Hungarian Offshore Trust

For many years the Cayman Islands and Cook Islands were the “go-to” jurisdictions for creation of an offshore trust for clients needing to protect assets outside of the United States.

However, recently the Cayman Islands changed their laws making it a relatively unattractive location to set up an offshore trust.

In contrast, a few years ago Hungary adopted new laws allowing the formation of trusts by foreign individuals, including U.S. citizens.

The new trust laws provide more clarity and a wider scope to use the trust for estate planning and asset protection. The key asset protection feature of the Hungarian trust is that a creditor must prove that the judgment debtor fraudulent transferred assets to the trust in order to reach the trust assets. Proving a fraudulent transfer in Hungary is difficult because:

1. The creditor must launch the action in Hungary
2. The creditor must show that the creditor had a valid claim against the judgment debtor at the time the trust was formed.
3. The creditor must show that the debtor is insolvent but for the trust assets.
4. The creditor must prove that the settlor acted in bad faith in establishing the trust.
5. All of the above items must be proved beyond reasonable doubt.

This is a very difficult burden for a U.S. judgment creditor, making Hungary sometimes an attractive jurisdiction for offshore trusts.