The How’s and Why’s of Offshore Trusts in Asset Protection Planning
Published by: Estates, Gifts and Trusts Journal; BNA Tax Management
Author: Howard Rosen, Esq.
Date of Publication: May, 1996
INTRODUCTION
This article will focus on just what the title indicates: how and why offshore trusts are used in asset protection planning. The article will review certain aspects of domestic law which limit the ability of a domestic trust to provide meaningful asset protection, and will compare those laws with the laws of certain offshore jurisdictions which address the same issues in a different way, with vastly different results. In addition, the article will highlight selected trust clauses which can enhance the protection afforded by careful selection of a situs jurisdiction.
BACKGROUND
The legal concept of the trust is inherent in all common law jurisdictions.
(1) In this context, the term “inherent” means that the basic features of the trust law are essentially the same in all common law jurisdictions. Thus, all such jurisdictions recognize the respective roles, interrelationships, and body of law regarding the three basic parties to the trust: The settlor, who creates the trust; the trustee, who holds legal title to the trust assets; and the beneficiary, for whose benefit those assets are held and administered. Compare the inherent nature of the trust concept in the common law to the absence of such concept in civil law jurisdictions, such as Liechtenstein, where such roles and relationships only exist because they were established by statute.
(2) The lack of an inherent trust concept in civil legal systems, even though an enabling trust law may have been enacted in a particular instance, injects an element of uncertainty into a type of planning the basis of which is the reduction of risk and uncertainty. Therefore, it is important to select a situs jurisdiction whose legal system is common law-based.
Although historically, the fundamental role of the trust has been the protection of trust assets for the benefit of the beneficiaries thereof,
(3) the past several hundred years have witnessed an erosion of the efficacy of trust protection through legislative and judicial actions. Notable among these actions are the enactment of the Statute of Elizabeth in England in 1571,(4) which today constitutes the basis for the fraudulent transfer laws in the United States and in most common law jurisdictions, and the development of public policy rules in the United States and in such common law jurisdictions which tend to prevent a settlor from “having his cake and eating it too” in an asset protection sense.
The public policy based rules provide that the utilization of a spendthrift trust to protect a settlor’s assets for his own beneficial use will be ineffective,(5) that extensive retained powers in the settlor may render a trust invalid, and that a settlor’s creditors can reach the assets in an otherwise valid trust to the extent of the maximum property interest potentially available to the settlor under the trust instrument via the exercise of the trustee’s maximum discretion in favor of the settlor.
(6) Thus, a U.S. judgment creditor can eventually gain jurisdiction over and reach assets held in a trust established in any U.S. jurisdiction, and, as among the U.S. jurisdictions, the issue of comity is essentially nonexistent – a judgment obtained in one U.S. jurisdiction will typically be enforceable in another. If the settlor-debtor has beneficial ties to a domestic trust, either as a beneficiary – spendthrift, discretionary or otherwise, or by retaining a power of revocation or similar control, the trust assets will be reachable by his judgment creditor to the extent of the maximum property interest potentially available to the settlor-debtor as a result of such retained beneficial interest or control.(7) Enforcement of such public policy rules may be accomplished, for example, via a court order on the U.S. trustee of a discretionary or spendthrift trust to exercise his maximum discretion under the trust in favor of the settlor-beneficiary, or by declaring the trust invalid where the settlor-debtor retains a power of revocation or other extensive controls over the trust.
As will be discussed below, certain offshore jurisdictions have enacted legislation repudiating the above public policy rules. Such legislation is viewed in those jurisdictions as remediating a perceived erosion of the traditional asset protection role of the trust. Given an appropriate jurisdiction as the trust situs, and properly structured and utilized, offshore trusts (“APT’s”) offer significant asset protection advantagesover domestic trusts.
