People often use an offshore trust to place assets beyond the reach of U.S. creditors.

Whether a trust protects assets depends on its terms and on what happened before and after it came into existence.

Additionally, courts look at questions such as whether the person created or funded the trust after a creditor’s claim arose.

The person may have kept the power to control the trustee, receive distributions, or use the assets.

Also, they must fully disclose the trust and comply with court orders.

An offshore trust does not automatically make assets available to a creditor.

Nor does an offshore location eliminate legal risk.

Additionally, depending on the facts, U.S. courts have denied bankruptcy relief.

They have treated trust interests as estate property, and they have issued substantial marital-property awards.

They ordered turnover or repatriation-related relief.

They froze assets, enjoined receipt or dissipation of distributions, and used civil-contempt remedies against parties subject to the court’s jurisdiction.

This article summarizes selected U.S. decisions and the practical lessons they offer. It is not a prediction of the outcome for any particular trust, asset, claim, or creditor.

The Core Lesson: Structure Alone Does Not Decide the Outcome

The strongest warning signs in the reported cases are not simply that an offshore trust exists. Courts also consider whether someone transferred assets after a claim or investigation began; kept powers over trustees, protectors, beneficiaries, or distributions; continued using trust-connected assets personally; made incomplete disclosures; or tried to frustrate a court’s lawful orders.

At the same time, the absence of direct jurisdiction over a foreign trustee or foreign trust property may not end the analysis. A U.S. court that has jurisdiction over a settlor, beneficiary, spouse, or other participant may grant relief directed to that person, including monetary, disclosure, turnover, injunction, or contempt remedies.

Bankruptcy, Estate Property, and Disclosure

In re Lawrence

In In re Lawrence, the Eleventh Circuit upheld a turnover order and civil-contempt ruling involving an offshore trust. The debtor established the trust shortly before an anticipated arbitration award and retained powers to appoint trustees and influence beneficiary status. The courts concluded that those powers created sufficient control to support the turnover and contempt orders; the debtor’s claimed inability to comply was not accepted.

Practical lesson: A trust’s foreign situs and duress provisions may not protect a settlor who retains meaningful powers or establishes the arrangement in anticipation of a known liability. In re Lawrence, 279 F.3d 1294 (11th Cir. 2002)

In re Portnoy

In In re Portnoy, a bankruptcy court denied the debtor’s request for summary judgment on claims seeking denial of discharge. The debtor had transferred virtually all of his assets to a Jersey trust while a personal guarantee was likely to be called. He remained the trust’s principal beneficiary and held broad powers involving trustees. The court held that New York law governed the question of his retained property interest for bankruptcy purposes.

Practical lesson: A choice-of-law clause and foreign trustee do not prevent a U.S. bankruptcy court from examining settlor’s retained interests.

Moreover, In re Portnoy, 201 B.R. 685 (Bankr. S.D.N.Y. 1996).

FTC v. Affordable Media

In FTC v. Affordable Media, the Ninth Circuit affirmed preliminary relief and civil-contempt findings against the settlors of a Cook Islands trust. The court concluded that the settlors’ protector powers permitted them to affect trustee appointments and the determination of a duress event. The case also involved a fraudulent telemarketing scheme and an order requiring repatriation of foreign assets.

Practical lesson: Retained protector or trustee-related powers can materially affect whether a court views a claimed inability to repatriate assets as credible. FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999)

Divorce and Marital-Property Consequences

Riechers v. Riechers

In Riechers v. Riechers, a New York court concluded that it lacked jurisdiction over the corpus of a Cook Islands trust. It nevertheless had personal jurisdiction over the husband and awarded the wife $2 million—one-half of the marital assets the husband had placed in the trust.

Practical lesson: A foreign trust may complicate direct proceedings against trust property, but it may not prevent a court from entering a substantial personal award in a divorce case. Riechers v. Riechers, 679 N.Y.S.2d 233 (N.Y. Sup. Ct. 1998)

Breitenstine v. Breitenstine

In Breitenstine v. Breitenstine, the Wyoming Supreme Court affirmed a divorce property division involving an offshore asset-protection trust, while modifying the judgment so that it operated against the husband rather than directly against persons or property outside Wyoming. The court upheld findings that the transfers showed fraudulent intent, based on the trust’s terms, retained benefit and control, timing, and other badges of fraud.

Practical lesson: In marital litigation, a court can evaluate the transfer and a spouse’s control of trust-connected assets even if the court cannot directly direct a foreign trustee or foreign property. Breitenstine v. Breitenstine, 2003 WY 16, 62 P.3d 587 (Wyo. 2003)

Contempt and Enforcement Cases Involving Offshore Trusts or Foreign Assets

These cases show how courts can enforce orders against people connected to offshore trusts or foreign assets. They do not mean that every foreign trust was directly invalidated or that every foreign trustee was subject to a U.S. court’s jurisdiction. They do show that a person who remains subject to a U.S. court may face serious consequences if the court finds that person retained access, control, or a practical ability to comply with an order.

