MY PRACTICE IN TRUST?

Posted on June 24, 2014 by George von Stamwitz

The $5.15 billion Tronox environmental settlement in April impressed many of us with the challenge of monetizing decades of real and perceived environmental risk.  It called to mind the even larger $9 billion ASARCO bankruptcy in 2009.  With almost $15 billion in trust between just two environmental bankruptcies, it seems that environmental practitioners are putting on their bankruptcy hats with increasing frequency.  What has flown under the radar is growing importance of trusts to the life of an environmental lawyer dealing with remediation.

These massive bankruptcy cases monetizing future environmental risk merely shed light on the fact that mergers, acquisitions and real estate transactions have increasingly been utilizing trusts to deal with long term liability.  Virtually every liability assumption (a/k/s risk transfer) transaction results in a trust or escrow account.  The environmental lawyer may be reasonably inquiring at this point, “Why does this matter to me; we have trust lawyers, after all?” The answer is that the language of the trust is really like a state of the art consent decree governing a remediation.  The critical questions of remediation goals, cessation of active remedy, dispute resolution, default, insurance, remedy takeover, penalties, bonus payments for success etc., need to be designed into the trust.

In addition to the environmental design issues, there are a host of related legal issues to consider: May our client write off financial reserves after creation of the trust?  Are payments to the trust deductible when made?  How should trust assets be invested? How much control of disbursement is allowable to a donor and still reap tax and accounting benefits?

The tax code recognizes two types of trusts: (1) a Qualified Settlement Fund (QSF)and (2) an Environmental Remediation Trust (ERT).  While QSFs are limited to claims that involve settlements with regulators, ERTs provide many of the same tax advantages as QSFs but apply to a broader set of circumstances.  

One of the joys of the environmental practice is the intersection between environmental practice and many other areas of law.  The intersection of remediation projects with the law of trusts is large and growing.



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