Some asset protection promoters tout a transferable offshore trust strategy which begins onshore in the U.S. and shifts offshore at the first sign of duress. Such strategies initially hold assets in a U.S. entity or domestic asset protection trust (DAPT) and then shift or transfer to an offshore jurisdiction when the client is under duress.
An Ohio judge recently froze the assets of a limited partnership that was owned by a Cook Islands Trust. The asset protection promoter had told the client they could shift the partnership interests offshore at the first sign of duress. This is the same asset protection strategy and the same failing result as in the Indiana Investors case. (See Indiana Investors, LLC v. Hammon-Whiting Medical Center, LLC No. 45D02-0807-CT-201 (Lake Superior Court, Lake County, Indiana); Indiana Investors v. Victor Fink, No. 12-CH-02253 (Circuit Court of Cook County, Illinois, Chancery Division), Victor Fink transferred assets to a Cook Islands trust provided by one of the popular asset protection providers found on the internet who claimed that the control could be shifted offshore in the event of duress. The plaintiffs were able to obtain temporary restraining orders which prevented the trustees and protectors from shifting the control to the offshore trustee (South Pac Trust International, Inc.) and the bank accounts were all frozen.)
The weakness of this strategy is not only proven by court cases, but it is emphasized by experts in the field of asset protection. In fact, some are calling the this strategy legal malpractice.
Jay Adkisson had this to say about the asset protection strategy of shifting assets from a domestic entity to an offshore trust (FAPT) when under duress: “It is, quite arguably, malpractice for a planner to leave unencumbered U.S. assets owned by [a] FAPT, directly or indirectly, in the U.S. and within reach of creditors.”
Gideon Rothschild said, ” This seems to be the typical structure employed by many lawyers. They tell the clients they can keep the assets in the US in an FLP that you control and then upon an event such as a lawsuit the trustee is informed that he should take necessary steps to cause the FLP to be liquidated. In fact many of these structures will also have a US co-trustee so they don’t even have to file Form 3520 until US trustee resigns. I’ve told such settlors that this is a recipe for disaster. Not only will it expose the assets to what is happening in this case – the US court’s jurisdiction and attachment orders – but could also put the settlor in jail for contempt since he, as the GP, will have to take the steps needed to move the account offshore at a time when the clouds have already formed. That is why I will only settle foreign trusts where the client has liquid assets that he is willing to place offshore from day one. Otherwise, one needs to use other (domestic) strategies.”