How We Stopped the Bank from Taking Our Client's Assets

Let me tell you a secret. You can get sued for anything. A lot of people think, Mark, you can just transfer your house to your wife or you can move that asset to Jamaica. That is called a fraudulent transfer.

You always want to be proactive and any asset protection planning you do is for future unknown lawsuits or liabilities that could come down the road. This client gets into a lawsuit and ends up getting a judgment against them for half a million dollars.

Wells Fargo's initial reaction is, well, we got to pay this. Luckily, Matt Sorensen was on the case. Welcome everybody to another episode of the Main Street Business Podcast. My name is Mark Kohler. I'm here with Matt Sorenson talking about a really interesting story, a real-life case that we handled for one of our clients to help protect their assets. Matt, you were more in the trenches on this one. I was close to the, to the eye of the storm, but I'm really excited to tell this story.

Yeah, and I think this is a good example of asset protection planning done right in advance and used the right way that stopped a creditor and a bank who was about to let our client's assets go right out the door because of a judgment.

So can we say the mighty Wells Fargo?

I mean, let's be honest, we're not going to name any more names past that. Okay.

You know, a bank that may or may not have been Wells Fargo Bank.

Okay.

Yeah, of course. Um, no, I like the way you said that, Matt, too, that it was about pre-planning that was the key here. Because let me describe what is called a fraudulent transfer, and then, Matt, maybe you could set the stage with the story as well. Yeah. What many people think is, um, if I get in a car accident tomorrow, I'm texting and driving, heaven forbid, and run someone over, whatever, there's an accident. A lot of people think, well, Mark, you can just transfer your house to your wife, or you can move that asset to Jamaica, or you could go deed that property to your son and you're okay. Just move your asset. That person that sues you can't get it. Wrong. That is called a fraudulent transfer because the cause of action came before I moved the asset. I moved the asset to hide it or get it away from the creditor. And a judge later on, a year down the road, 2 years down the road, can say— when they find out that that was the strategy I employed— can undo that transaction and say, nope, get that property back and you're going to give it to the creditor. That was a fraudulent transfer because of this cause of action that you created. You can't do the move after the accident. But that, that's the rule. But not in this case, Matt.

Yeah. Yeah. I think this is even anyone using an LLC for your business, or you move a rental property into it. You can't do that after the fact, after like, oh, I owe somebody money or, oh, I have some lawsuit that, that doesn't work. That'll always be unwound. And those assets will be attached. So, um, you always want to be proactive, and any asset protection planning you do is for future unknown lawsuits or liabilities that could come down the road. So we had a client who, um, high net worth client, lots of assets, businesses, real estate, all those things. And this client had plenty of LLCs, S corporations. The typical structure we would do in a trifecta would be how it looked, um, But this client had wanted some additional asset protection planning, which we do for certain clients that want that additional layer and frankly have enough assets where it's worth it, all right? So we did something for them called the Domestic Asset Protection Trust. Now, this client was a resident of Nevada, and Nevada is one of about 10 or so states that allow for something called a Domestic Asset Protection Trust. And this is sometimes just for shorthand as a DAPT. And what that is, is this DAPT allows for you to move assets into it. And in the event of a lawsuit, a creditor cannot attach them. Like, so if you get a lawsuit against you personally, they can't go into the DAPT and get any of the assets that are inside the DAPT.

And the beauty of the DAPT is that although that layer of protection has been created, you can still have use of the asset. You could use that, sell the asset and buy another asset that would stay in the trust. So it's its own little— think of it like an LLC in a sense like that. It's got it. It's got— you're going to put an asset into it. I will get more into the details. I wouldn't recommend you put all your assets into ADAPT, but you could put a bank account, you could put a property, a piece of real estate or rental property, a second home, whatever you put that asset—

investment account.

The trust, then you can leave it in the trust and use it and have access to it and, um, and play a role in that trust based on the type of design. And the state law of that DAPT law is going to play a big part in it because there's different DAPT laws in different states, but this happened to be Nevada so that he could still have access to this asset. And what do you do, Matt? What asset did he put in this?

