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Are international trusts really as protective as you think they are?

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The real question is – what is more protective? It’s true that your international trust won’t be effective for protection unless your trust is structured and administered properly. And there have been a few celebrated cases where international trusts have failed. Those few cases highlight one or more fatal mistakes that you must avoid. In one or two cases the grantor retained too much control, which allowed the court to determine that the trust was nothing more than a sham. For protection, you must give your trustee complete control over your trust – not only in form, but also in practice. In other cases the trust assets were held within the U.S. where they could then be seized by a U.S. court when the transfer to the trust was deemed fraudulent. You must keep your assets internationally. In other cases the trust lacked necessary protective safeguards, or the trust was technically defective. For these reasons, you need your trust prepared by an experienced professional.

In some of these cases, the grantor was ordered by the court to repatriate the trust assets for the benefit of the creditor. When the grantor failed or refused to do so, he was jailed for contempt. These rulings were proper in at least those cases where the grantor had defacto control over their trust. In other instances, the trust was set up only days before the court proceeding. But ordinarily, a court cannot find you in contempt for your failure to repatriate your money if you truly lack the power to comply with the court order, which a properly structured and administered trust should accomplish. Moreover, your trust shouldn’t appear to be a last minute effort to put your assets beyond the court’s reach.

Timing and relinquishing control are both vital to international success. That’s why you can’t wait until the last moment to protect yourself. You want to set up your international entities well before you have a liability, or at least before you are sued. And don’t try to control your trust so the court won’t reasonably conclude that you have the power to repatriate the trust funds. You are less likely to make these mistakes if your trust is overseen by an attorney experienced with international trusts and the rulings in these recent cases. Still, exceptionally few international trusts are challenged and instances where a creditor recovered money from international entities are even more rare. That’s why we began our answer to your question with our own question – what is the safer option than an international strategy? If the litigation skies are clear, buying exempt assets or domestic entities may afford you equally sound protection, but once the storm clouds gather, we know of nothing safer than a well-constructed international fortress.

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