A Bridge Trust is a proprietary product of a law firm that heavily markets them at seminars and on the internet. However, there are court cases demonstrating that they aren’t reliable. Learn more about why this type of trust doesn’t provide adequate asset protection. We’ll also discuss what you can do if you want to keep your assets secure.
What is a Bridge Trust?
A Bridge Trust is a self-settled spendthrift trust. It names the client as the initial trustee. Then if the client gets sued or has any sort of creditor problem, the client can resign as trustee and a Cook Islands trust company automatically takes over.
It sounds like a wonderful solution. You get to control all of your assets just like you do now. And if there’s ever a threat to your assets, an offshore trust company automatically takes over. Your net worth is now owned in the Cook Islands. Your creditor needs to sue you here in the U.S. and get a judgment against you. Then they would need to start a whole new legal action in the Cook Islands (because the Cook Islands won’t honor a U.S. judgment). By that time, the statute of limitations has already run in the Cook Islands. Plus, there are other hurdles to pursuing legal action there. For instance, you need to hire one of the few attorneys there that handle these sorts of cases. And, anyway, it’s all futile because the statute of limitations has run.
Here’s a link to a Bridge Trust that I personally set up. Yes, I’m speaking from experience. I didn’t always make good personal choices. The sales pitch is pretty convincing. But I’ve learned and now I’m trying to warn others about them.
Bridge Trusts Sounds Great. What’s the Problem?
The problem is that an offshore trust is not effective at protecting onshore assets. If you happen to live in one of the minority of states that permit self-settled spendthrift trusts like this, you might stand a chance. But in the majority of states (like Arizona), the court’s won’t honor it. The court won’t care what Cook Islands law is. If you have an asset here in the U.S. (like a bank account or real property), the court will take jurisdiction over that property and seize it for the benefit of your creditors.
Also, even if you have money that you want to transfer to the Cook Islands, courts have also prevented assets from shifting to an offshore trust when under attack. See In re Brooks, 217 B.R. 98 (D. Conn. Bkrpt. 1998) and Indiana Investors, LLC v. Hammon-Whiting Medical Center, LLC No. 45D02-0807-CT-201 (Lake Superior Court, Lake County, Indiana).
Bridge Trust Blows Up in Hammon-Whiting Medical Center Case
In Hammon-Whiting Medical Center, Victor Fink transferred assets to a Cook Islands trust provided by one of the popular asset protection providers found on the internet. That company (located here in Maricopa County, Arizona) claimed that the control could be shifted offshore in the event of duress. The plaintiffs were able to obtain temporary restraining orders. That prevented the trustees and protectors from shifting the control to the Cook Islands trustee (South Pac Trust International, Inc.) and the bank accounts were all frozen.
Why are asset protection trusts so heavily marketed?
Despite the fact that bridge trusts do not provide asset protection, they have become increasingly popular due to their aggressive marketing. The idea of setting up a trust that names yourself as beneficiary while simultaneously protecting assets from creditors sounds amazing.
The Arizona company that markets Bridge Trusts brags that they have done thousands of them. At $26,000 a pop, that’s tens of millions that they’s made. All for selling something that probably won’t stand up in court.
Letting the Cook Islands Trust Company Take Over Is Probably a Fraudulent Transfer
A fraudulent transfer is a transfer of an asset without the intention to make good on a debt. Under state and federal law, creditors can file claims against debtors in order to recover their losses due to fraudulent transfers. When attempting to assess whether or not a Bridge Trust provides asset protection, it’s important to understand how fraudulent transfers are defined under the Uniform Fraudulent Transfer Act (UFTA) laws. The UFTA states that any transfer of property made with the intention of preventing creditors from collecting will be considered a fraudulent transfer.
Clearly, resigning as trustee and allowing South Pac Trust International, Inc. to take over is a fraudulent transfer. You owned and controlled the trust assets here in the U.S. And with the stroke of a pen, now they are owned by a trust company in the Cook Islands.
Do You Want to Unwind a Bridge Trust? We Can Help.
If you are regretting your choice to get a Bridge Trust, you’re not alone. The good news is that by doing what you did, you started the 10-year clock running for when a bankruptcy court could unwind the whole thing. Let’s not throw the baby out with the bath water. We can retool your Bridge Trust and Asset Management Limited Partnership into something that will actually work if it’s ever challenged in court. Just give us a call at 602-443-4888.
And by the way, we will charge a fraction of what you paid for your Bridge Trust and limited partnership. We’ll even give you a new fancy aluminum attache case if you want. (grin)