User blogs

Give me Liberty or give me my Fish!
By David Craig Mastrianni
November 23rd, 2011

I've been keeping my mouth shut about politics for about 6 months now, and I don't plan to say much more about the subject in the future (I hope), but I can't stand by and shut my mouth over this issue. The crappy American Congress and all their regulations can tell us how to play baseball, who our baseball heroes are, what we can smoke, what we should eat, what we should drink, how to raise our kids, and tax us to death, but don't tell me how to fish, and don't take away Carlos Rafael's 881 pound tuna. What is wrong with you stupid federal fish derelicts anyhow?

If I was Carlos, and if I didn't have a family, and people that depend on me, I would tell those Federal fishing dudes to come and try and take the fish from me. And during the stand off I would invite other brave souls that were willing to take a stand over this issue, and we would all sit around and have $300,000 dollars worth of sushi. (Big dream, big tuna)

Man, when I read this article (the one below), I was just so dog gone mad that I felt like calling Carlos and telling him how ticked off I was about these knuckleheads taking his fish. But all I would do is get everyone's blood going, and I might end up risking my future over a 881 pound tuna. So I will just write this article to let my soul know that this just isn't right man, this really stinks. I bet these federal fishing guys had some good sushi for themselves, because what else are they going to do with it?

OK...deep breath, back to getting ready for Thanks Giving. Carlos, great job on catching one heck of a tuna, next time don't tell anyone what you caught, just sell it and feed your family.

This was the article I read below.


It's the big one that got taken away.

Local fishing boat owner Carlos Rafael was elated when one of his trawlers snared an 881-pound bluefin tuna earlier this month. 

But the joy was short-lived. Federal fishery enforcement agents seized the fish when the crew returned to port Nov. 12.

Rafael had tuna permits but was told catching tuna with a net is illegal.

Instead, it's got to be caught by handgear, such as rod and reel, harpoon or handline.

"We didn't try to hide anything," Rafael told The Standard-Times newspaper of New Bedford, a famous whaling era port 50 miles south of Boston. "We did everything by the book. Nobody ever told me we couldn't catch it with a net."

A fish that big is hugely valuable, prized by sushi-lovers for its tender red meat. A 754-pound tuna recently sold for nearly $396,000.

Rafael's fish will be sold overseas, and he'll get no share of the proceeds if regulators find a violation, The Standard-Times reported ( http://bit.ly/uczYap ). The money would instead go into the National Oceanic and Atmospheric Administration fund that also holds money collected for fishery fines.

Rafael said he thinks he's going to surrender his tuna permits now.

"What good are they if I can't catch them?" he said.
 
The tuna was likely inadvertently snagged as Rafael's crew set a net to catch bottom-dwellers, he said.

"They probably got it in the mid-water when they were setting out and it just got corralled in the net," Rafael said. "That only happens once in a blue moon."

On Tuesday, the NOAA issued a reminder that bluefin tuna can't be caught legally in trawl nets, even by accident.

The NOAA says the bluefin tuna now reproducing off the coast are below 30 percent of their population level in the 1970s and the fish takes a long time to rebound because it's slow to grow and reproduce.

The rules aim to take away any incentive to chase and keep the highly coveted fish, beyond what's allowed.

"It is important to carefully follow the regulations so U.S. fishermen can retain their share, and the associated jobs and profits, of this international resource," the NOAA said.

On April 20, 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The new law, which goes into effect on October 17, 2005, generally makes it tougher for people to protect their assets in the event of personal bankruptcy. But there's one notable exception: IRAs, fast becoming the biggest asset people have, actually receive more protection under the new law.

Under the new law, up to $1 million of the assets you hold in traditional IRAs and Roth IRAs, or a larger amount determined by the bankruptcy court, will be exempt from your bankruptcy estate.

What's more, IRA assets that came from an employer retirement plan rollover--such as a 401(k), 403(b) or profit-sharing plan--won't be subject to the claims of your creditors, regardless of the state in which you reside or the value of your rollover assets and their subsequent growth.

