Georgia Governor Vetoes Domestic Asset Protection Trust Legislation

May 18, 2018

In late March, the Georgia House of Representatives (by a vote of 103-56) and the Georgia Senate (by a vote of 43-6) passed HB 441, which would have made Georgia the 18th state to permit self-settled domestic asset protection trusts or DAPTs. Currently, 17 states —  Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming — have enacted DAPT-enabling legislation. Georgia, however, did not join their ranks, because on May 8, Gov. Nathan Deal vetoed HB 441.

Under current Georgia law, spendthrift provisions in a trust that shield the trust’s assets from certain creditors are enforceable if the trust is settled by someone other than the trust’s beneficiaries. HB 441 would have gone further, as the other DAPT states have done, by providing creditor protections to an irrevocable trust even if the settlor is also a beneficiary of the trust.

Deal indicated in his veto statement that he was open to further negotiations on this issue. However, the version of the bill Georgia’s governor rejected already contained remarkably large gaps in the creditor protection that HB 441 supposedly would have provided. Tort, child support and spousal claims, for instance, were completely exempted. Secured creditors also enjoyed an exemption for assets specifically pledged by a debtor. That left credit card and medical claims as perhaps the only types of debt that HB 441 would have allowed a settlor to avoid.

It is also worth noting that, with this veto, Deal has strengthened Georgia’s standing as one of the most creditor-friendly states in the country. Georgia is one of only 18 states that has neither a standard DAPT law on the books nor any other legal mechanism that enables settlors to use self-settled asset-protection techniques. Further, in 2015, Georgia enacted the Uniform Voidable Transfer Act (UVTA). Under the UVTA, creditors may avoid certain transfers made by an insolvent debtor by using the less-onerous preponderance-of-the-evidence standard, as opposed to the clear-and-convincing standard used in many jurisdictions. The UVTA also makes it more difficult for debtors, and the trusts they settle, to start the statute-of-limitations clock for allegedly voidable transfers.

Deal’s veto of HB 441 appears to continue Georgia’s generally creditor friendly legal tradition.

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