United States v. Grant (The Arline Grant Case)

The decision in United States v. Grant, 2008 U.S. Dist. LEXIS 51332 (S.D. Fla. May 27, 2008), answered whether a federal court can force offshore trust assets back to the United States when the foreign trustees refuse to release them. The court had ordered repatriation three years earlier. The trustees said no, and the court declined to hold the settlor’s widow in contempt because compliance was impossible.

The government spent more than a decade enforcing a $36 million tax judgment against two trusts, one in Bermuda and one in Jersey. The trust principal never returned to the United States. The case is the strongest example of a successful impossibility defense, and it also shows the price a family can pay while that defense is being litigated.

The $36 Million Tax Judgment Behind the Case

Raymond Grant’s tax problem began with limited partnership tax shelters he bought in the 1970s and 1980s. The IRS later disallowed the claimed credits and assessed back taxes and penalties covering tax years 1977 through 1987. In 1994, the Grants entered an installment agreement, paying $3,000 per month toward the debt.

The IRS terminated the agreement in 1999, and the Justice Department sued in the Southern District of Florida in 2000. In March 2003, the court entered a final judgment exceeding $36 million against Raymond and his wife Arline. Raymond died while collection was pending, which left Arline, by then elderly, facing the enforcement effort alone.

Two Trusts Funded Two Decades Before the Judgment

Raymond Grant established the two offshore trusts in 1983 and 1984, one under Bermuda law and one under Jersey law, and funded each with roughly $2.1 million. The trusts predated the tax assessments by nearly a decade and the judgment by two decades. No one accused the Grants of moving money in the face of a claim, and fraudulent transfer law never entered the case.

The deeds named family members as beneficiaries and allowed distributions for health, comfort, and maintenance. One provision later proved decisive: Arline held the right to discharge a trustee and appoint a replacement in any jurisdiction, in what the Bermuda deed called her sole and unreviewable discretion. A power that generous gave the government its opening.

The 2005 Repatriation Order

In September 2005, a federal magistrate judge ordered Arline Grant to repatriate the trust assets or appoint a United States trustee to hold them. The court reasoned that the federal tax lien reaches all of a taxpayer’s property and rights to property, wherever located, and that her trustee-replacement power amounted to a right the lien could follow. The opinion cited the district court’s broad enforcement authority under 26 U.S.C. § 7402(a).

An offshore trust does not stop a U.S. court from entering orders against the settlor personally, and turnover and repatriation orders are the standard creditor response to an offshore structure. The order in this case followed that pattern exactly: the court could not touch the trustees, so it directed its command at the one person within its jurisdiction.

Arline complied on paper and in practice. She wrote to both trustees demanding that the assets be returned, attempted to discharge them, and tried to appoint a domestic successor. The trustees refused every request.

Why the Court Refused to Hold Arline Grant in Contempt

Civil contempt requires a present ability to comply with the court’s order. The trustees in Bermuda and Jersey had rejected Arline’s instructions, taking the position that returning the assets would breach their duties to the other beneficiaries and that her attempted removals were not effective under the trust terms. Whatever her powers looked like on paper, she had no mechanism to force the trustees’ hands.

When the government moved for contempt, the district court found that Arline had, in the court’s words, sufficiently established that she was not able to repatriate the offshore funds. The judge wrote that the failure was “not for lack of effort” and that he was reluctant to fault her for the trustees’ refusal. The government’s contempt motion was denied in May 2008, three years after the repatriation order was entered.

The denial did not dissolve the repatriation order. Arline remained under a standing command to keep pressing the trustees, and the government remained free to renew its motion if her circumstances changed. Winning the contempt fight removed the threat of jail while the underlying order stayed in force, which is what set up the next phase of the case.

The ruling shows what a working impossibility defense is built from. Arline’s requests to the trustees were written, repeated, and documented over years. Her efforts went beyond letters, extending to formal attempts to replace the trustees. And the refusal was genuinely independent: the trustees were licensed foreign fiduciaries protecting other beneficiaries, not confederates waiting out the case. A court asked to excuse noncompliance looks for exactly that record.