Well, so he had bank accounts and things like that, investment accounts, other assets like that. Those are the typical ones we would like to see in the DAPT. But in, in— and so that was proactive, right? This was before any lawsuit or liability was lingering or anything like this. This is proactive. Hey, I've got a lot of assets. I want to think how to protect them. I am a resident in a state that allows for DAPTs. If you're a resident in a state that doesn't have a DAPT, say California, enabling the— executing this strategy can work. It's just not as solid. It's a much more solid and reliable strategy for those that live in state or have assets in a state that allows for DAPT. So, so, so this domestic asset protection trust, and by the way, this is different. You would still have your revocable living trust for anybody doing this strategy that coordinates with the domestic asset protection trust. Your vocal living trust is more about your estate planning and passing down your assets. The DAPT has an asset protection function to it, and we, we like these DAPTs for clients that like asset protection, want to protect their assets, have enough of it, instead of someone wanting to do these foreign asset protection trusts. Okay, those are very murky. The IRS hates them. You're going to have foreign bank account and asset reporting. You have to do the IRS. They're not as ironclad as everyone thinks. You can get a civil contempt order for not moving assets from these foreign trusts into the US. And so it's— it's— they're just messy. So the DAP, it's in the law in about 10 different states. Like, it's literally in the state law that says creditors, you cannot come inside this to get these assets.

Yeah. So, and, and I want to unpack later here, for many of you listeners that live in one state but might have property in another state and use ADAPT law from another state. There can be, I mean, there was really 3 things going on, where you live, where the asset is, and what DAPT law you might rely on. And you're going to get a better result when those align, obviously, but it doesn't mean you still can't consider it as a strategy. But this client got into a lawsuit.

Yep. This client gets into a lawsuit and ends up getting a judgment against them. Okay. Losing the lawsuit, which means there's a judgment against this client personally where the creditor can collect on it. And so what happens is when a creditor has a judgment against you, they're going to say, all right, I'm going to go to any places you have a bank account and I'm going to send a writ of garnishment and say, hey bank, we have a judgment for half a million dollars. And I think it was around the judgment in this case. We have judgment around $500,000 for this person. We want you to pay us. So if they have $500,000 in a bank account with you, they don't anymore. That's going to us because we got an order from a court, this writ of garnishment that says you got to pay us. And so this writ of garnishment goes to the bank. The bank gets the garnishment and notifies the client, says, hey, we have this. Writ of garnishment, we need to send, we need to satisfy this. And they kind of give them a notice to respond to this, right? Well, this is when we get involved. And smartly, this client was using the domestic asset protection trust that was the owner of the account that had pretty much all the money in it.

All right. And I think if I'm correct, the creditor was out of California, even though our client was in Nevada., and that in California courts are a little more aggressive. And so, um, Wells Fargo's initial reaction is, well, we got to pay this, we got to drain this client's account. And, uh, luckily Matt Sorenson was on the case and said, I thought, a very well-crafted nasty letter. Please, please, please explain.

Well, in, in this case, I mean, the client obviously engages us and is like, hey, we— you guys set up this DAP for me, this is what owns this. They're trying to— the bank's going to let this money go. I'm telling them they can't. And how do we intervene? So we intervene and explain how that these— this account, which it was titled correctly, was owned by the trust properly, how the creditor could not attach these dollars, um, and the bank had no right to send the money back to the creditor. So after it goes through You know, so we get in contact with the bank with the nasty letter, so to speak, of, you know, we would hold them responsible essentially for sending that money because these assets are not the assets of the person listed on the judgment. This money in the bank is the assets of a domestic asset protection trust, which, you know, is under Nevada law, and you cite the code, you know, is a protected asset. So Now the nice thing is, is that is, you know, this was Wells Fargo. Mark mentioned earlier, I mean, they're pretty much everywhere across the US and they're in Nevada. They've had to deal with this before. Yeah. So, but the problem was the entry-level person getting that, executing it, wasn't super aware of that. So it finally worked its way up the food chain, got to the right person, said, ah, they're right. And, um, they basically took that writ of garnishment and threw it in the garbage. Because they couldn't do anything with it. And so it was a huge win for our client, put him in a much more significant position to negotiate and handle that judgment as opposed to just seeing significant amount of dollars just evaporate out of the bank account from this writ of garnishment that just goes right to the bank.

