The United States can be a very litigious country, where lawsuits can be filed with nothing more than a defendant and a complaint—whether that complaint is substantiated by evidence or not. The litigious nature of our culture is why it is so important for families and business owners to consider every option available to protect their assets, including the option of offshore trusts for those who feel that US laws may not always have their best interests in mind.

An offshore trust is a valuable asset protection strategy primarily because foreign trustees and banks are not under US jurisdiction and cannot be compelled under US law to release funds to a judgment creditor. The Cook Islands enacted the first asset-protection trust law in 1989.   There are currently several countries that are commonly used for offshore trusts, and each has its own take on the law, providing a wealth of options for offshore asset protection.

* Some countries, such as The Cook Islands, Nevis and the Isle of Man, do not recognize any judgment originating in a foreign country, including the United States.  Creditors would have to file any litigation in the country of the trust, according to the laws of that jurisdiction.

* In other locations a large fee or cash deposit is required to initiate any sort of litigation, acting as a deterrent against frivolous lawsuits.

* Some countries have a very short statute of limitations for a creditor to prove fraudulent transfer, and the laws may demand proof beyond any reasonable doubt that assets were transferred into the trust in order to defraud the creditor in question.

* Some jurisdictions may offer the advantage of not being subject to U.S. constitutional issues such as the Full Faith and Credit clause.

Keep in mind that offshore trusts are not necessarily fool-proof; there are some loopholes that may allow a judge to demand funds be repatriated or that the trustee be changed to US trustee.  For this reason, it is very important that an experienced asset protection attorney draft any offshore trust, to prevent a situation where the US client may be found to control the trust.

Appointing a foreign trustee rather than a US based trustee offers some protection, and including a duress clause permits the foreign trustee to ignore any pleas of a domestic protector acting under threat of a contempt order.  For example, if the owner of an offshore trust is ordered by a US judge to assign a domestic trustee or to repatriate funds from the trust to pay debt under threat of contempt, the owner can order the foreign trustee to do so and the trustee can simply refuse to comply based on the fact that the order to do so was made under duress.

The case of the US vs. Grant is the perfect example of the usefulness of a duress clause.  When Mrs. Grant was ordered to repatriate funds to pay a tax debt, her repeated pleas were ignored by the foreign trustee of the trust based on the duress clause her late husband had included in the trust.  After two years, the judge stated: “I understand that it has been more than two years since the repatriation order was issued and that the funds had not yet been repatriated. But this failure is not for a lack of effort. I am reluctant to fault Mrs. Grant for her trustees’ denial of her requests to repatriate the funds.” U.S. v. Grant, 2008 U.S. Dist. LEXIS 51332, 101 A.F. T.R.2d (RIA) 2676 (D.C. So. Fla. 2008).

If you are in need of an asset protection plan, or have questions regarding an offshore trust, please give us a call.  We have the experience and expertise to put together an asset protection plan specific to your family or corporate needs.

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