The Impossibility Defense in Offshore Trust Cases

The impossibility defense is the legal argument that a person cannot be held in contempt for failing to comply with a court order when compliance is genuinely impossible. In offshore trust litigation, the defense arises when a U.S. court orders a settlor to repatriate trust assets and the settlor argues that the foreign trustee, not the settlor, controls the assets and has refused to release them.

Whether the defense succeeds depends almost entirely on how the trust was structured and how the settlor behaved before and during litigation. Courts have accepted the defense when the settlor genuinely lacked any mechanism to compel the trustee. They have rejected it when the settlor retained practical control, transferred assets after a judgment, or continued to receive trust distributions while claiming no access.

What the Impossibility Defense Is

The impossibility defense comes from federal contempt law, not trust law. Under Maggio v. Zeitz, 333 U.S. 56 (1948), the U.S. Supreme Court held that no court order can create a duty impossible of performance so that punishment can follow. United States v. Rylander, 460 U.S. 752 (1983), reaffirmed the principle and set the burden. Once the creditor shows a valid order and noncompliance, the person charged with contempt must demonstrate “categorically and in detail” why compliance cannot occur.

The defense turns on a jurisdictional reality. A U.S. court has no authority to compel a Cook Islands trustee or any other foreign fiduciary to release trust assets. The court’s only leverage is personal jurisdiction over the settlor. If the settlor lacks the power to cause repatriation, civil contempt cannot lawfully be used because contempt is coercive, not punitive. Incarceration to force an act the person cannot perform becomes punishment, which civil contempt does not permit.

In offshore trust litigation, the defense operates along a predictable sequence. A U.S. court orders the settlor to cause the foreign trustee to transfer assets back to the United States. The settlor contacts the trustee and requests compliance. The trustee refuses, citing the trust deed’s duress clause and the laws of the offshore jurisdiction, which prohibit compliance with foreign court orders.

The settlor returns to the U.S. court and argues that repatriation is impossible because the trustee will not comply and the settlor has no legal mechanism to force compliance. The court then evaluates whether the impossibility is genuine. The analysis centers on how much control the settlor retained, whether the trustee acted independently, and whether the settlor’s inability to comply reflects legitimate trust structure or deliberate obstruction.

When the Defense Has Succeeded

The Grant case, a federal tax collection matter, illustrates acceptance of the impossibility defense in offshore trust litigation.

In Grant, Raymond Grant established two irrevocable offshore trusts in Bermuda and Jersey in the early 1980s. The trusts were created nearly a decade before the IRS assessed millions in back taxes against the Grants in the early 1990s. After Raymond died, the IRS pursued his wife Arline and obtained a repatriation order directing her to bring the trust assets back to the United States.

Arline Grant wrote to the trustees requesting distributions and attempted to exercise removal powers granted in the trust deed. The Jersey trustee refused each request, consistent with its obligations under the trust deed and Jersey law. The U.S. District Court for the Southern District of Florida initially declined to hold Grant in contempt.

Judge Jordan found that Arline Grant’s inability to comply was genuine, supported by documented efforts to cause repatriation. The ruling rested on specific facts. The trusts predated the tax liabilities by nearly a decade, the trustee’s refusal was independent, and Grant held paper powers that proved ineffective because the trustees would not follow her instructions.

The Grant outcome was not a clean win. Years later, the IRS returned with evidence that Arline had continued to receive trust distributions through accounts held in her children’s names and had directed how those funds were used. The court issued a permanent injunction barring Arline and her children from receiving further benefits from the trusts.

The Grant trust structure itself was never held defective. Arline’s post-judgment conduct produced sanctions against her personally because she received distributions while claiming no access, which the court treated as evidence of continued control.A settlor who accepts distributions after the repatriation order surrenders the defense regardless of how the trust was originally drafted.

When the Defense Has Failed

In every case where the impossibility defense has failed, the settlor retained practical control over the trust, used trust assets as a personal account, funded the trust after a judgment, or behaved in ways that convinced the court the impossibility was manufactured.

The Anderson case, FTC v. Affordable Media, 179 F.3d 1228 (9th Cir. 1999), is the most cited contempt ruling against an offshore trust. Michael and Denyse Anderson operated a fraudulent telemarketing scheme and funded a Cook Islands trust with the proceeds. They named themselves co-trustees alongside the Cook Islands trustee company and retained the role of trust protector.

When the FTC obtained a repatriation order, the duress clause removed the Andersons as co-trustees, but the Ninth Circuit found they retained affirmative protector powers that went beyond a negative veto. A protector with authority to appoint trustees and determine whether a “duress event” had occurred, the court held, can be compelled to exercise those powers to cause repatriation. That distinction between a protector with affirmative authority and a protector limited to purely negative veto rights is what made the impossibility defense fail in Anderson.

