Contempt of Court and Repatriation Orders in Offshore Trust Cases

When an offshore trust is challenged in U.S. litigation, the most consequential risk the trustmaker faces is not that a court will somehow reach the trust assets directly. It cannot. The risk is that a court will order the trustmaker to bring the assets back, and then hold the trustmaker in civil contempt if the assets do not return. This dynamic plays out differently in state court than in bankruptcy court, and the outcome depends heavily on how the trust was structured, what powers the trustmaker retained, and whether the trustmaker’s inability to comply is genuine.

Understanding how repatriation orders and contempt proceedings work is essential for anyone evaluating an offshore trust. The structure’s protective value ultimately rests on its ability to create a defensible position when a court demands that assets be returned.

How Repatriation Orders Work

A repatriation order is a court directive requiring the trustmaker to cause trust assets held offshore to be returned to the United States, typically to satisfy a judgment or to be included in a bankruptcy estate. The order is directed at the trustmaker personally, not at the foreign trustee. The court exercises personal jurisdiction over the trustmaker because the trustmaker resides in the United States, even though the court has no jurisdiction over the trustee or the trust assets located abroad.

In state court, judges have limited tools to enforce repatriation orders because they cannot compel a foreign trustee to do anything. The state court’s authority extends only to the debtor personally. If the debtor cannot comply because the trust deed strips the debtor of the power to direct the trustee, the court’s options narrow to sanctions, adverse inferences, or contempt proceedings against the debtor individually.

Bankruptcy courts operate with broader authority. Under 28 U.S.C. § 1334, bankruptcy courts assert jurisdiction over all property of the estate “wherever located and by whomever held.” Courts have interpreted this to encompass beneficial interests in foreign trusts. A bankruptcy judge can order the debtor to repatriate offshore trust assets and treat non-compliance as grounds for civil contempt, including incarceration.

Civil Contempt and Incarceration

Civil contempt is coercive, not punitive. The court’s purpose is not to punish the trustmaker for past conduct but to compel future compliance with the repatriation order. The trustmaker is incarcerated until compliance occurs or until the court determines that continued incarceration has lost its coercive effect. In theory, the trustmaker holds the keys to release by simply complying with the order.

Several offshore trust settlors have been jailed under this framework. In FTC v. Affordable Media (the “Anderson” case), a couple who established a Cook Islands trust were held in contempt and incarcerated after a federal court ordered repatriation of assets transferred through a fraudulent telemarketing scheme. In SEC v. Solow, a defendant was jailed for contempt after claiming he could not access assets held in an offshore trust. In the Chadwick case in Pennsylvania, a debtor spent fourteen years in jail for refusing to disclose the location of approximately $2.5 million that a court believed was held offshore. He was released only when the court concluded that continued incarceration had lost its coercive purpose.

These cases are real, and they represent the most serious personal consequence a trustmaker can face. But they share common features that are instructive: in nearly every case where a trustmaker was incarcerated, the court found evidence that the trustmaker retained actual control over the trust assets, acted in bad faith, or created the impossibility defense through conduct that the court viewed as deliberate obstruction rather than genuine structural inability.

The Impossibility Defense

The legal defense against a contempt finding is impossibility. U.S. law holds that a person cannot be held in contempt for failing to do something that is genuinely impossible. If the trust deed strips the trustmaker of all legal power to direct, instruct, or influence the trustee, and the trustee is bound by foreign law to refuse compliance with U.S. court orders, then the trustmaker’s inability to repatriate assets is not willful defiance but structural incapacity. This is the core of how offshore trusts work as a protective mechanism.

This defense works when the trust is properly structured. The trustmaker must not serve as trustee. The trustmaker must not retain the power to remove and replace the trustee with a compliant substitute. The trustmaker must not retain a veto over trust distributions or investment decisions. The trust must include a duress clause that automatically suspends the trustmaker’s limited powers when a court order or legal proceeding attempts to compel action against the trust. And the trustmaker’s conduct in court must be consistent with genuine inability rather than strategic refusal.

