April 5, 2017
In a Hawaii Supreme Court case, a debtor engaged in a fraudulent transfer to a Hawaii asset protection trust. The debtor was hoping to rely on Hawaii’s one year statute of limitations period that bars any fraudulent transfer claims after a transfer to such a trust is discovered by the creditor (plaintiff).
The Supreme Court however felt such a one year cut-off was unfair and decided that instead of the one year period beginning on the date the transfer to the trust is discovered by the plaintiff, that instead the one year period does not begin until the plaintiff realizes that the discovered transfer was also fraudulent.
In offshore trust jurisdictions, the statute of limitations is based more on an absolute time bar that does not have a sliding commencement date. Having certainty in what planning works and does not work is critical. Although fraudulent transfers should never be attempted, it is generally preferable to at least design plans that incorporate laws that provide certainty as to whether even a meritless allegation of a fraudulent transfer could be lodged. Creating planning structures that fall within the available safe zones that well-define the cut-off point that bars any need to even entertain such an allegation provides one with much peace of mind, let alone a savings in costs, time and efforts that one would otherwise have to undertake in defending against such claims.
Cite: Schmidt v. HSC, Inc. (Case No. SCWC-29454) (2014)
By Edward D. Brown, Esq., CPA, LLM