The new law also reinforces the unlimited protection that currently exists for 401(k) plans, 457 plans, 403(b) plans, governmental plans and tax-exempt organization retirement plans, and adds to the list of exemptions from the bankruptcy estate plans for the small business and/or self-employed person, including SEP-IRAs, SIMPLE IRAs, Keogh plans and solo 401(k) plans. (Given unlimited bankruptcy creditor protection, such retirement accounts are likely to become even more attractive retirement-savings vehicles in years to come.)

In addition, retirement funds in transit from one IRA or retirement account to another are also protected under the new bankruptcy law. The law even provides protection if you withdraw funds from an IRA and roll them back over within 60 days into an IRA or other retirement account.

But you should know that not all facets of IRAs are protected. For instance, distributions from retirement plans--required minimum distributions and hardship distributions--aren't protected under BAPCPA. So once you've withdrawn money from a plan, it's no longer protected.

Furthermore, the new law provides greater creditor protection for IRA assets, but only in bankruptcy. So they don't apply to judgments awarded in other courts where state creditor protection laws will apply. And BAPCPA won't stop a divorcing spouse from being able to take a share of the other spouse's pension.

So what are the implications of the new law? First, the new law creates clarity where there had been confusion stemming from a lack of conformity among the states. Prior to BAPCPA, it was difficult to determine how a person's IRA would be exempt from the claims of his or her creditors if they filed for personal bankruptcy. Now that's no longer the case.

Under the new law, investors have the incentive to keep IRAs that are funded with rollover salary-deferral contributions separate from IRAs funded with annual contributions. To co-mingle rollover and contributory IRA assets would make it difficult to identify which portion of the IRA represented assets that are "unlimited protection" rollovers (plus earnings) and which portion represented IRA contributions and earnings (subject to the $1 million limitation).

The new law also encourages investors to roll over their 401(k) to an IRA after they're no longer employed. Prior to BAPCPA, investors often left their funds in their former employer's 401(k) plan since such plans were fully protected from bankruptcy. Now that 401(k) plans and IRAs have near equal protection from creditor claims, there's less reason to leave such funds behind.

On the other hand, one good reason to leave assets in a 401(k) or other former employer plan is that qualified retirement plans are protected under the Employee Retirement Income Security Act (ERISA), which extends to judgments other than bankruptcy, regardless of your state law.

Like all new laws, BAPCPA will likely be challenged by creditors at some point in the courts. So before making any changes to your IRA's current status, I'd suggest you seek the advice of your certified financial planner and a bankruptcy attorney who can advise you as to your best options.

Law-and-Precedent-Supporting-the-Special-Power-of-Appointment-Trust

The SPA Trust requires no disclosure by any family member on financial statements or tax returns.  The SPA Trust is not discoverable through discovery of tax returns, or through a bankruptcy questionnaire.

Neither you nor any family member has any vested ownership interest in the SPA Trust.  Therefore, you have no asset that can be pursued or taken into account if you are sued, divorced, bankrupt, or subject to an examination by a government agency.

The SPA Trust includes a power (called a "special power of appointment" or "re-write power") which allows the terms, conditions,  and potential beneficiaries or distributees to be changed at any time.  If a family member is estranged from you or under financial attack, the special power of appointment can be used to remove the family member from the trust, and then reinstate them at a later date.

Because no one has a vested interest in the SPA Trust, neither do their creditors.  For a listing of cases supporting the asset protection provided by a SPA Trust, see

Law and Precedent Supporting The SPA Trust   

Law and Precedent Supporting The SPA Trust      
STATEMENT OF THE LAW

The SPA Trust is built on two irrefutable legal principals:

1.         With respect to an irrevocable trust, a creditor of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit.[1] 

2.         A settlor can retain a special power of appointment without subjecting the trust to the claims of creditors.[2]

APPLICATION OF LAW TO SPA TRUST

The SPA Trust is an irrevocable trust that includes the following features:

1.         The settlor is not a beneficiary and no distributions can be made to or for the settlor’s benefit.

2.         The settlor retains a “special power of appointment” which allows the settlor to change the trustees, the beneficiaries, or the terms of the trust at any time (except that the assets cannot be distributed to or for the settlor’s benefit).  In addition, the settlor can appoint assets to any other person or grant a power of appointment to any other person at any time.

