A Hungarian offshore trust is a legal arrangement where assets are transferred into a trust established under Hungarian law.
It offers benefits such as asset protection, tax planning advantages, and confidentiality. To set up an offshore trust in Hungary, you need to appoint a trustee, establish a trust deed outlining the terms and conditions of the trust, and transfer assets into the trust.
How Does a Hungarian Trust Work?
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.
How Does a Hungarian Trust Protect Assets?
Hungary’s 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:
- The creditor must launch the action in Hungary
- The creditor must show that the creditor had a valid claim against the judgment debtor at the time the trust was formed.
- The creditor must show that the debtor is insolvent but for the trust assets.
- The creditor must prove that the settlor acted in bad faith in establishing the trust.
- 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.