Another Offshore Protection Plan Fails

This is important. I have written previously on this blog that complicated offshore trust planning is overrated because the more elaborate plans are the most difficult properly to design and execute. A few years ago a creditor retained me to help his collection attorney pierce a very complex offshore asset protection plan. The creditor was owed close to one million dollars, and the debtor’s asset protection entities had much more than one million dollars of assets. The asset protection plan was among the most complex and potentially effective protection plans I have seen. The debtor had placed real property in domestic limited liability companies whose share were owned by family limited partnership whose partners were offshore trusts with foreign trustees.

The collection attorney and myself analyzed the complicated plan in search of some rights or control retained by the debtor. We focused on two provision of the plan. First, the documents required the offshore trustees and LLC managers to distribute all income earned to the debtor who was the ultimate beneficiary of the entities. Second, the debtor retained the right to remove and replace trustees. Ultimately, a Florida court said that our client, the creditor, could levy upon both of the debtor’s retained powers, and it ordered that all income generated by assets owned by the asset protection entities be paid to the creditor. This order cut off the debtor’s source of income, and because the debtor’s wealth generated substantial income, the order produced a quick and favorable settlement for the creditor.

The story is another example of the most common flaw in complex offshore asset protection- debtors do not want to relinquish control over large amounts of assets and they often need income from the assets for their support. This creditor spent large amounts of legal fees creating what he thought was an offshore fortress. The fortress looked confusing and impenetrable at first, but when its details were exposed, the fortress was built upon a poor foundation. The foundation did not include the debtor’s willingness to truly part with enjoyment and control.

A debtor’s ability to trust an unrelated party to control his wealth, and his financial ability to support himself with exempt assets held outside the asset protection plan is the only foundation which will support a complicated asset protection plan. If the debtor is willing to relinquish control and enjoyment a much simpler, much less expensive asset protection design will always produce superior protection.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida