M E M O R A N D U M 

To:                  All Clients  

From:              Mulhern & Scott, P.L.L.C.  

Re:                  New Creditor Protection Law  

Date:              March, 2009 

             As part of our firm’s ongoing commitment to keeping you abreast of important and significant changes in the law, we are writing to inform you of a major legal development.  

             Effective as of the first of this year,  New Hampshire law authorizes a completely new type of trust, known as an “Asset Protection Trust” (“APT”). These trusts are a vitally important and cutting-edge estate planning tool because they allow individuals to shield assets from creditors while still retaining substantial rights to and power over the assets in the APT. This is a ground-breaking change in the law, which creates significant planning opportunities.   

             Some vitally important rights that can be retained by the person(s) setting up the APT include:   

$           The right to receive income (as well as principal under certain circumstances) from the APT;  

$           The right to remove a trustee or trust advisor and to appoint a new trustee or trust advisor;  

$         The right for the trustee of the APT to pay, after the death of the person who establishes the trust, debts and expenses of administering the estate, together with estate tax.

             For individuals with significant net worth and/or potential exposure to creditors, the APT is a vehicle that warrants serious consideration. Traditionally, the only method of placing assets beyond the reach of creditors was to put them in an Irrevocable Trust, where they could no longer be distributed to or used for the benefit of the person who established the trust – i.e., in essence, giving the asset(s) away and forgoing all incidents of ownership. Individuals who had a need for an element of creditor protection in their estate planning were forced to choose between keeping and using their assets (and thereby foregoing creditor protection) or gaining shelter from creditors, but at the cost of putting their assets outside their control. Often, for individuals who were concerned about liability protection, the latter process involved transferring assets to exotic offshore venues, whose laws were structured to attract such trusts, thus adding a layer of legal and political uncertainty to the process. 

             With the introduction of APTs into New Hampshire law, individuals are now able, for the first time, (1) to keep their assets right here in New Hampshire, and (2) to place assets in a trust that is beyond the reach of creditors, while still maintaining the ability to derive benefit from and maintain a certain level of control over the assets held in such a trust. This ability simultaneously to shield and use assets in APTs offers an invaluable and unprecedented estate planning opportunity. Moreover, APTs are authorized and valid under New Hampshire law, and are not at all like offshore trusts, which have traditionally been viewed by many people as dubious. 

             While the APT is a major legal innovation, it is important to note that there are some significant legal requirements and limitations in establishing an APT. The law, for example, requires the use of a New Hampshire trustee, and that the trust instrument be carefully drafted to comply with the new law. The New Hampshire APT law also specifies that, after a trust is established, all rights are determined by the trust instrument, without any side deals or other arrangements between the individual establishing the trust and the trustee.   

             APTs have some limitations. They will not shield an individual from claims for alimony, child support, and similar family law obligations. Certain pre-existing (as opposed to future) creditor claims will also not be barred. Because of this, it is extremely important to create and fund an APT sooner rather than later. In addition, an APT cannot be formed to avoid a current, known creditor. Of crucial importance – an APT does not serve to limit an individual’s tax obligations, and, as a result, the APT must not be thought of as a tax-avoidance device. 

             Non-New Hampshire residents can also establish and benefit from New Hampshire APTs. In passing the APT legislation, New Hampshire has continued its commitment to be one of America’s best legal environments for the administration of trusts, regardless of the place of residence of the trust’s creator or beneficiaries. As with trusts for residents, the APT must have  a New Hampshire trustee.  Furthermore, the APT legislation contains provisions for moving an existing trust situated in another state to New Hampshire.  

             APTs are an innovative and compelling new estate planning tool that should be very strongly considered by any individual who is seeking asset protection. As they are complex legal instruments, APTs require careful discussion and planning. We are available to discuss how best to create an APT that addresses your personal needs and situation, and hope to hear from all clients with an interest in this important legal development.