers on an earlier post regarding how trusts used for asset protection hold up in divorce.  In this earlier post, I made the argument that in New Jersey, to be on the safe side, when seeking to protect a child's inheritance from a potential future divorce we should try to avoid placing "ascertainable standards" into trust distribution language.  [For an explanation of what an "ascertainable standard" is and why I was worried, click here see the earlier post.]

It turns out that ascertainable standards in New Jersey trusts may now be OK after all.  The New Jersey Supreme Court just released its opinion in Tannen v. Tannen which upholds the appellate court decision referenced in my prior post.  This means it is now the law of the land in New Jersey that discretionary trusts (even those that make use of an ascertainable standard such as health, education, maintenance, and support) cannot be factored into an alimony award against a trust beneficiary.

This strengthens the divorce protection from trusts in this State, and makes it even easier for parents to protect their children's future inheritances from a child's potential future divorcing spouse or bad financial decisions.

The simple lesson to take away from this decision is that with proper planning with a qualified attorney, you can create a financial safety net for your loved ones after you're gone that won't be lost even if they find themselves in a messy divorce.  Feel free to contact me if you're interested in learning how to protect your heirs' inheritances from divorce using trusts.

TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice.

DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter.

About the Author

Return to Law Offices of Jeff Vandrew Jr, Attorney-CPA Homepage

Client, Lawyer Indicted in Asset Protection Scheme: A Guest Post from Brian Mahany, Esq.

The following is a guest post from Brian Mahany, an attorney and principal in Mahany & Ertl, LLC, a boutique law firm concentrating in fraud litigation, asset recovery and tax matters.  I'm happy to post it here both because it provides a cautionary tale about what can happen when asset protection planning is done too late, and also because of Brian's unabashed flattery regarding my blog in his opening paragraph.  At any rate, Brian's post follows:

We are big fans of Jeff Vandrew’s blog. His articles on the Uniform Fraudulent Conveyance laws are right on the money. We echo what Jeff has said many times before, the longer you wait to get asset protection help, the less options you have. A recent court case from Illinois shows just how true that advice is. 

Before I begin the story, some brief background is necessary. We are an asset recovery firm. Our work is concentrated on unwinding fraudulent transfers. Too often the work is fairly easy because the debtor simply waited too long before seeking asset protection help. 

The old adage that “An ounce of prevention is worth a pound of cure” is certainly true in the asset protection field. Fortunately, most people wait too long before they consult with an asset protection lawyer. Instead of engaging in risk management they find themselves in crisis management. Transferring assets after you are in trouble often is ineffective. Now, we learn that one court says it could land you in jail. 

In October, the court indicted Peter Rogan, former CEO of a private Chicago hospital. Prior to the indictment, both the U.S. government and a local bank successfully sued Rogan for millions after the collapse of the hospital.

The story might have ended there until the government learned that Rogan formed a constellation of foreign corporations and trusts to conceal his assets. The moves were made after Rogan and the hospital were in trouble but before he was sued. They say he also lied to creditors in an effort to make it appear that he had little control over the foreign trust assets.

Although Rogan may have done many other illegal things, he is charged with felony conspiracy to obstruct justice.

Creating trusts to protect one’s assets is not illegal. Lying to creditors and playing hide and seek with assets after the government has obtained a $64 million judgment is not a smart strategy. Prosecutors say that cumulative effect of Rogan’s lies and complex scheme to conceal assets crossed the line from legitimate asset protection to criminal obstruction of justice.

His lawyer was indicted too. 

The purpose of this post isn’t to suggest that post lawsuit or post judgment asset protection is illegal. It is much more difficult, however, and can often be unwound.

The lesson here? If you are serious about protecting your hard earned wealth, spend a little on prevention and consult with an asset protection lawyer as soon as possible. 

Brian writes a blog, Due Diligence, and welcomes questions or comments. He can be reached by email at brian@mahanyertl.com.  His views expressed here are solely his own.

TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein. 

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice. 

DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter. 

Asset Protection Planning Must Be Done Early

Unfortunately, many clients that come into my office come in after judgments have been entered against them or foreclosure proceedings have begun.  At that point, it is often too late for any asset protection planning, which is best done before trouble arises.  Asset protection planning that takes place so late in the game raises presumptions of "actual fraud" under UFTA.  If the client involved is a small business owner, it also presents another problem: a breach of fiduciary duty by the officers of the company.

The normal rule in business law is that the officers and directors of a corporation (or managers of an LLC) owe a fiduciary duty to the shareholders of the corporation (or members of the LLC).  In a nutshell, this means that the actions taken by the officers, directors, or managers must be made in the best interests of the company itself in order to maximize return for the owners of the company.  Management is not permitted to make decisions to enrich itself to the detriment of the company's owners.  In a simple example, assume the CEO of XYZ Corp enters XYZ into a contract with ABC Corp.  Assume the CEO of XYZ is also a shareholder in ABC, and that the contract is unfavorable for XYZ but beneficial to ABC.  In this example, the CEO has breached his fiduciary duty to the owners of XYZ, and may end up getting sued personally.

In New Jersey and many other states, this normal rule is turned on its head when a company becomes insolvent.  [A company is insolvent when its debts are greater than its assets.]  Once a company is insolvent, the fiduciary duty of the officers, directors, and managers switches from the owners of the company to the company's creditors.  Whitfield v. Kern, 122 N.J. Eq. 332, 340-342 (E & A 1937); Portage Insulated Pipe Co. v. Costanzo, 114 N.J. Super. 164, 166 (1971).  In a nutshell, this means that if you are a small business owner/manager and your business goes south, while you are not required to contribute more of your personal assets into the business, you do have a duty to preserve whatever assets remain in the business for the benefit of the business' creditors.  You cannot transfer assets out of the business to yourself to avoid collection by creditors.  Such an action is a breach of your fiduciary duty to creditors, and opens you up to a lawsuit by a creditor.  Such a lawsuit could lead to personal liability on the business' debts.

The lesson here is to start planning before things get bad.  As always, if you have any questions, feel free to contact me.

TAX ADVICE DISCLAIMER: Any tax advice contained in this communication (including attachments) was not intended or written to be used, and it cannot be used, by you for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein. 

NOT LEGAL ADVICE. Everything posted here is for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of me or another qualified attorney. Nothing posted on Twitter or on any website shall be construed in any way as legal advice. 

DISCLAIMER: I am an attorney and a CPA, however I am neither your attorney nor your CPA, and therefore no communications between us are covered by attorney-client or accountant-client privilege unless you possess a signed document which states that I currently represent you as an attorney or a CPA. In the case that such a document exists, the existence or waiver of attorney-client privilege or accountant-client privilege shall be controlled by the signed fee agreement or engagement letter.