## Facts

- In 1994, Thomas William Mortensen purchased about 1.25 acres of remote, unimproved real property near Seldovia, Alaska for $50,000 cash.
- In a 1998 divorce, Mortensen received his former spouse’s interest in the Seldovia parcel and other assets; he was not assigned marital debt.
- Mortensen improved the Seldovia property over time but reported ongoing financial strain in the early 2000s, including statements in related proceedings that he was “saddled with debt” after the divorce.
- In February 2005, Mortensen created and settled a self-settled Alaska “asset protection” trust using a form instrument with minor attorney revisions.
- The trust named Mortensen, his children, and descendants as beneficiaries; trustees included Mortensen’s brother and a friend, and Mortensen’s mother served as trust protector.
- The trust instrument stated that a purpose of the trust was to protect trust property from creditors.
- On February 1, 2005, Mortensen transferred the Seldovia property to the trust by quitclaim deed.
- Mortensen’s mother provided roughly $100,000 that Mortensen used in substantial part to fund the trust; some of the funds were also used to pay debts.
- Between 2005 and 2009, Mortensen accumulated over $250,000 in largely unsecured credit-card and related debt.
- In August 2009, Mortensen filed for Chapter 7 bankruptcy.
- The Chapter 7 trustee brought an adversary proceeding seeking to avoid the 2005 transfer under 11 U.S.C. § 548(e); after an avoidance ruling, defendants sought reconsideration.

## Issues

1. Whether the 2005 transfer of Mortensen’s real property to a self-settled Alaska asset protection trust was avoidable under 11 U.S.C. § 548(e)(1) as a fraudulent transfer made within 10 years of bankruptcy with actual intent to hinder, delay, or defraud creditors.
2. Whether the statutory elements of § 548(e)(1) were satisfied, including whether the transfer was “by the debtor” and whether Mortensen was a beneficiary of the trust.
3. Whether Alaska’s domestic asset protection trust statute could prevent avoidance under § 548(e).
4. Whether reconsideration was warranted based on arguments that Mortensen’s mother was the true transferor or that the court misapplied Alaska law or § 548(e).

## Decision

- The bankruptcy court entered judgment for the Chapter 7 trustee and avoided the transfer of the Seldovia property to the trust under 11 U.S.C. § 548(e).
- The court found the transfer occurred within § 548(e)’s 10-year look-back period and involved a self-settled trust of which Mortensen was a beneficiary.
- The court concluded Mortensen made the transfer with actual intent to hinder, delay, or defraud creditors, relying on the trust’s creditor-protection purpose clause and surrounding circumstances.
- The court rejected the contention that Mortensen’s mother was the relevant transferor for purposes of § 548(e)(1)(B), finding Mortensen owned and transferred the real property.
- The court held that state-law authorization of self-settled spendthrift trusts did not defeat federal avoidance under § 548(e) when its elements were met.
- The court denied the defendants’ motion for reconsideration.

## Legal Principles

- Under 11 U.S.C. § 548(e)(1), a bankruptcy trustee may avoid, within 10 years of the petition date, a debtor’s transfer of an interest in property to a self-settled trust (or similar device) if the debtor is a beneficiary and acted with actual intent to hinder, delay, or defraud present or future creditors.
- “Actual intent” may be inferred from circumstantial evidence, including recognized badges of fraud.
- Express language in a trust instrument stating a purpose to protect assets from creditors can be probative evidence of actual intent to hinder, delay, or defraud.
- For § 548(e)(1)(B), the relevant “transfer by the debtor” requirement is satisfied where the debtor owned the transferred property and executed the conveyance, even if third parties contributed other trust funding.
- State domestic asset protection trust statutes do not preempt or limit a bankruptcy trustee’s avoidance powers under § 548(e) when the statutory elements are established.

## Conclusion

The court avoided Mortensen’s prepetition transfer of Alaska real property to a self-settled asset protection trust under § 548(e), finding it was made within 10 years of bankruptcy and with actual intent to hinder, delay, or defraud creditors; state DAPT protections did not prevent federal avoidance, and reconsideration was denied.


In re Mortensen, No. 10-00146, 2011 WL 5025249 (Bankr. D. Alaska May 26, 2011)