The Ninth Circuit warned that courts should be “especially chary” of accepting impossibility claims in the offshore trust context because of the risk that compliance efforts are a charade. The Anderson decision held that a settlor cannot claim impossibility while retaining the power to cause compliance, not that offshore trusts themselves are ineffective.

The Lawrence case, Lawrence v. Goldberg, 279 F.3d 1294 (11th Cir. 2002), went further. Stephan Lawrence created an offshore trust two months before a $20 million arbitration award was entered against him and transferred $7 million into it. The trust was settled in the Jersey Channel Islands, and an amendment a month later moved its governing law to Mauritius. Under the trust documents, Lawrence retained the power to remove and replace the trustee.

When Lawrence failed to comply with the turnover order, the burden shifted to him to prove he could not comply. The Eleventh Circuit relied on the trust instrument itself and found that Lawrence had the present ability to comply based on the trust indenture. Although Lawrence had been declared an “excluded person” under the trust, the court treated that status as illusory because he retained the power to appoint trustees who could reinstate him as a beneficiary.

Lawrence spent more than six years in prison. The Eleventh Circuit held that the impossibility defense is unavailable where the impediment is self-imposed and the debtor retains mechanisms of control.

The Solow case, SEC v. Solow, 682 F. Supp. 2d 1312 (S.D. Fla. 2010), involved transfers made after a jury had fixed liability. The jury found Jamie Solow liable for securities fraud on January 31, 2008. The Solows liquidated $1.5 million in securities between January and April, and more than three-quarters went to an account his wife owned alone. On March 24 both Solows signed a $5.2 million mortgage on the beach house they owned together, weeks before the court entered its disgorgement judgment that May.

The mortgage proceeds funded a Cook Islands trust in his wife’s name, and Solow then claimed inability to satisfy the disgorgement judgment. The district court held him in contempt, finding his inability to pay self-created, and the Eleventh Circuit affirmed the contempt order. Solow argued that his transfers came before any judgment existed, and the district court rejected the argument. A transfer made between the verdict and the judgment carries the same contempt exposure as one made after the judgment, because the liability is already fixed and the coming order is foreseeable.

The Mastro case (W.D. Wash. 2011) shows the structure that forecloses the defense before it can be raised. Michael Mastro was the one-man advisory committee that controlled his Belize trust’s protector, and the protector controlled the trustee. The bankruptcy court held his two trusts void as self-settled and found that Mastro retained effective control of the assets. When the court ordered the couple to surrender two diamond rings, the Mastros left the country, and the July 2011 contempt and incarceration orders were never enforced.

The Allen case involved Daniel Allen, who wired the roughly $2 million still under his control to his Cook Islands trust’s account while a Florida bankruptcy court was weighing a freeze order. The Bankruptcy Court for the Middle District of Florida ordered repatriation, and when the money did not come back the court held him in contempt twice. The Third Circuit reversed the courts below on a different question, holding that funds a company recovers under § 550 belong to that company’s own bankruptcy estate, so Allen’s later personal bankruptcy did not shield them.

The Self-Created Impossibility Doctrine

The general rule under Rylander and Maggio is that impossibility is a complete defense to civil contempt. Courts evaluating offshore trusts have developed a narrower principle. When the contemnor deliberately produced the conditions that make compliance impossible in direct anticipation of a court order, the defense is weakened or unavailable.

The doctrine has a timing element that is frequently missed. Self-created impossibility only defeats the defense when the impossibility arose in direct anticipation of or as a result of the court’s order. There must be a close connection in time between when the trust was established and the order it frustrates. A trust established years before any claim arose does not qualify as self-created impossibility in the doctrinal sense because the planning preceded the conflict rather than responding to it.

The Ninth Circuit in Anderson observed that the Andersons’ inability to comply was “the intended result of their own conduct” and that their trust was designed precisely to produce the impossibility they now claimed as a defense. The court stopped short of holding that self-created impossibility can never be a defense. It did impose a heightened burden. The defendant must prove impossibility “categorically and in detail,” and the burden is “especially high” when the impossibility results from the defendant’s own planning.

The Eleventh Circuit in Lawrence was more direct. The court held that the impossibility defense “is unavailable where the impediment is self-imposed.” Every court that has examined the question has treated self-creation as a factor that weakens the defense and increases the burden of proof.

This does not mean the defense fails whenever the settlor established the trust. Every offshore trust is, by definition, a structure designed by the settlor. The distinction is between a trust created as legitimate planning, where control genuinely transfers to an independent fiduciary, and a trust created to manufacture a litigation defense while the settlor continues to pull the strings. The initial Grant outcome shows that courts can distinguish between these situations when the facts support it.