SIGNIFICANT ISSUES: JURISDICTION AND COMITY
In order for a creditor to be able to reach assets held in a trust, a court must be able to exercise its jurisdiction over the trustee or the trust assets. Where an APT is properly established in a foreign country,obtaining jurisdiction over the trustee vis-a-vis a US court action will not be possible. Thus, a US court will not be able to exert any of its powers over the offshore trustee. However, if immovable US situs assets (e.g., real estate) are owned by the APT, a US court can find a way to reach such properties.(8)
Absent the ability to obtain U.S. court jurisdiction over the trustee or trust assets, a judgment creditor would seek to have the trust’s situs jurisdiction enforce his judgment under the principle of comity.(9)Therefore, to dovetail with the inability of a US court to exercise its jurisdiction over the APT, it is equally important to select a situs jurisdiction which does not grant comity to a judgment of a court of another country if such judgment is based upon laws which are inconsistent with its own laws. Thus, in a jurisdiction which does not grant comity, a judgment of a US court which is based upon a US law which is different than the law in the offshore jurisdiction (typically a fraudulent transfer law) will be given no effect as against the offshore trustee.(10) To the creditor seeking to reach APT assets, this means that his case (however weighty it was in the US), must be commenced de novo in the offshore jurisdiction. In addition to starting his litigation all over again in a foreign country, the creditor cannot use his US lawyer, but rather must use a local lawyer who will not be able to take the case on a contingency fee basis. Therefore, if a creditor wishes to pursue litigation in the offshore jurisdiction, he must be prepared to pay the foreign lawyer from his own pocket – usually in advance. As if that were not daunting enough, many jurisdictions require the plaintiff-creditor to post a bond or other surety to guarantee the payment of costs which the court may charge against the creditor if he is unsuccessful.(11)
Such factors (among others discussed below) are extremely daunting to a creditor considering pursuing assets held in an offshore trust.
FRAUDULENT TRANSFER ISSUES
It is important for the planner to understand that in nearly every instance in which an APT is attacked by the settlor’s creditor, such attack will be based upon a fraudulent transfer allegation. Since neither the trust nor the trustee had any connection with the underlying cause of action(12) against the settlor,(13) the creditor must pursue his case in chief against the settlor in the United States – where venue is proper, obtain his judgment, and, if he can’t collect it, consider whether to proceed from that point against the APT on fraudulent transfer grounds. As will be discussed below, by the time the creditor is ready to make this decision, the statute of limitations in the offshore jurisdiction will usually have expired.
The Statute of Elizabeth was mentioned above as providing the framework for the fraudulent transfer laws in the U.S. and most other common law jurisdictions today. If in force in a jurisdiction, it would preclude effective asset protection planning. It provided no limitation period, and its judicial interpretations by the English courts have been detrimental to a debtor’s position, typically holding that an intent to defraud was found where the creditor was merely deprived of timely recourse to property which would have otherwise been available for his benefit.
Significantly, and dovetailing with the lack of a limitations period in the Statute, future creditors (ie., those who came into existence as creditors following a transfer) could attack a transaction, making it virtually impossible for effective asset protection planning to be undertaken. Therefore, in choosing a jurisdiction for the establishment of the APT, the planner must select one which has repealed the Statute of Elizabeth and replaced it with far more workable legislation.
To establish a transfer as a fraudulent transfer in the U.S., a creditor must generally prove, by a preponderance of the evidence, that the transfer was fraudulent as to any creditor of the debtor.(14) Although the U.S. statutes(15) ostensibly protect a creditor whose claim arose before or after the transfer, the courts have not been so Draconian in their interpretation of such provisions.(16) Nevertheless, the issue remains unclear. If the creditor is successful, the remedies available include setting aside the entire transfer and execution on the asset in the transferee’s hands.(17)
The fraudulent transfer statute of limitations in the U.S. can be open-ended,(18) and U.S. courts can consider numerous factors in determining whether the settlor (debtor) had the requisite actual intent to “…hinder, delay, or defeat the claim of a creditor”.
Among the factors a U.S. court may consider are whether:
(A) The transfer or obligation was to an insider.
(B) The debtor retained possession or control of the property transferred after the transfer.
(C) The transfer or obligation was disclosed or concealed.
(D) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
(E) The transfer was of substantially all the debtor’s assets.
(F) The debtor absconded.
(G) The debtor removed or concealed assets.
(H) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
(I) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
(J) The transfer occurred shortly before or shortly after a substantial debt was incurred.
