Opinion
Case No. F12-00501-HAR
06-08-2016
In re MARGARET A. BERTRAN, Debtor(s)
JUDGE HERB ROSS (Recalled)
In Chapter 7
SUPPLEMENTAL MEMORANDUM REGARDING TRANSFER OF RANCH TO TONI 1 TRUST AS UNQUALIFIED UNDER AS 34.40.110(j)
This memorandum is supplemental to the Proceeding Memorandum entered on June 6, 2016, to highlight a recent bankruptcy case from Tennessee, In re Erskine. ___ BR ___, 2016 WL 1644483 (Bankr. W.D. Tenn. 2016). This case was reported on June 7, 2016, on West Topical Highlights-Bankruptcy, the day after the hearing on the trustee's motion to sell the Ranch. It involves a Tennessee Asset Protection Trust. A copy of Erskine is attached.
ECF No. 108.
ECF No. 90.
The Proceeding Memorandum on the trustee's motion to sell the Ranch stated:
Court overrules the objection of Donald Tangwall at ECF 107. Court rules that it has jurisdiction of the adversary case 12-90037. Court is bound by Fairbanks Superior Court Judge Michael MacDonald's ruling on the Asset Protection Trust argument. Independently , the court finds (as admitted in open court today by Donald Tangwall) that Margaret Bertran , the purported settlor of 12/20/10 "Alaska Trust" , did not sign an affidavit required by AS 34.40.110(j). That provision says that before property is transferred to the trust , such an affidavit is a prerequisite. [emphasis added].
AS 34.40.110(j) provides (emphasis added):
(j) A settlor who creates a trust that names the settlor as a beneficiary and whose beneficial interest is subject to a transfer restriction allowed under (a) of this section shall sign a sworn affidavit before the settlor transfers assets to the trust. The affidavit must state that
(1) the settlor has full right, title, and authority to transfer the assets to the trust;
(2) the transfer of the assets to the trust will not render the settlor insolvent;
(3) the settlor does not intend to defraud a creditor by transferring the assets to the trust;
(4) the settlor does not have any pending or threatened court actions against the settlor, except for those court actions identified by the settlor on an attachment to the affidavit;
(5) the settlor is not involved in any administrative proceedings, except for those administrative proceedings identified on an attachment to the affidavit;
(6) at the time of the transfer of the assets to the trust, the settlor is not currently in default of a child support obligation by more than 30 days;
(7) the settlor does not contemplate filing for relief under the provisions of 11 U.S.C. (Bankruptcy Code); and
(8) the assets being transferred to the trust were not derived from unlawful activities.
Donald Tangwall filed an opposition to the motion to sell the Ranch on the day of the hearing in which he stated:
ECF No. 107, page 2, ¶ 8.
8. It does not matter whether the Toni 1 Trust is not a self-settled trust. It certainly is not a self-settled trust.
a. Because it is not a self-settled trust, the trustor of the trust was not required to sign an affidavit, such as one attached as Exhibit D, per AS 34.40.110(j) attached as Exhibit E.
b. . . .
Mr. Tangwall is apparently interpreting AS 34.40.110(a) to mean that the affidavit requirement does not apply to the December 20, 2010 version of the alleged Toni 1 Trust. He claims that it is nonetheless protected under the Alaska Asset Protection Trust statute, AS 34.40.110 because Margaret Bertran, the purported settlor of the trust, did not have to sign an affidavit since she was not a beneficiary (i.e., it is not a self-settled trust). Parenthetically, she possibly is one of the beneficiaries of the purported 2010 trust.
A copy of the December 20, 2010 trust was supplied by Donald Tangwall. See, ECF 100, page 4 of 11, ¶ 3.
AS 34.40.110(a) does not seem to support this narrow reading. It provides:
(a) A person who in writing transfers property in trust may provide that the interest of a beneficiary of the trust, including a beneficiary who is the settlor of the trust, may not be either voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee. Payment or delivery of the interest to the beneficiary does not include a beneficiary's use or occupancy of real property or tangible personal property owned by the trust if the use or occupancy is in accordance with the trustee's discretionary authority under the trust instrument. A provision in a trust instrument that provides the restrictions described in this subsection is considered to be a restriction that is a restriction on the transfer of the transferor's beneficial interest in the trust and that is enforceable under applicable nonbankruptcy law within the meaning of 11 U.S.C. 541(c)(2) (Bankruptcy Code), as that paragraph reads on September 15, 2004, or as it may be amended in the future. In this subsection,
(1) "property" includes real property, personal property, and interests in real or personal property;
(2) "transfer" means any form of transfer, including deed, conveyance, or assignment.
Ms. Bertran conveyed her share of the Ranch to an entity named Toni 1 Trust by a deed dated December 20, 2010 (the same date as the purported Alaska trust was formed), which was recorded in Montana on February 25, 2011. On its face, for the Ranch to be protected under AS 34.40.110 an affidavit was a prerequisite before the transfer.
ECF No. 97, page 2, end of ¶ 1.
The Erskine case supports this conclusion. It involved a Tennessee Asset Protection Trust (a TAPT) with some features similar to AS 34.40.110 with respect to an Alaska Asset Protection Trust. One feature was the use of an affidavit similar to AS 34.40.110(j). Erskine stated:
To qualify as a TAPT, a trust must satisfy certain requirements. Among these, the trust must:
. . .
5. be accompanied by an affidavit (a "Qualified Affidavit") that states:
a. the transferor has the full right, title and authority to transfer assets to the trust;
b. the transfer of the assets to the trust will not render the transferor insolvent;
c. the transferor does not intend to defraud a creditor by transferring assets to the trust;
d. the transferor does not have pending or threatened court actions against transferor, except for those court actions specifically identified by the transferor on an attachment to the affidavit;
e. the transferor does not contemplate filing for relief under the federal bankruptcy code; and
f. the assets being transferred to the trust were not derived from unlawful activities. [citations omitted]
Erskine at 2016 WL 1644483, page *3. --------
Similar to Alaska's requirement of an affidavit, in Tennessee a Qualified Affidavit was necessary before a transfer of assets into the TAPT for it to be afforded protection from creditors of the settlor. The court said:
The Debtor argues that the lack of a qualified affidavit is not fatal to his position. The Debtor's argument is puzzling. . . . If the Trust does hold the membership interest, but the qualified affidavit was not supplied prior to the transfer of funds necessary to obtain the membership interest to it, then the transfer of those funds is not a "qualified disposition." Tenn. Code Ann. § 35-16-102(11). If there has been no qualified disposition of the funds to the Trust, then there is no restriction on actions to enforce creditor claims against those funds or the membership interest acquired with them. Tenn. Code Ann. § 35-16-104(a). If there is no restriction or enforcement of creditor claims under nonbankruptcy law, then there is no
exclusion of the beneficial interest in the Trust from the bankruptcy estate. See 11 U.S.C. § 541(c)(2).
Analogous to the Erskine holding, the lack of the affidavit under AS 34.40.110(j) by Ms. Bertran before she transferred her interest in the Ranch to Toni 1 Trust debars the use of the protections against her creditors afforded by the Alaska Asset Protection Trust Act.
DATED: June 8, 2016
/s/ Herb Ross
HERB ROSS
U.S. Bankruptcy Judge Serve :
Cabot Christianson, Esq.
Larry Compton, Trustee
Erik LeRoy, Esq.
S. Jason Crawford, Esq.
U.S. Trustee
Donald Tangwall, HC 10, M 311, Fairbanks, AK 99701