Asset Protection Trusts: Trust Law's Race to the Bottom
![handle is hein.journals/clqv85 and id is 1043 raw text is: ASSET PROTECTION TRUSTS: TRUST LAW'S
RACE TO THE BOTTOM?
Stewart E. Sterkt
INTRODUCTION
Stephan Jay Lawrence had a problem. An MIT graduate, a suc-
cessful options trader, and a major player on national securities ex-
changes, Lawrence faced financial ruin in early 1991 as a result of the
margin deficit his firms had generated on Black Monday, October 19,
1987.1 Although Lawrence's personal assets remained substantial, he
had been mired for forty-two months in an arbitration proceeding
over the size of his margin deficit.2 His prospects in the arbitration
apparently looked bleak, and an unfavorable award would wipe out
his personal fortune.3
Lawrence addressed his problem by transferring, on January 8,
1991, between four and seven million dollars-ninety percent of his
assets-to a trust in Jersey, Channel Islands,4 ajurisdiction whose trust
law is known to be unfriendly to creditors.5 Less than a month later,
Lawrence further amended the trust in order to transfer it to the even
more debtor-friendly Mauritius, an island nation located on the
other side of the world.6
On March 15, 1991, the firm Bear, Stearns & Co., Inc. (Bear,
Stearns) -Lawrence's adversary in the arbitration proceeding-was
awarded over twenty million dollars.7 Now Bear, Stearns had a prob-
t Mack Professor of Law, Benjamin Cardozo School of Law, Yeshiva University. The
author would like to thank David Carlson, Joel Dobris, Katy Filner, Myriam Gilles, Melanie
Leslie, and Chuck Yablon for helpful comments on earlier drafts, and Kara Savid for inval-
uable research assistance.
1 See Goldberg v. Lawrence (In re Lawrence), 227 B.R. 907, 911 (Bankr. S.D. Fla.
1998).
2 Seeid.
3 See id. at 912.
4 See id. at 912-14.
5 See Marine Midland Bank v. Portnoy (In re Portnoy), 201 B.R. 685, 699 (Bankr.
S.D.N.Y. 1996) (detailing the history ofJersey trust law, and particularly the 1989 amend-
ment which reversed the prior law that held that a gift into trust was fraudulent with re-
spect to creditors if the settlor retained the power to dispose of the assets transferred into
trust); PAUL MATrHEWS & TERRY SOWDEN, THE JERsEY LAw OF TRUSTS § 5.46, at 65 (3d ed.
1993).
6 In re Lawrence, 227 B.R. at 912 n.11 (noting that Mauritian law appears to be even
more 'debtor-friendly' than [the law of] the Jersey Channel Islands and that Mauritius
has the added benefit of its location-the other side of the world).
7 See id. at 911.
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Asset Protection Trusts: Trust Law's Race to the Bottom
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