United States v. Grant

In United States v. Grant, the court addressed federal tax collection involving Jersey and Bermuda trusts. After the beneficiary received more than $221,000 in trust principal following an earlier finding of inability to repatriate, the court held her in contempt and entered a permanent injunction. The injunction required her to request available trust income, turn over distributions, and refrain from receiving or dissipating trust-derived assets except for payment to the United States.

Practical lesson: Even when foreign trust property is not directly seized, distributions and a beneficiary’s conduct can be subject to significant enforcement restrictions. United States v. Grant, No. 00-08986-CIV-ALTONAGA (S.D. Fla. Apr. 22, 2013)

SEC v. Solow

In SEC v. Solow, the court held a defendant in civil contempt after finding that he had engaged in a purposeful course of asset dissipation following an adverse jury verdict and before entry of a disgorgement judgment. The transactions included a mortgage whose proceeds funded a certificate of deposit held by a Cook Islands trust for his wife. The court focused on the timing of the transfers, the defendant’s role in them, and the claimed inability to satisfy the order.

Practical lesson: Transfers to an offshore trust or related structure after litigation risk is apparent may be examined as part of a court’s assessment of good-faith compliance and claimed inability to pay. SEC v. Solow, 682 F. Supp. 2d 1312 (S.D. Fla. 2010)

SEC v. Greenberg

In SEC v. Greenberg, the court held a defendant in contempt after concluding that he had not shown he made all reasonable efforts to comply with an SEC judgment. The court did not find sufficient evidence to treat the offshore trust as the defendant’s alter ego or to order direct repatriation and liquidation of trust assets. It nevertheless found that the defendant’s use of trust-owned or related entities to pay substantial personal expenses was relevant to his ability to make reasonable efforts to comply.

Practical lesson: The fact that a creditor cannot establish direct ownership of a trust asset does not necessarily end the inquiry into a judgment debtor’s access to resources or compliance efforts. SEC v. Greenberg, 105 F. Supp. 3d 1342 (S.D. Fla. 2015)

FTC v. AmeriDebt

In FTC v. AmeriDebt, a federal court granted preliminary relief including a receiver, asset freeze, accounting, and repatriation-related requirements. The case involved allegations that, after an FTC investigation began, a defendant transferred assets to domestic and offshore trusts while retaining substantial control. The order was directed to the defendants, not a direct command to foreign trustees.

Practical lesson: In regulatory or fraud-related litigation, courts may use broad interim remedies to preserve assets and require disclosure while the merits and control issues are litigated. FTC v. AmeriDebt, Inc., 373 F. Supp. 2d 558 (D. Md. 2005)

A Short Arizona Perspective

Arizona clients should not assume that a trust label, a spendthrift provision, or an offshore trust prevents creditor analysis under Arizona law. Under Arizona’s Trust Code, property in a settlor’s revocable trust remains subject to the settlor’s creditors during life. For an irrevocable trust, a settlor’s creditor may generally reach the maximum amount that can be distributed to or for the settlor’s benefit, subject to statutory exceptions and limitations.

Arizona appellate authority has similarly rejected an arrangement in which a person attempts to insulate personal property from creditors while the income and principal remain payable to that person. The trust instrument, actual powers, beneficial interests, source of funds, timing, and surrounding circumstances all matter.

Practical lesson: Arizona asset and estate planning should start with legitimate planning objectives, full disclosure, and careful evaluation of known liabilities—not with the assumption that an offshore structure creates immunity from creditor claims. A.R.S. § 14-10505; Arizona Bank v. Morris, 6 Ariz. App. 566, 435 P.2d 73 (1967)

Takeaways

• Offshore trusts are fact-specific legal arrangements, not guaranteed barriers to creditor remedies.
• Transfer timing matters. A transfer made after a claim, investigation, adverse verdict, or looming liability creates substantial risk.
• Retained powers and actual control matter. Courts look past labels to the powers granted and exercised in practice.
• Foreign situs may limit direct remedies against a foreign trustee or corpus, but it does not necessarily prevent personal remedies against people within the court’s jurisdiction.
• Bankruptcy, divorce, tax collection, consumer-protection enforcement, and securities enforcement can create distinct risks and remedies.
• Complete and accurate disclosure is essential. Concealment, incomplete disclosures, or inconsistent explanations can create independent exposure.

Important Information

This article is provided for general educational purposes only. It does not provide legal advice and does not establish an attorney-client relationship. The legal effect of any trust or asset-transfer plan depends on the governing law, trust terms, timing, asset location, creditor claims, family-law considerations, tax issues, disclosures, and the particular facts of the matter.