Creditors have no claim against the trust because no distributions can be made for the settlor’s benefit.  However, the settlor may appoint assets to another person or grant a power of appointment to another person who could potentially provide benefits to the settlor.  The cases and statutes set forth below show that these powers of appointment do not give creditors any claim against the trust.  There are no statutes, cases, secondary sources or commentaries to the contrary.

--------------------------------------------------------------------------------
[1] See Uniform Trust Code Section 505; RESTATEMENT (SECOND) OF TRUSTS Section 156(2) and RESTATEMENT (THIRD) OF TRUSTS Section 58(2).  This principal has been adopted in hundreds of cases throughout the country and many states have enacted statutes with this identical language.  For example, see Alabama Code Section 19-3B-505, Florida Trust Code Section 736.0505(b), Michigan Code Section 7506(c)(2), Ohio Code Section 5805.06, Utah Code Section 75-7-505(b), Virginia Code Section 55-545.05.  

 [2] RESTATEMENT (THIRD) OF PROPERTY: WILLS AND OTHER DONATIVE TRANSFERS Section 22.1; US Bankruptcy Code Section 541(b)(1), California Probate Code Section 681; Delaware Code Section 3536; Georgia Code Section 23-2-111; New York Code 10-7.1; Also see cases set forth below.

COURT CASES

In Estate of German, 7 Cl. Ct. 641 (1985) (85-1 USTC Par 13,610 (CCH)) - Assets of an irrevocable trust were not subject to the creditors of the settlor despite the fact that the trustees and beneficiaries had power to appoint the assets to the settlor.
                           

In re Hicks, 22 B.R. 243 (Bankr. N.D.Ga.1982) - A court cannot compel the exercise of a special power of appointment and the assets of the trust were not included in the bankruptcy estate of a permissible appointee.  To read this case, click In-re-Hicks

In re Knight, 164 B.R. 372 (Bankr.S.D.Fla.1994) - The interest of a contingent beneficiary was included in the bankruptcy estate, but the interest of a permissible appointee of a power of appointment was too remote to be property and was not included in the bankruptcy estate. 
To read this case, click In re Knight

In re Colish, 289 B.R. 523 (Bankr.E.D. N.Y. 2002) - The interest of a contingent beneficiary was included in the bankruptcy estate.  The court distinguished this from Knight and Hicks where the interest of a permissible appointee under a power of appointment was not included. 
To read this case, click Colish-v-United-States

Cooley v. Cooley, 628 A.2d 608 (1993) - A special power of appointment is not a part of the marital estate that can be awarded in a divorce action.  As one of the possible objects of the defendant's power, the plaintiff possesses no more than a mere expectancy. 
To read this case, click Cooley-v-Cooley

Cote v. Bank One, Texas, N.A., No. 4:03-CV-296-A, 2003 WL 23194260 (N.D. Tex. Aug. 1, 2003) - Permissible appointee is not an "interested person" with standing to sue the trust.  This is relevant because if the permissible appointee has no standing to sue the trust, neither should a creditor of a permissible appointee.

Avis v. Gold, 178 F.3d 718 (1999) - Permissible appointee had no interest which could be included in the bankruptcy estate, or to which an IRS tax lien could attach, prior to the time the power was exercised in favor of the debtor.

Horsley v. Maher, U.S. Bankruptcy Ct. Case No. 385-00071 (1988) - debtor was a permissible appointee of Trust A and a beneficiary of Trust B.  Trust A was not included in the bankruptcy estate because "the debtor holds no interest in Trust A."  The assets of Trust B were included in the bankruptcy estate.

