In In the matter of the CES 2007 Trust,[1] the Delaware Court of Chancery (hereinafter referred to as the “Court”) ruled on Can IV Packard Square, LLC’s (hereinafter referred to as the “Petitioner”) motion to dismiss a petition asking the Court to either: (a) void a spendthrift provision in the CES 2007 Trust, a Delaware asset protection trust (hereinafter referred to as the “Trust”); or alternatively, (b) invalidate the Trust in its entirety due to allegations that the Trust was a “sham” and being used as a shell to prevent Craig Schubiner (hereinafter referred to as the “Respondent”) from satisfying a previous judgment entered by a Michigan-based court that was awarded in Petitioner’s favor.
In 2014, Petitioner loaned funds to one of Respondent’s companies to finance a retail and residential development project located in Ann Arbor, Michigan. In May 2018, Petitioner sued Respondent in Oakland County Circuit Court (hereinafter referred to as the “Michigan Court”) seeking repayment. In December 2019, the Michigan Court entered a nearly $14,000,000 judgment in Petitioner’s favor (hereinafter referred to as the “Judgment”). Shortly thereafter, Petitioner moved to enjoin Respondent from transferring property before the Judgment could be satisfied. The Michigan Court entered an injunction in January 2020, preventing Respondent from transferring assets outside the normal course of business pending satisfaction of the Judgment. Since 2020, Respondent has maintained that he has no personal assets to satisfy the Judgment.
Respondent settled the Trust in 2007, which was prior to the above-referenced loan and ensuing Michigan litigation. In the Trust, Respondent retained for himself the full power to manage the Trust’s investments in a fiduciary capacity as the Trust’s “advisor.” Further, Respondent named his brother as the Trust’s Protector, which provided Respondent’s brother with the authority to remove and replace trustees and advisors. The Trust’s beneficiaries included Respondent, Respondent’s minor daughter, Respondent’s remaining parent and Respondent’s two brothers.
The Trust’s assets included a ninety percent member interest in three Delaware limited liability companies: 304 Associates LLC, 305 Associates LLC (hereinafter referred to as “305 LLC”) and 306 Associates LLC (hereinafter referred to as “306 LLC”). Respondent is the Manager of each limited liability company. 305 LLC owns two parcels of real property located in Michigan (hereinafter referred to as the “Birmingham Property” and the “Linden Property”). 306 LLC owns two parcels of real property located in Aspen, Colorado (hereinafter collectively referred to as the “Aspen Property”). Petitioner motioned the Court to invalidate the Trust’s spendthrift provision, or to invalidate the Trust, arising from the transfers of the Birmingham Property and Linden Property to 305 LLC and the transfer of the Aspen Property to 306 LLC.
The Court first ruled that the Trust was a properly created Delaware asset protection trust under the Delaware Qualified Dispositions in Trust Act (hereinafter referred to as the “Act”). The Act, initially enacted in 1997, codified the ability for an individual (whether or not a Delaware resident) to create an asset protection trust, irrevocably transfer assets to the trust, and protect such assets from the claims of the transferor’s creditors.
Petitioner challenged the transfer of the properties, which should be noted were transferred to the Trust’s underlying limited liability companies as opposed to being transferred to the Trust itself. The Court stated:
The Trust’s assets are the LLCs, for which the Trust has a ninety percent interest. Under Delaware’s LLC Act, ‘[a] limited liability company interest is personal property. A member has no interest in specific limited liability company property.’ Thus, the Trust, through its membership interest in the LLCs, has no interest in the specific real estate owned (or no longer owned) thereby. It would be inappropriate for this Court, through this type of proceeding, to adjudge the real estate transactions at the LLC level under the guise of potential fraudulent transfer sufficient to void the Trust’s spendthrift provision. There are, simply put, no transfers to/from the Trust which would give rise to such an inquiry, and the Petitioner has pled no basis on which this Court should engage in veil piercing.[2]
The Court further stated, “[t]he Trust does not own or have a direct interest in the real estate at issue. It owns the LLCs, and its membership interests therein remain unchanged. To entertain the Petitioner’s theory would require this Court to disregard the layers of business entities and ignore the LLC Act and the Act’s clear legislative intent. [The Court declines] to do so.”[3]
Additional arguments by Petitioner asserted: (a) although the Trust was intended to serve as an asset protection trust, it did not meet the Delaware statutory mandates for such treatment; and (b) the current serving trustee was not a “qualified trustee” under Delaware law. The Court fairly easily dismissed these arguments based upon the lack of evidence that either was actually true.
Petitioner’s final argument was that even if the Trust was an asset protection trust (which it was), the Court could still invalidate the spendthrift trust provision under common law provisions. The Court disagreed with this argument after analyzing its prior ruling in Kulp v. Timmons[4]. The Court noted that Kulp listed two primary doctrines to void a trust:
“First, public policy would not permit someone to create a spendthrift trust solely for their own benefit because where ‘the trustee controls the assets and income of the trust for his own benefit, unconstrained by any fiduciary duties owed to others, the purpose of a spendthrift trust—to protect the beneficiary from his or her own improvidence—is lost.’ The second underlying doctrine is that of merger. Under that doctrine, a trust becomes void where the interests of the beneficiaries and the interests of the settlors are identical.”[5]
The Court held that neither doctrine outlined in Kulp supported Petitioner’s request for relief. As a result, the Court held that Petitioner failed to state a claim to either: (a) void the Trust’s spendthrift provisions; and/or (b) invalidate the Trust altogether.
Respondent’s motion to dismiss Petitioner’s petition was granted, and such petition was dismissed.
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[1] C.A. No. 2023-0925-SEM (Del. Ch. May 2, 2025).
[2] Id. at 18.
[3] Id. at 21-22.
[4] 944 A.2d 1023 (Del. Ch. 2002).
[5] Id. at 1031-1032.