Most offshore asset protection plans, and similarly complicated domestic plans, do not hold up if a motivated creditor pursues its attacks through a vigorous legal challenge including appellate review. Most appellate courts will not sustain the promised protection of offshore planning.
The most recent example I read was an unpublished order from a Minnesota appeals court. The court held a debtor in contempt because he did not bring back money held by an offshore trustee to pay a debt owed to Fannie Mae. The debtor had transferred over $ 7 million to an offshore trustee. The trustee then transferred the same money to a foreign LLC of which the debtor was the sole member.
The court ordered the debtor to bring back the money to pay the Fannie Mae judgment. The debtor wrote a letter to the offshore trustee asking the trustee to turn over the funds. The offshore trustee refused, and he said that the money had been invested in the LLC.
The court held the debtor in contempt of court. The court found that despite the refusal by the offshore trustee that the debtor still had the ability to access the funds as the sole member of the LLC. The court considered several other facts in evidence regarding the debtor’s motives to shield the money and his previous access to the offshore trust assets.
For every case involving offshore planning that winds its way through court decisions and appeals there are many more cases that are resolved without going to appeal. Even though a creditor may eventually penetrate an offshore asset protection plan the collection process is very time consuming and expensive. Most of these collection cases involving offshore planning and similarly complex asset protection are settled before they are decided by an appeals court. Most creditors make the business decision to accept part of their judgment award in settlement rather than engage in multi-year litigation efforts against a debtor’s complicated asset protection involving offshore entities.
This case did not involve an ordinary creditor. Fannie Mae has the resources to do whatever it takes to collect its judgments. Many other cases finding debtors in contempt for their offshore trust planning involved federal agencies. Private creditors, even most larger private corporations, are more amendable than federal agencies to settle collections against debtors with complicated and effective asset protection plans. There is no asset protection plan that can deter a highly motivated creditor with an unlimited money and patience.