U. S. v. O’Shaughnessy, 517 N.W.2d 574 (1994) - Assets subject to discretionary special power of appointment not subject to tax lien

Spetz v. New York State Dep't of Health, 737 N.Y.S. 2d 524 (Sup. Ct. Chautauqua Co, Jan. 15, 2002) - New York Supreme Court holds that special power of appointment does not cause trust assets to be taken into account for purposes of Medicaid qualification

Verdow v. Sutkowy, 209 F.R.D. 309 (N.D.N.Y. 2002) - Assets subject to special power of appointment not taken into account for purposes of Medicaid qualification

In re Shurley, 171 B.R. 769 (Bankr.W.D.Tex.1994) - Court acknowledges that assets subject to special power of appointment are excluded from bankruptcy estate, but in this case the trust assets were included because it was a self-settled trust

United States v. Baldwin, 391 A.2d 844 (1978) - Assets subject to special power of appointment not subject to tax lien
           
Estate of Ballard v. Commissioner, 47 BTA 784 (1942), aff'd, 138 F.2d 512 (2nd Cir. 1943) - Assets of trust not included in husband's estate merely because wife had the power to return the assets to the husband.

Kneeland v. COMMISSIONER OF INTERNAL REVENUE, 34 BTA 816 - Board of Tax Appeals (1936) - Assets of trust not included in husband's estate merely because wife had the power to return the assets to the husband.

Helvering v. Helmholz, 296 US 93 (Supreme Court 1935) - Assets of trust not included in wife's estate merely because the beneficiaries had the power to terminate the trust and return the assets back to the wife.

Price v. Cherbonnier, 63 Atl 209 (1906) - Creditors of the donee of a special power of appointment cannot reach the assets subject to the power

Gilman v. Bell, 99 Ill. 194 (1881) - Assets subject to power of appointment not subject to claims of creditors

Jones v. Clifton, 101 US 225 (1879) - Assets subject to power of appointment not subject to claims of creditors

Holmes v. Coghill, 33 Eng. Rep 79 (1806) - Assets subject to power of appointment not subject to claims of creditors

Law and Precedent Supporting The SPA Trust   

STATEMENT OF THE LAW

The SPA Trust is built on two irrefutable legal principals:

1.         With respect to an irrevocable trust, a creditor of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit.[1] 

2.         A settlor can retain a special power of appointment without subjecting the trust to the claims of creditors.[2]

APPLICATION OF LAW TO SPA TRUST

The SPA Trust is an irrevocable trust that includes the following features:

1.         The settlor is not a beneficiary and no distributions can be made to or for the settlor’s benefit.

2.         The settlor retains a “special power of appointment” which allows the settlor to change the trustees, the beneficiaries, or the terms of the trust at any time (except that the assets cannot be distributed to or for the settlor’s benefit).  In addition, the settlor can appoint assets to any other person or grant a power of appointment to any other person at any time.

Creditors have no claim against the trust because no distributions can be made for the settlor’s benefit.  However, the settlor may appoint assets to another person or grant a power of appointment to another person who could potentially provide benefits to the settlor.  The cases and statutes set forth below show that these powers of appointment do not give creditors any claim against the trust.  There are no statutes, cases, secondary sources or commentaries to the contrary.

[1] See Uniform Trust Code Section 505; RESTATEMENT (SECOND) OF TRUSTS Section 156(2) and RESTATEMENT (THIRD) OF TRUSTS Section 58(2).  This principal has been adopted in hundreds of cases throughout the country and many states have enacted statutes with this identical language.  For example, see Alabama Code Section 19-3B-505, Florida Trust Code Section 736.0505(b), Michigan Code Section 7506(c)(2), Ohio Code Section 5805.06, Utah Code Section 75-7-505(b), Virginia Code Section 55-545.05.   

 [2]

RESTATEMENT (THIRD) OF PROPERTY: WILLS AND OTHER DONATIVE TRANSFERS Section 22.1; US Bankruptcy Code Section 541(b)(1), California Probate Code Section 681; Delaware Code Section 3536; Georgia Code Section 23-2-111; New York Code 10-7.1; Also see cases set forth below.
 

COURT CASES

In Estate of German, 7 Cl. Ct. 641 (1985) (85-1 USTC Par 13,610 (CCH)) - Assets of an irrevocable trust were not subject to the creditors of the settlor despite the fact that the trustees and beneficiaries had power to appoint the assets to the settlor.
                           

