I have heard quite a bit about the benefits of using Offshore Trusts. Are Offshore Trusts an effective tool for asset protection planning?
A case from a bankruptcy court in the Tenth Circuit is representative of the judicial view on the use of Offshore Trusts for asset protection planning. In the case of In re: Kendall, the Court looked past the legal niceties of a Cook Islands offshore trust, and set aside transfers to the trust as fraudulent. The following is a brief summary of what happened.
The Debtor owned a printing company (“Printing Company”), as well as a super-majority interest in a real estate investment company (“Land Company”). Printing Company leased its work space from Land Company. The Debtor’s wife created a trust in the Cook Islands. The Debtor, who began experiencing financial difficulty as the result a bad equipment investment by Printing Company – an investment for which Debtor had signed a personal guarantee – transferred his personal residence and $125,000 in cash to his Wife, all for no consideration. Wife then transferred the residence and cash to a Cook Islands trust.
Three months after Wife settled the Cook Islands trust, Debtor filed for Chapter 7 bankruptcy. The bankruptcy Trustee brought an Adversary Action against Wife and the Cook Islands trust, seeking to avoid as fraudulent the transfers to the trust. The bankruptcy court found the transfers to have been fraudulent, a ruling which was upheld by the Tenth Circuit Court of Appeals.
Suggesting its displeasure with Cook Islands asset protection trusts, the Tenth Circuit noted, “the Cook Islands [is] a jurisdiction popular for its aggressive asset protection legislation.” Although there is much more that could be said about this case, the bottom line is: It is probably best to avoid offshore trusts, except for those assets that must be (and actually are) offshore.
The court’s opinion can be found at: http://www.bap10.uscourts.gov/opinions/12/12-70.pdf
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