Forced Repatriation

Tailoring the powers of the Protector is the most delicate aspect of designing a robust offshore trust.  The Protector must have enough power to assure that the Trustee never loses sight of the purposes and intentions of the Grantor of the trust.  But the Protector should not have any power that a government agency or any other third party could exploit to disarm the trust.

Typically the trust instrument subjects the Protector’s powers to an “anti-duress” rule: the Protector’s powers go into suspense during any time when the Protector is subject to coercion and not acting of his own free will.

In principle, an anti-duress rule should protect against the Protector being ordered to replace the offshore Trustee with a court-compliant Trustee in the U.S.  In practice, an anti-duress rule does little good unless there is some mechanism by which the offshore Trustee would be alerted to the fact of duress.

Relying on the Protector to tell the Trustee that he has been ordered to move the trust to a new trustee is not a good plan, since in some circumstances the Protector would risk putting himself in contempt of court by giving such an alert.

The Model Offshore Trust builds in two separate information channels through which the Trustee could learn that the Protector is under duress, without the Protector taking any initiative.

One information channel is the procedure the Protector must follow to replace the Trustee.

The Protector of a Model Offshore Trust doesn’t have a blank-check power to push one Trustee out and pull a new one in.  Instead, there are steps the Protector must follow in order to replace the Trustee.

First, the Protector must make a finding that it serves the purposes of the Trust to move to a particular new Trustee.   Next, the Protector must inform the the incumbent Trustee of the finding and instruct it to resign in favor of the replacement Trustee.  If the Protector’s purported finding is implausible, especially if the nominated replacement Trustee is in the U.S. or other creditor-friendly jurisdiction, the incumbent Trustee will suspect duress and will inquire further before resigning.

Such a suspicion is enough to halt the transfer of the Trust to a new Trustee.  The Model Terms of Trust empowers the Trustee, before resigning, to require whatever further information and representations from the Protector might be reasonable.  The Trustee can even insist that the Protector swear an affidavit, under penalties of perjury, about his finding.

A second information channel built in to the Model Offshore Trust is the Supplemental Advisor(s) appointed by the Protector.  The Trust should have at least one Supplemental Advisor who is personally close to the Protector and who on his own initiative would alert the Trustee if the Protector ever comes under duress.

A third information channel, through which the Trustee would be alerted to duress, can be installed by hiring a competent Trustee.  A proper Trustee will rubber stamp nothing.  It will always ask the Protector for the reasoning behind his advice.  If the Protector’s arm is being twisted, the reasons he gives are likely to sound fishy.

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