(K) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
The fraudulent transfer laws of certain offshore jurisdictions offer a sharp contrast to our laws. The Cook Islands and Nevis statutes provide excellent examples: each requires proof “beyond a reasonable doubt” that a transfer was fraudulent as to the particular creditor bringing the action in order for the creditor to be entitled to relief (remember the O.J. case?),(19) and, importantly, a creditor whose claim arose after the transfer cannot raise the fraudulent transfer issue.(20) Contrast these laws with our “preponderance of the evidence” standard, our lesser elementary requirement that a transfer merely be fraudulent as to any creditor of the debtor, and with our murky issue of future creditors. In addition, as discussed above, if a transfer is fraudulent as to any creditor of the debtor in the U.S., the entire transfer may be set aside or the transferred assets executed upon. Contrast this treatment with the laws of the Cook Islands and Nevis, where, if a transfer is found to be fraudulent as to the complaining creditor, it will only be set aside to the extent necessary to satisfy the claim of that particular creditor, thus requiring each creditor to institute a separate action. In addition, and again in direct contrast to US law, the statutes in both jurisdictions contain provisions specifically negating a presumption of fraud where numerous powers and/or beneficial interests are retained by the settlor, and where the settlor is solvent following a transfer.(21) Finally, the limitations period in these jurisdictions can be as long as three years, or as short as zero where the settlor is solvent after the transfer of assets to the APT.(22) Thus, important protective advantages can be gained by selecting a jurisdiction which has enacted a restrictive and specific fraudulent transfer law.(23)
OTHER LEGAL ISSUES
In the above material, the common law rules which result in significant impediments to effective asset protection through the use of a U.S. trust were discussed: too many retained controls in the settlor could render the trust invalid, a self-settled spendthrift trust will not be effective in protecting the settlor’s assets for his own benefit, and the rule which permits the settlor’s creditor to reach trust assets to the extent of the settlor’s maximum potential property interest therein. A suitable APT jurisdiction will have in place legislation which specifically repudiates these defects in our trust protection laws. An example of a statute which remediates such defects and provides a legislative certainty that a settlor can retain significant controls over the APT without affecting its validity is 13C of the International Trusts Act 1984 (Cook Islands):
13C. Retention of control and benefits by settlor
An international trust and a registered instrument shall not be declared invalid or a disposition declared void or be affected in any way by reason of the fact that the settlor, and if more than one, any of them, either –
(a) Retains, possesses or acquires a power to revoke the trust or instrument;
(b) Retains, possesses or acquires a power of disposition over property of the trust or the subject of the instrument;
(c) Retains, possesses or acquires a power to amend the trust or instrument;
(d) Retains, possesses or acquires any benefit interest or property from the trust or any disposition or pursuant to the instrument;
(e) Retains, possesses or acquires the power to remove or appoint a trustee or protector;
(f) Retains, possesses or acquires the power to direct a trustee or protector on any matter;
(g) Is a beneficiary of the trust or instrument either solely or together with others.“(emphasis added)(24)
An example of a statute which overrides the common law rule which prevents a settlor from establishing a spendthrift trust for his or her own benefit is 12 of the Trusts Act 1992 (Belize):
Protective or spendthrift trusts
12.(1) The terms of a trust may make the interest of a beneficiary –
(a) subject to termination;
(b) subject to a restriction on alienation of or dealing in that interest or any part of that interest, or
(c) subject to diminution or termination in the event of the beneficiary becoming insolvent or any of his property becoming liable to seizure or sequestration for the benefit of his creditors and such a trust shall be known as a protective or a spendthrift trust.
(2) Where any property is directed to be held on protective or spendthrift trust for the benefit of a beneficiary, the trustee shall hold that property-
(a) in trust to pay the income to the beneficiary until the interest terminates in accordance with the terms of the trust or a determining event occurs, and
(b) if a determining event occurs, and while the interest of the beneficiary continues, in trust to pay the income to such of the following (and if more than one in such shares) as the trustee in his absolute discretion shall appoint —
(i) the beneficiary and any spouse or child of the beneficiary; or
(ii) (if there is no such spouse or child) the beneficiary and the persons who would be entitled to the estate of the beneficiary if he had then died intestate and domiciled in Belize.
(3) In sub-section (2) above, a “determining event” shall mean the occurrence of any event or any act or omission on the part of the beneficiary (other than the giving of consent to an advancement of trust property) which would result in the whole or part of the income of the beneficiary from the trust becoming payable to any person other than the beneficiary.
(4) Any rule of law or public policy which prevents a settlor from establishing a protective or a spendthrift trust of which he is a beneficiary is hereby abolished.”(emphasis added).(25)
Other important legal issues which should be addressed by legislation in the situs jurisdiction include:
Retroactive Application of Law
Sometimes it may be appropriate to redomicile a client’s existing trust to an offshore jurisdiction (or from one such jurisdiction to another). Under such circumstances, statutory certainty regarding which jurisdiction’s law will apply in litigation may become crucial. The International Trusts Act 1984 13K(5) (Cook Islands) provides that every proceeding commenced after a trust has registered in accordance with Cook Islands law shall be dealt with by the Cook Islands High Court as if the trust were a registered Cook Islands trust from its inception.
