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 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. In Maggio v. Zeitz, 333 U.S. 56, 64 (1948), the U.S. Supreme Court said that no conduct, however reprehensible, warrants an order that “creates a duty impossible of performance, so that punishment can follow.” United States v. Rylander, 460 U.S. 752, 757 (1983), confirms that a defendant may assert a present inability to comply and places the burden of production on him.

That showing must be made “categorically and in detail,” a formulation the Ninth Circuit took from its own earlier contempt cases and applied to offshore trusts in FTC v. Affordable Media, 179 F.3d 1228, 1241 (9th Cir. 1999). The same page of that opinion sets the bar higher still where an asset protection trust holds the assets, calling the burden “particularly high.”

A Cook Islands trustee, or any other foreign fiduciary that stays outside a U.S. court’s jurisdiction, is not subject to its orders. 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 plays out in 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, relying on the trust deed’s duress clause. Cook Islands law itself does not forbid compliance. No U.S. judgment is enforceable there of its own force, and the creditor’s only route to the assets is a fresh suit under Cook Islands law.

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, shows a court accepting 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. Every tax assessment against the Grants came years after the trusts were settled. 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 held her in civil contempt in March 2013 for violating the repatriation order. The following month it required her to hand over the money already distributed to those accounts, and everything the trustees paid out afterward. Both orders were lifted that December on a joint motion, and the contempt was purged.

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.

When the Defense Has Failed

The cases where the defense failed share a pattern. The settlor kept practical control over the trust, spent trust assets as if they were his own, or funded the trust after a judgment, and the court read the claimed inability as manufactured.

The Anderson Case

The Anderson case is FTC v. Affordable Media, 179 F.3d 1228 (9th Cir. 1999). Denyse and Michael Anderson ran a telemarketing venture the Ninth Circuit called a Ponzi scheme. They had created their Cook Islands trust in July 1995, before that venture began. The Andersons were co-trustees alongside the Cook Islands trustee company, and they were also the trust’s protectors.

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. Their deed also made the anti-duress provisions subject to the protectors’ powers.

The court treated either feature as enough to make a protector compellable. The defense failed because the Andersons did not carry their burden of proving that compliance was impossible.

The Ninth Circuit said that where foreign law is written to frustrate domestic courts and foreign trustees act in concert with people here, domestic courts must be “especially chary” of accepting a claim that compliance is impossible. The Anderson settlors lost on the control they kept, not on any defect in offshore trusts as a class.

The Lawrence Case

The Lawrence case, In re Lawrence, 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 with the order. 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 was held in civil contempt custody for more than six years, from September 2000 until a district judge ordered his release in December 2006. The Eleventh Circuit had ruled against him on two grounds, holding that he retained the present ability to comply and adding that, even if he had not, an impediment a debtor makes for himself is no defense.

The Solow Case

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, an argument the district court rejected. Courts have treated a transfer made between the verdict and the judgment the way they treat one made after it, because the liability is already fixed and the coming order is foreseeable.

The Mastro Case

The Mastro case (Bankr. 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

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. Allen’s later bankruptcy ran in the New Jersey federal courts. The Third Circuit reversed them, holding that money a company recovers under § 550 belongs to that company’s estate, so that filing did not shield it.

The Self-Created Impossibility Doctrine

Under Rylander and Maggio, civil contempt does not lie against someone who genuinely cannot perform, and the person asserting that inability carries the burden of production. Courts evaluating offshore trusts have added 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. When a settlor creates the inability in anticipation of an order, as Lawrence and Solow both did, courts treat the defense as forfeit. A trust’s age alone does not settle the question. The Eleventh Circuit’s rule is that a contemnor responsible for his own inability cannot rely on impossibility, and an older trust still has to answer that question on its own facts.

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 claimed as a defense. It then left a larger question open. Because such trusts exist to obstruct domestic courts, the court said it was “unsure” that an inability like that would be a defense at all.

The court declined to resolve that question, holding instead that the Andersons had not carried their burden. It added that the burden of proving impossibility “will be especially high” where foreign laws are built to obstruct domestic courts and foreign trustees work with people here.

The Eleventh Circuit in Lawrence was more direct. It held Lawrence’s claimed defense invalid “because the asserted impossibility was self-created,” an alternative ground it reached after finding that he could in fact comply.

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 keeps control. The initial Grant outcome shows that courts can distinguish between these situations when the facts support it.

Structural Features That Strengthen the Defense

The same structural facts recur in the decided cases, and courts weighed each of them in deciding whether a settlor could in fact compel the trustee.

Independent Trustee with No Ties to the Settlor

Courts examine the trustee’s independence, looking for no prior business relationship to the settlor and no financial dependence on the settlor’s continued patronage. They also scrutinize whether the trustee has historically exercised independent judgment or has simply followed the settlor’s directions. No single trustee form is required by law. A Cook Islands international trust, for instance, can be held by a foreign company registered there, an international company, or a licensed trustee company. Carrying on trustee company business there does need a license.

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. The Andersons lost the impossibility defense because their co-trustee and protector roles gave them the power to influence the trustee, the same power they claimed not to have. In Mastro, the debtor was the one-man advisory committee that controlled the protector. Mastro’s committee gave him that power over his own trustee.

Veto-Only Protector Powers Subject to the Anti-Duress Provisions

If a trust protector is used at all, the protector’s authority is best confined 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 opinion puts two conditions on that, and failing either one is enough to make the protector compellable. A protector can be ordered to exercise control if the powers are not drafted solely as negative vetoes, or if the powers are not subject to the deed’s anti-duress provisions. Drafting the powers solely as vetoes and subjecting them to the anti-duress provisions removes one route a court can take. It does not by itself establish that compliance is impossible.

Duress Clause Under the Trustee’s Independent Judgment

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 for show.

No Continued Access or Indirect Benefit

The full Grant history shows that getting the structure right at 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, is unlikely to keep the defense, however well the trust was originally drafted. The impossibility defense requires consistent separation from trust assets.

Post-Claim Trusts and the Impossibility Defense

Timing does not by itself close the defense, but a trust created in anticipation of an order runs into the self-created bar. Timing also shapes how courts read a settlor’s 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, settled years before any assessment issued, showed that 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. Separating control from the settlor, using a genuinely independent trustee, and cooperating with the court’s process all improve the argument without securing it. The settlor must still make the detailed, categorical showing the Ninth Circuit demands, and in this setting that court puts the burden particularly high.

The impossibility defense is a factual defense that turns on how the trust was actually run and what the settlor 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 initial Grant ruling involved a settlor who could not compel her trustees and could document the efforts she made. The same conduct questions run through the broader risks and legal challenges of offshore trusts.