And I want to say, Matt, you did a phenomenal job. I mean, you were like freaking killing it. I just loved it. Now, let's take this to the next level. Let's talk about us. Well, currently right now, there are 21 states that have a DAPT statute. Now, some states have a stronger DAPT law on the books, Domestic Asset Protection Trust law, but again, it's only 21 states. Now, let's do an example here. You have a Utah resident that sets up a Nevada DAPT, has Nevada property, and gets into a lawsuit dealing with a Nevada creditor. Well, the creditor goes to court in Nevada to get this asset. Well, even though they were a Utah resident, because the law recognizes the DAPT, the DAPT was set up under Nevada law. And the property and the cause of action were all in Nevada, that creditor's going to have a hard time getting through that DAPT, and Nevada would probably recognize that case even though it's not a citizen of their state. But this is one of the biggest unsettled issues in asset protection right now. The US Supreme Court has not decided on the case between the states on this issue. It's never gotten there. And so it gets really precarious when you have causes of action in states where there's not a DAP law and citizens are all over the place. It's really a tricky one. Yeah. Matt.

And I think the example might be you're a California resident with a lawsuit or a judgment in Washington State. I presume those are two states that don't have a DAP statute. But you have a DAP maybe in Nevada or Utah, which are stronger states for the DAP, or maybe South Dakota or whatever. And that, and that DAP might just own an investment account. It's not necessarily a physical asset in the state, but you used a bank in that state or the branch in that state to establish that account, and it's owned properly by the trust. How is that going to get treated? Boy, that's going to be, I think, for the banks they are not going to want to execute that and send the money out on that. They're going to have their own quandary because they don't want to be responsible if this case goes the other way. So you're definitely in a strong position, but I think as Mark said, the laws between states and what they're going to recognize in other states, there is a clause in the Constitution about this and it's states recognizing other states' laws. But this is literally, as Mark said, a US Supreme Court constitutional law issue. That the case hasn't gone all the way yet on this, uh, for these. So, so even though it could be a good use case for a DAPP for you're in a state that doesn't have it as a resident, um, or you even do business or have risks in another state where you might have a liability that's not a DAPP state, you could still use the DAPP. We're just not as, uh, uh, enthusiastic about how protective it'll be Even though I think it's good. Yeah, this is not great. Maybe.

Well, and see, this is why I want to say thank you to you, the listener or viewer on YouTube watching this, because AI cannot answer some of these nuances and the life experience that Matt and I have had for over 20 years in, in the trenches with a law firm. We can help guide clients through these precarious situations and what's their best choice. So I'm grateful that many of you are still listening to this podcast and please recommend it to your friends and family and business associates. Now, the constitutional provision that Matt referred to is called the Full Faith and Credit Clause, and that's where we as a United States of 50 states have said we want to recognize the laws of these other states, but there's lines in the sand. It can get gray and it can get muddy.

Yeah.

So here's what really happened.

Can I give you an example of how that could get gray?

Yeah, yeah, yeah.

Like let's say I'm a California resident and I'm in the state of Utah and I'm smoking weed. And I said, hey, in my state, this is illegal. You know?

Yeah.

That just, you know, full faith and credit, baby. You cannot arrest me. This is, you know.

Yeah, that would be a very interesting case. And the sad part is the Supreme Court is not gonna just say a blanket, we've gotta recognize Utah, you've gotta recognize all the laws of California. Utah say, hell no. And so it happens to be settled on a case-by-case basis based on those facts, based on that situation. And so it gets really hard to rely on the laws of another state to protect you in the state you're in. But let me tell you a secret. Here's the real deal. You can get sued for anything. I was just talking to a client the other day, Matt, that was selling a horse, and he was in this debate on whether or not the buyer could sue him in the transaction. And I go, yeah, he can sue you. You can get sued for anything. The question is whether you're going to win and how much it's going to cost you to win. And so we have to appreciate the DAPT in some ways because it creates a hurdle. It's a barrier. Now, how strong is that barrier going to be? Well, it depends on the facts and circumstances again, but you've got a claimant, a creditor on the other side that's got to go, oh my hell, how much do I want to pay my lawyer to try to fight this thing? And that lawyer may feel really confident or not. And so if you've got assets, you want to create these barriers and put a kind of a cost-benefit analysis. All right. How much does it cost? How many assets do I have? Well, maybe it's worth it. I'll put that barrier in. Where do you draw the line, Matt?