Ex-Parte Creditor Proceedings
Legislation should be in place in the offshore jurisdiction establishing specific rules governing ex-parte creditor actions to freeze APT assets.(26)
Community Property
Section 1014(b)(6) of the Internal Revenue Code provides a double basis step up for property held as community property on the death of the first spouse to die. It is thus ordinarily important to preserve the community property nature of a married couple’s assets. Since the subsection is applicable to property held as community property under the “..laws of any State, or possession of the United States or any foreign country,..”(emphasis added), selecting a situs jurisdiction whose laws implement this significant tax advantage may be important in a particular case. Two jurisdictions statutorily provide for the preservation of the community property nature of such assets as are transferred to a properly registered APT.(27)
Taxation; Exchange Controls. Finally, the offshore jurisdiction must exempt APT’s from exchange controls and taxation. Most offshore APT jurisdictions so provide.
PROTECTIVE TRUST CLAUSES
The protection available through the use of an APT established in a “protective” jurisdiction may be enhanced through creative drafting. The following is a brief description of certain provisions which may be included in an APT to achieve such enhancement.
Trust Protector Clause:
The trust protector clause enables a designated person or persons, other than the trustee, to exercise certain powers with respect to the trust. Legislative recognition of the trust protector concept in offshore jurisdictions varies from statutes providing the trust protector with specified powers,(28) to statutes which merely recognize or define the office of trust protector.(29) Examples of common trust protector powers include: removal and replacement of trustees, veto of discretionary actions of trustees, consent to trust amendments proposed by trustees. Properly structured, the provision can permit the trust protector to retain significant negative controls over any specified aspect of the trust. As with provisions appointing trustees, the trust protector provision should include language addressing vacancies, succession, and related issues.
Where the trust protector is located in the United States, any powers granted to the trust protector under the trust instrument should be constructed in the negative. That is, to the extent practicable, such powers should be veto powers. A court cannot order someone to exercise a veto power until the person over whom the veto is exercisable (e.g., the offshore trustee) proposes to take action. It will not always be possible or practical to draft each trust protector power in the negative, since, as mentioned above, one power which is customarily granted to a trust protector is the power to remove and replace the trustee with or without cause. For this reason, among others, it is essential that any instrument which contains such a trust protector power also include a “duress” clause.
Duress Clause:
As discussed above, a trust may empower a person or persons other than the trustees to advise the trustees, or to direct or veto an act or decision of the trustees, and/or a trust may grant a non-trustee the power to remove and replace a trustee with or without cause. Commonly utilized in foreign trusts, the typical duress clause will direct the trustee to ignore any such advice, order, or instruction where such is given under duress by the person granted such powers under the instrument.(30) A duress provision is quite effective where the power holder is located in one jurisdiction, and the trustee, who can ignore a duress driven directive, is located in another jurisdiction (as would be the case with a typical offshore trust). As a result of such jurisdictional diversification, a carefully constructed duress provision can have the effect of permitting the retention or granting of significant control over the trust, by or to non-trustees, such as the settlor or other persons, while at the same time precluding the effective forced exercise of such powers.(31)
Flight Clause. The flight clause permits the trustee to change the trust situs and/or governing law if the trustee deems such change to be advisable in order to protect the trust from a potential threat of any kind. Such a provision is commonly included in a foreign trust to address various situations, not the least of which is civil unrest, or an unfavorable change in the law or political climate of the situs jurisdiction. The functionality of the flight clause can be substantially enhanced by coupling it with a power of attorney held by the trust protector to effect title changes in specified circumstances.(32) Thus structured, the flight clause provides a substantial safety net for a trust in the event of an unfavorable change in the lex domicilii, civil unrest or political change in the situs jurisdiction, or in the event of an anticipated attack on the trust by a creditor. Such a provision would permit a trust to change its situs, governing law, and the courts in which litigation concerning it must be brought – an important asset protection tool in the face of an oncoming creditor challenge against the trust.(33)
Spendthrift Clause: A spendthrift clause is a restraint on the voluntary or involuntary alienation of a beneficiary’s interest in a trust. Such clauses are sometimes augmented by language which provides for a forfeiture of a beneficiary’s trust interest upon an attempt by the beneficiary to transfer it, or by his creditors to reach it, or language which converts required trust distributions into discretionary distributions upon the occurrence of certain creditor related events.(34) As mentioned above, the common law rule is that such a provision will not be effective in protecting a settlor’s beneficial interest in a trust. It is therefore important that the APT be settled in a jurisdiction which statutorily validates self-settled spendthrift trusts.(35)
OTHER PROVISIONS
In addition to the protective enhancement provisions discussed above, the APT should ordinarily include conventional estate planning provisions to ensure the full utilization of the settlor’s unified credit and generation skipping tax exemption, as well as appropriate utilization of the settlor’s marital deduction and continuing trusts for other beneficiaries.
