Transfers by Slick, Fumble and Jest

To understand the opportunities that might be available to a creditor for undoing your transfers to a Model Offshore Trust — and to see how to eliminate those opportunities by acting early and choosing the right jurisdiction — consider three examples.

Mr. Slick. In July of 2015, Mr. Slick borrows $500,000 from Mr. Smith. One month later, Mr. Slick transfers $2,000,000, representing substantially all of his assets, to a Model Offshore Trust. Then Mr. Slick informs Mr. Smith that he will not be able to repay his debt.

In almost any jurisdiction, Mr. Slick’s transfer to his Trust would be a fraudulent disposition and Mr. Smith could seek to have it set aide, because (1) Mr. Slick incurred his debt to Mr. Smith before the transfer to the Trust and (2) the transfer left Mr. Slick unable to repay his debt.

Mr. Fumble. In October of 2004, Mr. Fumble transfers $1 million to a Model Offshore Trust. One year later Mr. Fumble borrows $800,000 from a bank to invest in a newly conceived business. Later, despite Mr. Fumble’s prudent management, the business fails and Mr. Fumble becomes insolvent.

In most jurisdictions, the transfer to the Trust would not be a fraudulent disposition, and the lending bank could not have it set aside, because Mr. Fumble made the transfer before he became insolvent and could not reasonably have foreseen his debt to the bank at the time of the transfer. Mr. Fumble’s trust fund would be safe.

Dr. Jest. In May of 2013, Dr. Jest performs an operation on Mr. Wilson, who makes an apparently satisfactory recovery. Six months later Dr. Jest transfers $2,000,000 (one-half of his net worth) to a Model Offshore Trust to be administered for tax savings, professional investment management and international diversification. The very next day, Mr. Wilson’s attorney informs Dr. Jest that his client is suffering chronic pain because Dr. Jest had been negligent in performing the operation.

Mr. Wilson sues Dr. Jest in state court and is awarded damages of $10,000,000.

Mr. Wilson’s prospects for having Dr. Wilson’s transfer to a Model Offshore Trust set aside as a fraudulent disposition depend very much on the jurisdiction of the Trust. Under the laws of some countries, Mr Wilson would have virtually no hope at all, and Dr. Jest’s trust fund would be safe. In other countries, Mr. Wilson would have up to six years to break into Dr. Jest’s Trust.

Sooner vs. Later

After your Model Offshore Trust has been established, you (or anyone else) may transfer additional cash or investments to it at any time. However, for asset-protection purposes, sooner is better than later.

It is the individual transfers to the Trust, not the Trust itself, that your future creditor might seek to challenge. As should be clear from the rules on fraudulent dispositions, older transfers are more difficult for a creditor to challenge than more recent transfers. In some jurisdictions, any transfer to a Model Offshore Trust that does not leave the transferor insolvent (after allowing for all his outstanding obligations) is unassailable.

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