Are international trusts really as protective as you think they are?
The real question is – what is more protective? It’s true that
your international trust won’t be effective for protection unless
your trust is structured and administered properly. And there have been
a few celebrated cases where international trusts have failed. Those few
cases highlight one or more fatal mistakes that you must avoid. In one
or two cases the grantor retained too much control, which allowed the
court to determine that the trust was nothing more than a sham. For protection,
you must give your trustee complete control over your trust – not
only in form, but also in practice. In other cases the trust assets were
held within the U.S. where they could then be seized by a U.S. court when
the transfer to the trust was deemed fraudulent. You must keep your assets
internationally. In other cases the trust lacked necessary protective
safeguards, or the trust was technically defective. For these reasons,
you need your trust prepared by an experienced professional.
In some of these cases, the grantor was ordered by the court to repatriate
the trust assets for the benefit of the creditor. When the grantor failed
or refused to do so, he was jailed for contempt. These rulings were proper
in at least those cases where the grantor had
defacto control over their trust. In other instances, the trust was set up only
days before the court proceeding. But ordinarily, a court cannot find
you in contempt for your failure to repatriate your money if you truly
lack the power to comply with the court order, which a properly structured
and administered trust should accomplish. Moreover, your trust shouldn’t
appear to be a last minute effort to put your assets beyond the court’s reach.
Timing and relinquishing control are both vital to international success.
That’s why you can’t wait until the last moment to protect
yourself. You want to set up your international entities well before you
have a liability, or at least before you are sued. And don’t try
to control your trust so the court won’t reasonably conclude that
you have the power to repatriate the trust funds. You are less likely
to make these mistakes if your trust is overseen by an attorney experienced
with international trusts and the rulings in these recent cases. Still,
exceptionally few international trusts are challenged and instances where
a creditor recovered money from international entities are even more rare.
That’s why we began our answer to your question with our own question
– what is the safer option than an international strategy? If the
litigation skies are clear, buying exempt assets or domestic entities
may afford you equally sound protection, but once the storm clouds gather,
we know of nothing safer than a well-constructed international fortress.