Structural Features That Strengthen the Defense

U.S. courts evaluating the impossibility defense have identified specific structural features that determine whether the defense will be credible.

Independent Trustee with No Ties to the Settlor

The offshore trustee must be a licensed, regulated trust company in the offshore jurisdiction with no prior business relationship to the settlor and no financial dependence on the settlor’s continued patronage. Courts scrutinize whether the trustee has historically exercised independent judgment or has simply followed the settlor’s directions.

No Retained Governance Roles

The settlor should not hold the role of trustee, co-trustee, protector, or investment advisor. In Anderson, the settlors were co-trustees and protectors. In Mastro, the debtor was the one-man advisory committee that controlled the protector. The Andersons lost the impossibility defense because their co-trustee and protector roles gave them the power to influence the trustee that they claimed not to have, and Mastro’s committee gave him the same power over his own trustee.

Protector Powers Limited to Negative Veto Rights

If a trust protector is used at all, the protector’s authority must stay limited to veto rights over specific trustee actions, not affirmative powers to appoint trustees, remove beneficiaries, or determine whether a duress event has occurred. The Anderson ruling distinguished between negative veto authority and affirmative control. A protector with affirmative powers can be compelled under U.S. personal jurisdiction to exercise those powers and cause repatriation. A protector with only negative veto rights cannot force the trustee to act, which is what the impossibility defense requires.

Duress Clause with Automatic Operation

The trust deed should include a duress clause that suspends the settlor’s limited powers and triggers the trustee’s refusal to comply with foreign court orders. The clause must operate through the trustee’s independent judgment under foreign law, not through the settlor’s discretion.

Documented Good-Faith Compliance Efforts

In the initial Grant ruling, the court credited Arline Grant’s written requests to the trustees and her documented attempts to exercise her powers. A settlor who cooperates with the court, contacts the trustee, makes written requests, and reports the trustee’s refusal is in a far stronger position than one who simply tells the court compliance is impossible without demonstrating any effort.

Arm’s-Length Administration Throughout the Trust’s Life

A pattern of trustee independence during ordinary times strengthens the defense during litigation. If the trustee routinely approved every request the settlor made without independent evaluation, a court may conclude that the trustee’s refusal during litigation is performative rather than genuine.

No Continued Access or Indirect Benefit

The full Grant history shows that structural integrity at the time of setup is not enough. A settlor who continues to receive trust distributions after a repatriation order, through children’s accounts, spousal arrangements, or any other indirect channel, will lose the defense regardless of how well the trust was originally drafted. The impossibility defense requires consistent separation from trust assets.

Post-Claim Trusts and the Impossibility Defense

The impossibility defense is available regardless of when the trust was established, but timing affects how courts evaluate credibility. A trust created years before any claim arises presents a stronger impossibility argument because the planning was not connected to a specific litigation strategy. The Grant trusts, established nearly a decade before the tax liabilities, demonstrated this advantage.

A trust established after litigation has begun faces greater scrutiny. Courts are more likely to view the impossibility as deliberately manufactured to obstruct a known creditor. The fraudulent transfer analysis runs in parallel, and a court that finds the transfer was fraudulent may also view the impossibility claim with skepticism. The Solow ruling illustrates the worst version, where a trust funded with transfers made after the verdict offers no meaningful protection and invites contempt sanctions.

This does not mean post-claim trusts cannot support an impossibility defense. The initial Grant analysis focused on actual trustee independence and the settlor’s demonstrated inability to compel compliance, not solely on timing. A post-claim trust with a genuinely independent trustee, proper structural separation, and a Jones clause can present credible impossibility when challenged.

The Jones clause authorizes the trustee to pay a specific existing creditor under defined conditions. It accomplishes two things at once. It weakens the fraudulent transfer analysis because the trust was not designed solely to obstruct the creditor, and it supports the contempt defense because the trust addresses the known creditor rather than manufacturing an impossibility.

The real tradeoffs are that post-claim trusts carry higher contempt risk and weaker negotiating leverage compared to pre-claim planning. Courts are less sympathetic to impossibility claims when the trust was created in response to a known threat. The defense remains structurally available when the trust separates control from the settlor, the trustee operates independently under foreign law, and the settlor cooperates with the court’s process.

The impossibility defense is a factual defense that turns on how the trust was actually run and what the settlor actually did. The cases that produced incarceration involved settlors who retained control, lied to courts, transferred assets after judgment, or treated their trusts as personal accounts while claiming no access. The cases that succeeded involved settlors who genuinely transferred control to independent fiduciaries and could document that transfer through arm’s-length administration. The broader risks and legal challenges of offshore trusts are real but manageable through proper structuring and good-faith cooperation with the legal process.