CONCLUSION
The APT is inherently more protective than a domestic trust for several reasons, not the least of which is its “foreignness”. Factors such as the geography, language, currency, laws and legal system of the situs jurisdiction (not to mention the costs of commencing litigation thousands of miles from the U.S.) become immediate hurdles in a legal obstacle course facing a creditor considering an attck upon an APT. Because of these geographical, legal, procedural, and financial hurdles, the APT is not an automatic target of litigation, as its domestic counterpart would likely be.
The very fact that the APT is an offshore trust will have a significant deterrent effect on the creditor’s decision regarding whether or to what extent to pursue trust assets. Thus, significant asset protection advantages can be gained through the responsible and ethical(36) use of offshore trusts.
ENDNOTES:
1. E.g., the U.S., England, Cayman Islands, Bahamas, Cook Islands, etc.
2. See, generally, Articles 897-932 of the Personen-Und Gesellschaftsrecht of 20 January 1926.
3. The Internal Revenue Service has recognized this protective role in Treasury Regulation 301.7701-4(a), which provides:
“… the term “trust” as used in the Internal Revenue Code refers to an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of such a trust may be the persons who create it and it will be recognized as a trust under the Internal Revenue Code if it was created for the purpose of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.”(emphasis added).
4. 13 Elizabeth I Ch. 5 (1571).
5. See, Restatement (Second) of Trusts 156(1) (1957).
6. Rosen, 810 T.M., Asset Protection Planning, at p. A-16.
7. Id.
8. Pack v. U.S., No. CV-F-92-5327 (E.D. Calif. 2/1/96).
9. See, Rosen, 810 T.M., Asset Protection Planning, at p. A-18.
10. An example of such a law is 13D of the International Trusts Act 1984 (Cook Islands), which clearly and specifically provides:
“13D. Foreign judgments not enforceable –
Notwithstanding –
(a) The provisions of any treaty;
(b) The provisions of any statute;
(c) Any rule of law, or equity, to the contrary, no proceedings for or in relation to the enforcement or recognition of a judgement obtained in a jurisdiction other than the Cook Islands against either –
(d) An international trust;
(e) A settlor of an international trust;
(f) A trustee of an international trust;
(g) A protector of an international trust;
(h) A beneficiary of an international trust;
(i) A person appointed or instructed in accordance with the express or implied provisions of an instrument or disposition to exercise a function or undertake any act matter or thing in connection with an international trust; or
(j) Property of either an international trust or of a trustee or a beneficiary thereof;
shall be entertained by any Court in the Cook Islands if –
(k) that judgement is based upon the application of any law inconsistent with the provisions of this Act;
(l) that judgement relates to a matter or particular aspect that is governed by the law of the Cook Islands.”
11. Section 55 of the Nevis International Exempt Trust Ordinance, 1994, provides:
“55. Bond. Every creditor before bringing any action or proceeding against any trust property governed by this Ordinance shall first deposit with the Permanent Secretary in the Ministry of Finance a bond in the sum of $25,000.00 from a financial institution in Nevis, for securing the payment of all costs as may become payable by the creditor in the event of his not succeeding in such action or proceeding against the trust property.”
12. Assuming the trust is not directly engaged in a business transaction.
13. The trustee wasn’t holding the physician-defendant’s scalpel that severed the patient-plaintiff’s nerve, the trustee wasn’t driving the vehicle that caused the accident, etc.
14. E.g., Fla. Stat. 726.105(1).
15. E.g., Unif. Fraud. Convey. Act 7; Fla. Stat. 726.105(1) (1995).
16. Hurlbert v. Shackleton, 560 So.2d 1276 (Fla. 1st Dist. 1990); Oberst v. Oberst, 91 B.R. 97 (C.D. Cal. 1988); Klein v. Klein, 112 N.Y.S.2d 546 (1952); Wantulok v. Wantulok, 214 P.2d 477 (Wyo. 1950).
