doing so severely limited the options for
residents of non-DAPT states to go to a
DAPT-friendly state and establish a trust.
Indeed, if a resident of a state that does
not permit DAPTs transfers assets located
in that state into an out-of-state DAPT,
Toni 1 tells us the transfer of assets to the
out-of-state DAPT could be unwound by
a judge of the non-DAPT state. It is easy
to imagine a judge from Pennsylvania, a
non-DAPT state, being less than pleased
with a Pennsylvania resident putting
Pennsylvania assets into an Alaska
DAPT and arguing that those assets are
unreachable by the Pennsylvania judge.
The pushback in 2018 came not
only from the Courts. The Georgia
legislature sought to become the 18
HB 441 for former Governor Nathan
Deal's signature in April 2018. A number
of commentators argued against the
enactment of the bill. For example, Jay
Adkisson wrote a piece in Forbes entitled
"Georgia Legislature Snookered Into
Passing Legislation To Cause Investment
Flight From Georgia." A month later
in May, Governor Deal vetoed the
legislation. His press release argued that
HB 441 could have potential unintended
consequences, and that the State of
relationship is equitable and facilitates
economic prosperity and mobility. The
release concluded that HB 441 did not
have sufficient safeguards to protect
against negatively impacting the creditor-
debtor balance.
Governor Deal's statement is worth
examining. The statement does not reject
the use of DAPTs based on preserving
longstanding common law principles.
Instead, the statement argues as a matter
of policy that DAPTs are bad for business
and that Georgia is better suited to
protect creditors' rights. This is a much
more pragmatic rejection of DAPTs than
simply arguing the use of DAPTs upsets
a longstanding legal principle. Georgia
was already considered one of the most
creditor-friendly states in the nation,
and by rejecting HB 441 Governor Deal
ensured Georgia would retain that status.
The 2018 legal and policy DAPT
pushback then fits within the larger wave
of DAPT criticism and rejection via the
Uniform Voidable Transfer Act (UVTA).
The UVTA has been adopted by 18
states, and is perhaps best known for its
harsh treatment of transfers to DAPTs.
Typically, fraudulent transfer laws are
used to unwind transfers made to defraud
a creditor. But the UVTA goes further.
Comment 8 to Section 4 of the UVTA says
a non-DAPT state to a DAPT in another
state is voidable. Or, in other words,
the UVTA does not seek to just unwind
fraudulent transfers. Instead, the UVTA
indicates a legitimate, non-fraudulent
transfer to a DAPT is in itself fraudulent if
the resident resides in a UVTA state that
does not authorize DAPTs.
What, then, does this mean for DAPT
planning as we enter 2019? The use of
DAPTs in DAPT states continues to offer
perhaps the most effective blend of asset
protection and cost effectiveness available
to individuals seeking creditor protection.
Such individuals can protect their own
assets and still retain significant elements
of control, depending on which DAPT
statute is being used. However, the Toni
1 case, coupled with relevant provisions
of the UVTA, casts serious doubt over the
utility of DAPT planning for a resident
of a non-DAPT state. And the growth of
DAPT states may be stalling, as seen in
Georgia. Thus, attorneys and concerned
clients alike should tread carefully when
thinking about asset protection strategies
for non-DAPT state residents while
continuing to closely monitor the DAPT
and UVTA state landscape.