Inmate Can Shield Assets from Collection by State to Pay Costs of His Incarceration by Setting Up Discretionary Trust.

 When a criminal defendant is sentenced to prison, the last thing he or she thinks about is that the State of Michigan will come after his estate and take all of his assets. The defendant will be more focused on adjusting to the new prison environment or fighting a conviction on appeal. If the defendant does hire an attorney to represent him, this is not the end of legal work he needs. For defendants with assets in their estate, they can protect them from seizure by the State.

Under the State Correctional Facility Reimbursement Act (“SCFRA”), MCL 800.401, et. seq., the State Treasurer is entitled to attach a defendant’s assets in order to reimburse the state for the costs of incarceration. MCL 800.403; State Treasurer v. Sprague, 284 Mich App 235, 237; 772 NW2d 452 (2009). There are only limited exceptions to the State’s right to seize a defendant’s assets.

The State’s right to begin to attach and seize assets commences on the date of sentencing. The sentencing judge may not include in the judgment of sentence a provision to seize assets to pay for costs of incarceration in advance. In addition, the State is limited in its ability to seize a defendant’s asserts after his release from prison and parole. The means time is of the essence if a defendant wishes to shield assets from seizure by the State. Protecting the defendant’s estate requires advance planning at the most difficult time in the defendant’s life – just prior to sentencing. At this time, there are entirely lawful steps that can be taken to deny the State the right to seize a defendant’s assets to pay to incarcerate him.

One of the ways to shield assets is to place them in a discretionary trust or to gift them. If the defendant gives away his assets to a family member, the State Treasurer may sue that person and seek reimbursement of those monies to the state. The State will often allege that recipients of the transfer were engaged in a fraudulent conveyance of monies belonging to the State. The suits seeking to collect inmate assets transferred to the family can be overcome. Litigation can be costly. However, there are valid defenses to collection suits seeking return of monies allegedly  belonging to a defendant. I have successfully litigated to prevent the State Treasurer from obtaining reimbursement of funds the State alleged were improperly transferred by a defendant to a family member.

A better approach is to create a discretionary trust for the defendant before sentencing. The Michigan Court of Appeals has held that a trust can give a defendant, as beneficiary of a trust, holding his own assets, a right to later withdraw them, unless he is incarcerated at that time, and this will shield those assets from collection by the state if it is a discretionary trust. See In Re State of Isabelle Skaff, State of Michigan Treasurer vs. Isabelle Skaff Trust, Thomas Martin and JP Morgan Chase Bank, N.A., Mich COA Docket No. 291306, COA No. 294072 (1-4-11) (unpublished opinion)

http://www.michbar.org/opinions/appeals/2011/010411/47788.pdf

A discretionary trust gives a trustee sole right to distribute proceeds to the defendant as beneficiary. The trust should use the words “sole and uncontrolled discretion” to describe the trustee’s power. It must be made clear from trust language the trustee reserves a right to avoid any distributions.

If the trust language says the defendant, as beneficiary, is entitled ultimately to some or all of the monies held in trust, the State can seize a defendant’s assets held in trust to pay for incarceration. It is vital that a defendant obtain counsel to set up a trust in a timely manner if he or she wishes to have the best protection available against the State taking his entire estate.

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