17. See, e.g., Unif. Fraud. Convey. Act 10(c); Fla. Stat. 726.108(2).
18. See, e.g., Fla. Stat. 726.110. The section provides a general four year statute of limitations, or, if later, one year after the transfer was or could reasonably have been discovered by the plaintiff.
19. The International Trusts Act 1984 13B(1) (Cook Islands); Nevis International Exempt Trust Ordinance 1994 24(1).
20. The International Trusts Act 1984 13B(4) (Cook Islands); Nevis International Exempt Trust Ordinance 1994 24(4).
21. Solvency is only one factor which may be considered by a court under U.S. law. The International Trusts Act 1984 13B(5) and (2) (Cook Islands); Nevis International Exempt Trust Ordinance 1994 24(5) and (2).
22. The International Trusts Act 1984 13B(2) and (3) (Cook Islands); Nevis International Exempt Trust Ordinance 1994 24(2) and (3). Whether the settlor was, in fact, solvent at the time of establishment of the APT may be open to question; however, in any event, these statute do provide a specific time within which an action, if it can be commenced, must be commenced.
23. . See, e.g., Fraudulent Dispositions Act, 1991 4 (The Bahamas), providing a two year statute of limitations, and 2 thereof which, inter alia, defines an “obligation” as an obligation or liability (including a contingent liability) which existed on the date of the transfer, and of which the transferor had actual notice; International Trusts Act 1984 13B (Cook Islands), providing a two year statute; Nevis International Exempt Trust Ordinance 1994 24(3); Bankruptcy (Amendment) Ordinance, 1990, 42A (Gibraltar), which provides that if the settlor is an individual, and is not insolvent at the date of the transfer, is not rendered insolvent by the transfer, and registers the transfer, then no creditor – existing or subsequent – can set aside the transfer. For purposes of determining solvency under the Gibraltar provision, the settlor’s contingent liabilities of which he had actual knowledge are taken into account.
24. Although often taken for granted, it is important to have the statutory certainty – as provided in 13C(g) – that the settlor can be a beneficiary of his APT without adversely affecting the protective ability of the APT. See also, Nevis International Exempt Trust Ordinance, 1994 Sec. 47.
25. See also, International Trusts Act 1984 13F (Cook Islands).
26. See, e.g., International Trusts Act 1984 13K(3) (Cook Islands); Trust Act, 1994 (Marshall Islands) 46(3).
27. International Trusts Act 1984 13J (Cook Islands); Nevis International Exempt Trust Ordinance, 1994 56.
28. Absent a contrary provision in the trust instrument. See, e.g., Trusts Act 1992 (Belize) 16; Nevis International Exempt Trust Ordinance, 1994, 9.
29. International Trust Act 1984, 2 (Cook Islands), which defines the term “protector” for purposes of the Act.
30. The instrument must, of course, carefully define instances of “duress”.
31. The governing law to which the trust is subject must, of course, permit the existence of such powers over the trustees without causing the trust to be treated as a sham. See FN ___, above. Contempt of court issues are discussed in Rosen, 810 T.M., Asset Protection Planning, at p. A-12.
32. See, Rosen, 810 T.M., Asset Protection Planning, at p. A-13.
33. The laws of several foreign jurisdictions specifically recognize the validity, and anticipate the use of the flight clause. Section 5-(1) of the Trusts (Choice of Governing Law) Act, 1989 (The Bahamas) provides a typical example:
“5-(1) Where a term of a trust so provides, the governing law may be changed to or from the laws of The Bahamas if –
(a) in the case of a change to the laws of The Bahamas, such change is recognised by the governing law previously in effect; and
(b) in the case of a change from the laws of The Bahamas, the new governing law would recognise the validity of the trust and the respective interests of the beneficiaries.
See also, Nevis International Exempt Trust Ordinance, 1994 4(4); International Trust Law 1992, 9 (Cyprus); International Trusts Act 1984, 13G(4) (Cook Islands); Trust (Foreign Element) Law, 1987, 4(4) (Cayman Islands).
34. Domo v. McCarthy, 612 N.E.2d 706 (Ohio 1993); Scott v. Bank One Trust Company, 577 N.E.2d 1077 (Ohio 1991). See also, Rosen, 810 T.M., Asset Protection Planning, at p. A-11.
35. See, e.g., Trusts Act 1992 (Belize) 12; International Trusts Act 1984 13F (Cook Islands).
36. See, Rosen, 18 T.M. E.G. Tr. J. No. 3, p.87, Ethical Considerations in Asset Protection Planning.
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