How U.S. courts attack Cook Islands trusts — Part I

Full transcript

0:11 Hi, I’m Max Dilendorf, I’m an attorney. We help U.S. families and international clients evaluate cross-border estate planning and asset protection strategies for traditional assets and crypto.

0:26 This episode opens our series on how U.S. courts analyze offshore trusts.

0:32 Over the past 30 years, a substantial body of law has developed where U.S.

0:38 courts have attacked offshore asset protection structures and their U.S. creators or settlors.

0:46 We’ll start with a real case from the Ninth Circuit. That’s a federal appeals court that reviews cases from the western U.S. before anything goes for an appeal to the Supreme Court.

0:59 one level below the US Supreme Court.

1:02 179 F.3d 1228 (9th Cir. 1999) FTC v. Affordable Media, LLC.

1:11 Trade Commission—the federal agency that protects consumers and can sue in court to freeze assets and get money back when there’s fraud involved.

1:26 Americans. We’ll refer to them as Andersons.

1:32 trust. An asset protection trust that was operated by a professional trust company in the Cook Islands, in the South Pacific.

1:44 transferring your assets to an overseas trust, with legal title held by a foreign trustee.

1:52 Many of these asset protection trusts include a “Duress Clause,” that says if a U.S. court orders money returned, the foreign trustee would treat that order as “duress”, cut the settlor out of control, and refuse to send the money back to the US.

2:12 So here, the FTC was suing Andersons and wanted to make sure money would be available to help defrauded victims if it won the case.

2:27 to transfer their assets back to the U.S. This procedure is called repatriation of assets.

2:36 The judge issued a temporary restraining order, or TRO, and then a preliminary injunction, both requiring the Andersons to repatriate any assets held for their benefit inside of their Cook Islands Trust (179 F.3d at 1232).

2:55 that parts of this trust were: “intended to frustrate the operation of domestic courts.” Id. at 1232.

3:06 asset protection trusts’ are designed to shield wealth by moving it to a foreign jurisdiction that does not recognize U.S. judgments.” Id. at 1240.

3:21 requesting an accounting and the return of the assets to the U.S. court.

3:26 The trustee responded that the U.S. order was an “event of duress,” removed the Andersons as co-trustees, and refused to provide an accounting or repatriate the assets back to the U.S.

3:40 From the Ninth Circuit’s perspective, Anderson’s argument that sorry “we can’t comply” wasn’t an accident.

3:52 that the Andersons’ inability to comply… is the intended result of their own conduct—the precise goal of the Andersons’ trust.” Id. at 1240.

4:05 the foreign trustee refused to cooperate. The Ninth Circuit wasn’t convinced.

4:10 In short, when a structure is built to frustrate U.S. court orders, it’s very hard to prove “impossibility”: the court found that Andersons failed to meet that burden.

4:22 When the orders weren’t followed, the trial judge used civil contempt. The Ninth Circuit described as follows: his money are easily parted… [T]he district court found the Andersons in civil contempt of court.” Id. at 1231.

4:44 the court agreed with the trial judge that the Andersons remained in control of their Cook Islands trust.

4:52 “While it is possible that a rational person would send millions of dollars overseas and retain absolutely no control over the assets, we share the district court’s skepticism.” Id. at 1242.

5:07 Here’s the takeaway from this decision: U.S. and use contempt if that doesn’t happen.

5:20 when a U.S. court enters an order, courts are likely to treat that as by design, not an accident.

5:29 If a defendant says it has no control over millions it sent offshore, that story will be tested against the real-world facts.

5:43 U.S. courts evaluate offshore asset protection trusts.

5:48 Next, we’ll review other key offshore assert protection cases and their impact on estate planning for both traditional and crypto assets, including Bitcoin, Ethereum, and even tokenized securities.

6:06 and transferring title to a foreign trustee, get experienced guidance first.

6:13 Dilendorf Law Firm provides confidential reviews of both existing and proposed offshore structures—so you can decide if they’re right for you and your family.

6:24 Thanks for watching and we’ll see you in the next episode.

A transcript of the recording, so it reads as speech rather than as prose. It explains the law in general terms and is not advice on your own situation, which turns on facts this video cannot know.