In re Hicks, 22 B.R. 243 (Bankr. N.D.Ga.1982) - A court cannot compel the exercise of a special power of appointment and the assets of the trust were not included in the bankruptcy estate of a permissible appointee.  To read this case, click In-re-Hicks

In re Knight, 164 B.R. 372 (Bankr.S.D.Fla.1994) - The interest of a contingent beneficiary was included in the bankruptcy estate, but the interest of a permissible appointee of a power of appointment was too remote to be property and was not included in the bankruptcy estate. 
To read this case, click In re Knight

In re Colish, 289 B.R. 523 (Bankr.E.D. N.Y. 2002) - The interest of a contingent beneficiary was included in the bankruptcy estate.  The court distinguished this from Knight and Hicks where the interest of a permissible appointee under a power of appointment was not included. 
To read this case, click Colish-v-United-States

Cooley v. Cooley, 628 A.2d 608 (1993) - A special power of appointment is not a part of the marital estate that can be awarded in a divorce action.  As one of the possible objects of the defendant's power, the plaintiff possesses no more than a mere expectancy. 
To read this case, click Cooley-v-Cooley

Cote v. Bank One, Texas, N.A., No. 4:03-CV-296-A, 2003 WL 23194260 (N.D. Tex. Aug. 1, 2003) - Permissible appointee is not an "interested person" with standing to sue the trust.  This is relevant because if the permissible appointee has no standing to sue the trust, neither should a creditor of a permissible appointee.

Avis v. Gold, 178 F.3d 718 (1999) - Permissible appointee had no interest which could be included in the bankruptcy estate, or to which an IRS tax lien could attach, prior to the time the power was exercised in favor of the debtor.

Horsley v. Maher, U.S. Bankruptcy Ct. Case No. 385-00071 (1988) - debtor was a permissible appointee of Trust A and a beneficiary of Trust B.  Trust A was not included in the bankruptcy estate because "the debtor holds no interest in Trust A."  The assets of Trust B were included in the bankruptcy estate.

U. S. v. O’Shaughnessy, 517 N.W.2d 574 (1994) - Assets subject to discretionary special power of appointment not subject to tax lien

Spetz v. New York State Dep't of Health, 737 N.Y.S. 2d 524 (Sup. Ct. Chautauqua Co, Jan. 15, 2002) - New York Supreme Court holds that special power of appointment does not cause trust assets to be taken into account for purposes of Medicaid qualification

Verdow v. Sutkowy, 209 F.R.D. 309 (N.D.N.Y. 2002) - Assets subject to special power of appointment not taken into account for purposes of Medicaid qualification

In re Shurley, 171 B.R. 769 (Bankr.W.D.Tex.1994) - Court acknowledges that assets subject to special power of appointment are excluded from bankruptcy estate, but in this case the trust assets were included because it was a self-settled trust

United Statesv. Baldwin, 391 A.2d 844 (1978) - Assets subject to special power of appointment not subject to tax lien
           

Estate of Ballard v. Commissioner, 47 BTA 784 (1942), aff'd, 138 F.2d 512 (2nd Cir. 1943) - Assets of trust not included in husband's estate merely because wife had the power to return the assets to the husband.

Kneeland v. COMMISSIONER OF INTERNAL REVENUE, 34 BTA 816 - Board of Tax Appeals (1936) - Assets of trust not included in husband's estate merely because wife had the power to return the assets to the husband.

Helvering v. Helmholz, 296 US 93 (Supreme Court 1935) - Assets of trust not included in wife's estate merely because the beneficiaries had the power to terminate the trust and return the assets back to the wife.

Price v. Cherbonnier, 63 Atl 209 (1906) - Creditors of the donee of a special power of appointment cannot reach the assets subject to the power

Gilman v. Bell, 99 Ill. 194 (1881) - Assets subject to power of appointment not subject to claims of creditors

Jones v. Clifton, 101 US 225 (1879) - Assets subject to power of appointment not subject to claims of creditors

Holmes v. Coghill, 33 Eng. Rep 79 (1806) - Assets subject to power of appointment not subject to claims of creditors