The re Huber case

The outcome of the In re Huber case (493 B.R. 798, Bankr. W.D. Wash. 2013) demonstrates significant jurisdictional challenges for Domestic Asset Protection Trusts (DAPTs) when a settlor resides in a non-DAPT state, highlighting how courts may refuse to honor a DAPT’s choice-of-law provisions if the trust lacks sufficient ties to the DAPT jurisdiction. In this bankruptcy proceeding, the U.S. Bankruptcy Court for the Western District of Washington applied Washington state law (a non-DAPT jurisdiction) over Alaska law (a DAPT jurisdiction), invalidating the trust’s asset protections and including its assets in the bankruptcy estate for creditors.

Case Background and Facts

Donald G. Huber, a Washington resident and real estate developer, faced financial distress in 2007 due to the collapsing real estate market. In 2008, with insolvency looming (including personal guarantees on debts), he consulted a Seattle-based estate planning attorney and established an irrevocable self-settled DAPT under Alaska law. He transferred valuable assets—such as profitable real estate and approximately $3 million in cash and accounts receivable—into the trust, while retaining less viable assets outside it. The trust named Huber’s son (also a Washington resident) and Alaska USA Trust Company as co-trustees, with Huber as a discretionary beneficiary. Only a minimal $10,000 certificate of deposit was held in Alaska; the majority of assets and administration remained in Washington. In 2011, after a judgment against him, Huber filed for Chapter 11 bankruptcy (later converted to Chapter 7 liquidation). The bankruptcy trustee challenged the trust, seeking to include its assets in the estate as a fraudulent transfer.

Court’s Reasoning on Jurisdiction and Choice of Law

The bankruptcy court exercised federal jurisdiction under the U.S. Bankruptcy Code, which allows national oversight of debtor assets and fraudulent transfers (11 U.S.C. § 548). On choice of law, the court applied the “most significant relationship” test from the Restatement (Second) of Conflict of Laws § 270, determining that Washington had the strongest ties: the settlor, beneficiaries, and most assets were located there; the trust was drafted by a Washington attorney; and administration occurred primarily in Washington. Alaska’s connection was deemed superficial (limited to the trustee company and a small deposit), insufficient to override Washington’s public policy against self-settled spendthrift trusts (which do not shield assets from creditors). The court also invoked Bankruptcy Code § 548(e), a 10-year lookback provision for avoiding transfers to self-settled trusts made with intent to hinder, delay, or defraud creditors—finding Huber’s timing (amid foreseeable insolvency) met this criterion. This federal hook allowed the court to bypass Alaska’s shorter 4-year statute of limitations for fraudulent transfers.

Outcome

The court ruled the transfer fraudulent and voidable, disregarding the Alaska DAPT’s protections. The trust assets were pulled into the bankruptcy estate for distribution to creditors. Alaska USA Trust Company ultimately settled with the trustee, confirming the trust’s failure.

Implications for Jurisdiction in DAPT Cases

This case underscores the vulnerability of DAPTs for settlors in non-DAPT states: Bankruptcy or state courts in the settlor’s home jurisdiction may assert dominance if contacts with the DAPT state are weak, applying local anti-self-settled trust policies over the trust’s chosen law. It illustrates that the Full Faith and Credit Clause does not compel non-DAPT states to enforce DAPT protections if they conflict with strong local public policy. For asset protection, it emphasizes the need for genuine nexus (e.g., substantial assets or active administration in the DAPT state) and creating trusts well before creditor threats emerge to avoid fraudulent transfer claims. Subsequent cases (e.g., Dahl v. Dahl in Utah) have echoed this, reinforcing caution for out-of-state DAPTs.

This is not legal advice. Consult a licensed attorney.