A Matter of Timing

The Model Offshore Trust you establish today can be absolutely invulnerable to claims against you that arise solely from events and circumstance that occur after you have funded the Trust.

Fraudulent Disposition

Even if a creditor goes to the effort and expense of establishing a claim against you in a court in the Trustee’s jurisdiction, he hasn’t done enough to reach the assets of your Trust. He also must prove that your transfer to the Trust was a “fraudulent disposition” (or “fraudulent conveyance” or “fraudulent transfer”) and so should be set aside for his benefit.

Depending on the jurisdiction of your Trust, three questions would be in play:

  • Was frustrating creditors your purpose in making the transfer to the Trust?
  • Did your transfer to the Trust occur after the creditor acquired his claim against you?
  • Did the creditor bring his legal action against the Trust soon enough under the laws of the jurisdiction?

Intention. The creditor may need to persuade a court where your Trust is located that your purpose (or dominant purpose or primary purpose) for transferring property to the Trust was to place it beyond the reach of creditors in general or the creditor in question.

Generally, it is more difficult for a creditor to succeed at this if you have purposes for establishing the Trust other than creditor protection — such as income tax advantages, estate tax advantages, privacy, professional investment management, international diversification and protection against changes in public policy in the United States. Every one of those purposes can be served by a Model Offshore Trust.

Timing of debt. The creditor generally must show that you incurred an obligation to him before the transfer to the Trust or that the obligation was reasonably foreseeable at the time of the transfer.

Timing of attack. The creditor must begin his legal action against the trust before the relevant statute of limitations has run.

The rules about fraudulent disposition differ greatly from jurisdiction to jurisdiction. Some countries are distinctly more unfriendly to creditor attacks than others. Choose a jurisdiction for your Trust with a high standard for proving a claim of fraudulent conveyance and you can be confident that no transfer to the Trust that you make while you are solvent can ever be set aside by a creditor.

 

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