By Edward Brown, Esq.
Indiana has become the 18th state (which we will refer to each such state as a Legacy Trust state) to allow persons to form and fund trusts (which we will refer to as Legacy Trusts) that can be used to hold a nest egg of assets and preserve those assets for future use of such persons, their families and heirs. It is interesting that states continue to pass similar legislation despite some successful challenges, such as the following scenario: A creditor initiates an action in a state (let’s say, California) that has no Legacy Trust law in place (this could have also been any of the other 32 states, such as Florida, New York, Texas or Illinois). The initiated action involves a loan guaranty executed in California by the debtor who also lives in California. The debtor had created a Legacy Trust in Wyoming years before signing the guaranty. Nevertheless, the creditor is pursuing not only the debtor’s assets, but also the assets in Legacy Trust created under Wyoming law. The court sides with the creditor by concluding that the jurisdiction of California and/or federal law applies instead of Wyoming law.
Nevertheless, at a minimum, the new Indiana law should provide an additional effective planning strategy at least for those who reside in Indiana, and therefore have less concern over such creditor challenges.
One fairly recent challenge of a non-Legacy Trust state (Montana) creditor pursuing a Legacy Trust involved an Alaska trust case (Alaska being another Legacy Trust state, and in fact was the first such state). In that case (Toni 1 Trust v Wacker ), the settlor (creator) of the trust was subject to a cause of action (the event for which the settlor was being sued, specifically, a fraudulent transfer action that was not derived under the law of the state in which the trust was created).
The Legacy Trust trustee argued that since Alaska has exclusive jurisdiction over this matter, Alaska law generally prohibits a Legacy Trust trustee from making any assignment of trust assets to a creditor. The court however took the position that Alaska (or any state) cannot limit the jurisdiction of any other state in all cases. In other words, exclusive jurisdiction to the Alaska courts will not be upheld (citing a 1914 case). This ruling was issued against the trust notwithstanding the Alaska statute stating (with certain text being bolded for sake of emphasis) as follows:
Notwithstanding another provision of the law of this state, an action, including an action to enforce a judgment entered by a court or other body having adjudicative authority, may not be brought at law or in equity for an attachment or other provisional remedy against property of a trust subject to this section or to avoid a transfer of property to a trust that is the subject of this section unless the action is brought under (b)(1) of this section and within the limitations period of (d) of this section. A court of this state has exclusive jurisdiction over an action brought under a cause of action or claim for relief that is based on a transfer of property to a trust that is the subject of this section.
The new Indiana statute however has a more extensive provision that reads as follows (again with certain text being bolded for sake of emphasis):
To the maximum extent permitted by the United States Constitution and the Indiana Constitution, a court of this state shall exercise jurisdiction over a legacy trust or a qualified disposition and shall adjudicate a case or controversy brought before the court regarding, arising out of, or related to a legacy trust or a qualified disposition if that case or controversy is otherwise within the subject matter jurisdiction of the court. Subject to the United States Constitution and the Indiana Constitution, a court of this state shall not dismiss or otherwise decline to adjudicate a case or controversy described in this subsection on the grounds that a court of another jurisdiction has acquired or may acquire proper jurisdiction over, or may provide proper venue for, the case or controversy or the parties to the case or controversy. Nothing in this subsection shall be construed to do either of the following: (1) Prohibit a transfer or other reassignment of a case or controversy from one court of this state to another court of this state. (2) Expand or limit the subject matter jurisdiction of a court of this state.
Whether the above statutory language will bring a different result than what was found in the Toni 1 Trust v Wacker case may remain to be seen.
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