The 2013 Contempt Order and Injunction: Distributions Became the Reachable Point

Trust distributions, not trust principal, gave the government its only foothold. After the 2008 ruling, money kept flowing out of the trusts. A renewed government motion in January 2012 identified $221,000 that the trusts had paid out and her children’s accounts had received. The court’s later findings put the total routed that way at roughly $506,000 after the repatriation order was entered. Nothing had been paid toward the judgment.

In March 2013, the district court held Arline in contempt, finding she had violated the repatriation order and engaged in a scheme to avoid collection. The trust money was going straight to the children’s accounts while the judgment sat unpaid. The following month the court entered a permanent injunction: every dollar already received had to be turned over, all future distributions belonged to the government, and Arline was required to request distributions from the trustees quarterly. Neither she nor her children could take any further benefit from the trusts without surrendering it.

The contempt finding lasted eight months and never led to jail. That December, on the parties’ joint motion, the court vacated the injunction and purged the contempt. The orders in the case bound Arline personally, and the trust principal in Bermuda and Jersey never moved.

How Grant Differs from the Cases Where Settlors Went to Jail

Trustee independence is the line separating the Grant case from the offshore trust cases that ended in incarceration. Stephen Lawrence spent six and a half years in custody. He funded his trust sixty-six days before a $20.4 million arbitration award, and the court in In re Lawrence found he had kept the power to replace trustees and beneficiaries. The settlors in FTC v. Affordable Media were their own co-trustees and trust protectors. Both courts treated the claimed impossibility as self-created.

The Grant trusts sat on the other side of that line. They were two decades old when the judgment arrived. Arline held no protector role and no path around the trustees’ discretion, and her compliance efforts were documented rather than theatrical. The same test decided the contempt finding in SEC v. Bilzerian, where the court rejected the settlor’s impossibility defense.

Arline’s trustee-removal power was strong enough on paper to justify the repatriation order, yet too weak in practice to move a single dollar. Paper powers expose a settlor to court orders. Only actual control exposes a settlor to contempt. The contempt analysis in offshore trust cases turns on that difference between holding a power and being able to use it.

What Two Decades of Enforcement Actually Recovered

The government recovered almost nothing from the trust principal in twenty years of enforcement. The money stayed in Bermuda and Jersey through the 2003 judgment, the 2005 repatriation order, the 2008 contempt denial, and the 2013 contempt order and injunction. The turnover order reached only distributions: the roughly $506,000 that had moved through the children’s accounts. Against a $36 million judgment, the trusts held.

The question we are asked when this case comes up in consultations is whether the result was worth two decades of federal pressure. The record cuts both ways. The trusts preserved millions that a domestic structure would have surrendered in 2003. Arline Grant also spent her last years under federal collection orders, including eight months in contempt. While the injunction stood, every dollar the trusts released belonged to the government, and the court observed she had Social Security to live on.

Two facts about the case limit how far it can be generalized. The creditor was the IRS, which litigates for decades and does not settle the way private plaintiffs do; most creditors facing an independent offshore trustee give up or settle years earlier. And the Grants’ trusts predated the liability. An offshore trust funded after a tax assessment invites the fraudulent transfer claim the Grants never faced. Asset protection against the IRS fails for reasons unrelated to trustee independence.

What the Case Shows About Modern Trust Design

Modern offshore trust drafting has absorbed both halves of the Grant record. Ordinary trustee independence carried the trusts, with no help from a modern asset protection statute. Bermuda and Jersey trust law in the 1980s had none of the protective provisions the Cook Islands later enacted. That history is why trustee selection is the decision that controls contempt exposure.

Arline’s unrestricted power to remove and replace trustees is what gave the government its opening, so duress provisions in current Cook Islands deeds suspend exactly those powers when a court order is the reason they are being exercised. The 2013 injunction is the standing lesson on distributions: once litigation begins, money leaving the trust for accounts a U.S. court can see becomes collectible. Routing it through family members invites a contempt finding and an injunction that reaches the family too.

The pattern repeats across Cook Islands trust litigation: creditors win orders against the settlor and still cannot reach the trustee. No decision in the Cook Islands trust cases has taken the principal of a properly structured trust held by an independent licensed trustee. The Grant litigation is the longest-running demonstration of why.