Yeah, I would say, you know, for LLCs and estate plans, your typical trust, like we're starting with all that planning. You know, you've got a rental property, you own a home. You know, we're using a revocable living trust. You got a family, got kids, like we're doing estate planning. You've got some rental properties or a business, even if it's, you know, day one with the rental property with no equity and one tenant, it's a single-family property or it's the new business on the side you just started. I mean, we're doing an entity right out of the gate like this is so— so we start planning very early on there. The domestic asset protection trust is much further down the road. And I would think you need a net worth of at least $1 million. And I would probably start at around 2 or 3 where I might consider it. And these would be assets that could be sizable. I'm not talking about like assets that are otherwise protected, like maybe equity in your home, depending on your state, that might otherwise be protected anyways. And that's like, you know, you live in a state with a big homestead exemption and you've got a lot of equity there, or all of your assets are in retirement accounts that are, you know, and that comprises most of your assets. Well, those are protected too. Already. So I don't need the DAP for that. But if you're like, well, Matt, I've got lots of investment accounts, I've got cash, I've got the second home, I've got the land, I've got these other personal assets aren't really business assets necessarily. We're not usually typically using the DAP to conduct our own business necessarily. So, so we're using the DAP on those other types of assets, cash accounts, investment accounts that are not retirement accounts. Land, second home, if that's a significant amount, over a million bucks, I would say you could consider the DAPT, but we're not like out here selling this hard either. I mean, the client, even the situation we gave most of the clients we've done this for, they have much more than a million dollars in net worth in those buckets. And they also have some liability risk, you know, like they're business owners there. They have other things going on in their life where they might have some liability risks where they could get sucked in personally. And get a lawsuit against them.

And see, I can, I can totally understand how some of you viewers or listeners are going, okay, well, what the hell do I do? Am I at that breakpoint where I should do it or not do it? Are my assets really at risk? Matt said my retirement account isn't. Well, what else isn't? And you start trying to self-diagnose. Now, that might work for strep throat, but let me just tell you, playing around with Croc and ChatGPT with your hard-earned assets that have got you to get you through your life and you want to protect, please, I beg of you, set up a comprehensive asset protection consult with one of our lawyers. We've got 10 lawyers meeting with clients around the country every day that do comprehensive tax consults, estate planning, business, and asset protection. And they're going to look at your facts and circumstances. Look at your risk. Are you a plastic surgeon operating on someone every day? Do you run a bungee jumping school? Do you run a skydiving school, or do you sell jeans on eBay in the basement? How much risk do you have in your life? And then how many assets do you have? We can say, all right, this is the level you probably should go to and help make some recommendations. That's why you hire a lawyer that knows what the hell they're doing, that are affordable and can speak to you like a real human. That's what we do at KKOS Lawyers.

Yeah, absolutely. And that's, you know, I would say even as we've brought up the DAPT as a good case example, most of those asset protection consults, you may not need the DAPT. Like a lot of the planning and structuring we're going to do is analyzing your situation, where you're currently sitting, to let you know of your opportunities for planning and protection, and also the, um, protections that are unique to you and your state based on the assets you have. And so it does get quite nuanced, but this is why you hire the professionals. We do this every day. We stay in our lane of these types of things that we're good at. We're not trying to do your family law case, your criminal law case, your bankruptcy, or any of that stuff. We're not going to court. These are the, um, uh, types of issues we're doing to help protect clients who are building wealth and also make sure your only pain is much tax.

And let me give you one last example that might help put it in perspective. I had a client, he was an NHL hockey player, retired, single, chasing fast women with fast cars and running around the country. And, um, he had a big investment. Brokerage account in New York with a broker-dealer where he had lived a lot of his life. He was then living in Texas and bought a property in Tennessee. And he's like, well, I want to someday retire in Tennessee. And this is a cool farm property that's going to be worth millions right outside Nashville. And he bought this property, but he said, I don't want to get sued. I mean, he had a pretty flamboyant, risky lifestyle. And so, well, Texas does not have a DAPT. New York did not have a DAPT. Tennessee had a DAPT statute, and we felt that was the best choice for that asset to drop it into a trust and put it in, in Tennessee, into a Tennessee DAPT. Now, is it going to be bulletproof protection? People, there's nothing that's bulletproof per se. Someone with a big enough gun, with large enough ammo, and you do something bad, it might not be good. But we can put up barriers again. And it was affordable for him to do that with an asset that was really important to him. So that's just— we have example after example every day where sometimes we say, like Matt just said, we'll say no, don't do it. Let's come over to an LLC and use a COPE, a charging order protection entity. That state might be best for that. So you never know. Yeah.

So get over to kkoslawyers.com. We'd be happy to help. Today's show is brought to you by the team of amazing professionals at KKS Lawyers. And, uh, thank you everyone for listening. Make sure you're subscribed to the channels, to the podcasts, um, so you're getting all the updates on what we're going over, the strategies we're trying to help you better live the American dream. See you next time.