Furious sponsors and sports insurance carriers want to take millions out of the fallen cyclist’s bank accounts. Even though he’s confessed, a trust might still have shielded his winnings if not his reputation.
Lance Armstrong’s recent attempts at damage control may be backfiring big as former sponsors line up to get their money back.
The U.S. Postal Service invested $32 million in Team Armstrong between 2001 and 2004, including a $5 million bonus when he won the Tour de France at the end of that period.
But the sports insurance company that eventually picked up that $5 million check is suing to get it back, arguing quite rightly that Armstrong didn’t really win the medal and so they shouldn’t have had to pay.
That’s just the tip of the iceberg. Armstrong presents everyone who’s ever given him money – Nike, Anheuser-Busch, you name it – with a $125 million target.
Unless he found time to set up an asset trust we don’t know about, they might actually have a shot at a little satisfaction, running up his legal bills in the meantime.
But if he has a trust, everything depends on timing, not his admission of guilt.
The statute of limitations applies
A growing number of states shield trust assets from lawsuits and other attempts aggrieved parties may make to collect what they think they’re owed.
We’re running a free webinar in a few weeks on this very topic and you can register HERE.
Depending on the jurisdiction, the court may find against the person who created the trust and serves as its beneficiary, but still be unable to pierce the trust to take the assets.
Even if it’s obvious in retrospect that the trust was set up to frustrate potential creditors, there might not be anything they can do.
Trust gurus around the country tell me it all depends on the way the trust is structured and the local statute of limitations for determining fraudulent transfer.
In Delaware, for example, Lance would have had to create the trust four full years before the lawsuits started flying in order to eliminate questions that he moved the money with deliberate intent to hide it from a judge.
So a Delaware asset protection trust document dated from 2008 should protect him, even though he’s clearly in the wrong on any cheating clauses in his contracts.
Likewise, an Alaska trust from 2008 or a Nevada trust created as late as 2010 might be considered adequately “seasoned” and secure.
One day over that threshold, and as Doug Blattmachr of Alaska Trust has told me in the past, “the judge couldn’t have done anything.”
“As long as that statute runs out, you’re in pretty good shape.”
Naturally, nobody I talk to is suggesting that asset protection trusts should be used when a client knows he’s in the wrong and is simply hoping to run out the clock before the lawsuits arrive.
But back in 2008 or even 2010, Lance Armstrong was running marathons, racing competitively, leading the fight against testicular cancer and, to all appearances, on top of the world.
The doping allegations were behind him. As he was building up a $125 million personal fortune, it would have made perfect sense to put at least part of that money in trust for his heirs and to protect it from nuisance claims.
Second-best shields may fall
Lance may actually have a deep-pockets trust in place, in which case Nike and company would be out of luck.
But given reports that he owns his $3 million house in Austin in his own name – and has taken out a $1.8 million line of credit on the equity – it’s not likely.
The family home is probably the first asset a lot of wealthy Americans move to protect from creditors. In Texas, the laws make it tough to take the house, but it’s still a natural candidate to transfer to a trust – if he has any trust at all.
Instead, it’s more likely that Lance kept his personal wealth in his own name.
The cycling team itself was structured as a limited liability company funded by legendary investment banker Thomas Weisel and his friends.
Lance and his colleagues held a small stake in the LLC but prizes and bonuses went straight to the company for distribution.
And the Armstrong name is off his famous cancer foundation, which no longer wants anything to do with him, so that traditional asset shelter of the elite is off-limits now as well.
The corporation may crumple even though technically it exists to limit the liability its officers and investors face – in this case, it’s the corporation that needs to protect itself from claims against a minority owner.
On the other hand, if Lance was hoping to tap the foundation in a rainy day, he’s probably out of luck.
So should we mark this one up to a case where it would have been smart to set up a trust when things looked bright?
Maybe. At least that sports insurer has long odds of getting its money back.
They already took this case to court and lost. Double jeopardy applies.
Scott Martin, senior editor, The Trust Advisor
More Posts From This Author...