The Grant case illustrates the defense working in the trustmaker’s favor. Arline Grant was ordered to repatriate assets from offshore trusts that her late husband had established. She attempted to comply by writing to the trustees requesting distributions and attempting to exercise removal powers granted in the trust deed. The trustees refused. The court found that while Grant had paper powers over the trust, she lacked actual power because the trustees would not follow her instructions. Because her inability to comply was genuine, the court declined to hold her in contempt.

The distinction the courts draw is between inability and unwillingness. A trustmaker who genuinely lacks the legal power to direct the trustee is in a defensible position. A trustmaker who retains control mechanisms, has historically directed the trustee’s actions, or appears to be orchestrating a strategic refusal is not.

Why the Cases That Went Wrong Went Wrong

The published cases where trustmakers were incarcerated share a pattern. In FTC v. Affordable Media, the Andersons served as co-trustees and protectors of their own trust, giving them direct control over trust assets. The court concluded that their claimed inability to repatriate was self-created and not credible. In the Chadwick case, the debtor’s refusal to disclose asset locations suggested willful concealment rather than structural inability. In SEC enforcement cases, debtors who lived lavish lifestyles funded by trust distributions while claiming they had no access to trust assets undermined their own impossibility arguments.

These outcomes reflect poor planning, bad facts, or both. The trustmakers either retained too much control, used the trust as a personal account while claiming no access to it, or behaved in ways that convinced the court their inability was manufactured. A properly structured offshore trust avoids these problems by genuinely separating control from beneficial interest, maintaining arm’s-length relationships with the trustee, and ensuring that the trustmaker’s position in court is consistent with the trust’s actual governance structure.

State Court vs. Bankruptcy Court

The contempt risk differs substantially between state court and bankruptcy court, and this distinction is one of the most important factors in offshore trust planning.

In state court, the creditor’s path to a repatriation order is more difficult. State judges generally lack jurisdiction over foreign trustees and foreign-held assets. The creditor must work through the debtor personally, and if the debtor genuinely cannot comply, the state court’s enforcement tools are limited. Many creditors find that pursuing offshore trust assets through state court is prohibitively expensive and unlikely to succeed, which is one reason offshore trusts function primarily as settlement leverage in state court litigation.

In bankruptcy court, the dynamics shift. Bankruptcy courts assert worldwide jurisdiction and have consistently ordered debtors to repatriate offshore trust assets. The ten-year lookback period under 11 U.S.C. § 548(e) for transfers to self-settled trusts gives the bankruptcy trustee a longer window to challenge transfers than state law provides. And bankruptcy judges have shown less tolerance for impossibility defenses, particularly when they view the trustmaker’s inability as self-created.

This is why offshore trusts are strongest when the trustmaker avoids bankruptcy entirely. Experienced counsel structures the trust to minimize bankruptcy exposure by ensuring the trustmaker is not vulnerable to involuntary petitions and by maintaining solvency throughout the transfer process.

What Proper Structuring Looks Like

The difference between a trust that survives a contempt challenge and one that does not comes down to structural discipline. The trustmaker must not retain powers that a court could order the trustmaker to exercise. The trustmaker should not serve as trustee, protector, or investment advisor. The trust should include a duress clause that automatically restricts the trustmaker’s limited remaining powers when litigation arises. The trustee must be a licensed, independent fiduciary with no business presence in the United States, operating under a legal framework that prohibits compliance with foreign court orders that conflict with local trust law.

The trustmaker’s conduct during the life of the trust also matters. If the trustmaker routinely directs the trustee’s investment decisions, calls for distributions at will, and treats trust assets as a personal account, a court reviewing the relationship will likely conclude that the trustmaker has de facto control regardless of what the trust deed says. Maintaining genuine arm’s-length administration is not merely a formality. It is what makes the impossibility defense credible when it matters.

The disadvantages of an offshore trust include the loss of control that these structural requirements impose. That loss of control is the mechanism that protects the assets. The two cannot be separated.