Will I Go to Jail for Setting Up a Cook Islands Trust?

Overview

Critics frequently claim that offshore trusts lack effectiveness as asset protection mechanisms. However, a careful examination of case law reveals a more nuanced reality. Leading offshore trust decisions do not demonstrate that such trusts are inherently invalid. Rather, they illustrate consequences arising from late implementation, poor structuring, retained settlor control, or bad faith conduct.

Courts in cases like FTC v. Affordable Media, In re Lawrence, and SEC v. Bilzerian did not invalidate the trusts themselves. Instead, they exercised personal jurisdiction over settlors, applied contempt doctrines, and responded to evidence of continued control or non-disclosure. The individuals were sanctioned — the trusts remained intact.

Properly established offshore trusts — implemented in advance of claims, administered by independent trustees, and governed by jurisdictions that do not recognize U.S. judgments — remain among the most robust tools available for lawful asset protection.

Summary of Key Points

• No reported case involved a court piercing a properly structured trust established before creditor claims arose.
• Adverse outcomes traced to: retained grantor control, post-judgment transfers, criminal conduct, or concealment.
• U.S. courts can hold debtors in contempt but cannot compel foreign trustees to release assets.
• Creditors typically win judgments, discover offshore assets are unreachable, and settle for reduced amounts.
• Proper structure and timing determine whether protection holds.

Case Analysis

FTC v. Affordable Media, LLC (The Anderson Case)

Critics cite this case as proof offshore trusts "do not work." The court did not hold that such trusts are per se ineffective. Rather, it affirmed civil contempt because defendants failed to prove compliance with repatriation orders was impossible.

The Ninth Circuit found the Andersons retained control over the Cook Islands trust. As the court stated, "in the judgment of the Court [the Andersons] are in control."

The critical problem was retained powers as protectors with authority to appoint trustees and determine whether "events of duress" occurred. Where protector powers extend beyond negative veto rights, "a protector can be compelled to exercise control over a trust."

Takeaway: The case does not establish that offshore trusts are inherently ineffective. It shows that settlors cannot defeat court orders while retaining practical control. A properly structured trust with genuinely independent trustees and no retained affirmative control may present materially different enforcement issues.

In re Lawrence

Cited as an offshore trust "failure," this decision actually turned on retained control and failed impossibility defenses.

The Eleventh Circuit affirmed turnover and contempt orders because the trust was self-settled and subject to the debtor's de facto control. Although Mr. Lawrence was declared an "excluded person," he retained power to appoint trustees who could reinstate him as beneficiary with "absolute discretion."

The court acknowledged it could not compel the offshore trustee itself to act. Rather, it exercised personal jurisdiction over the debtor. Once the trust was adjudicated property of the bankruptcy estate, Mr. Lawrence had a "continuing statutory duty" to turn over the trust assets.

Takeaway: The trust was not pierced at the trustee level. The grantor's retained powers and inconsistent structuring undermined the arrangement. A properly structured offshore trust with genuinely severed control from the settlor would present materially different enforcement issues.

SEC v. Bilzerian

The court did not find offshore trusts inherently unlawful or invalid. It focused on "Bilzerian's individual conduct," his lack of good-faith compliance, and continued control following judgment.

After a $62 million disgorgement judgment, Bilzerian made no meaningful effort to comply and failed to provide full asset accounting. He routed assets through complex entities and trusts while retaining beneficial enjoyment and effective control.

The court described the offshore trust as "the apex of the complex ownership structure," but based its contempt finding on Bilzerian's bad faith, not the trust's intrinsic failure.

Takeaway: Offshore trusts do not shield individuals from contempt where they retain sufficient control to influence or benefit from assets. Effectiveness depends on genuine relinquishment of control and lawful, good-faith implementation.

SEC v. Jamie Solow

The Eleventh Circuit affirmed civil contempt findings for failing to comply with disgorgement judgments — not for offshore trust invalidity.

After the adverse judgment, Solow liquidated over $1.5 million in securities, transferred funds to accounts in his wife's name, and encumbered the marital residence with a $5.2 million mortgage. Proceeds funded a Cook Islands trust established in his wife's name while Solow claimed inability to pay.

The court found any inability was self-created through post-judgment asset transfers designed to frustrate enforcement. The timing was central: the offshore trust and transfers occurred after judgment when obligations were fixed and known.

Takeaway: Offshore structures do not shield individuals from contempt where created or funded post-judgment and used in bad faith. Asset protection planning cannot substitute for compliance with existing legal obligations.

In re Portnoy

The bankruptcy court found that Portnoy retained substantial influence and practical control over a Jersey trust while failing to disclose its existence. He denied the trust existed initially, failed to disclose salary diversion into his wife's account, and materially misrepresented his financial condition.

The offshore trust became relevant because Portnoy used it as part of a broader pattern of concealment and deception while continuing to benefit from trust arrangements.

Takeaway: The decision does not suggest offshore trusts are invalid when properly structured and transparently disclosed. Rather, it illustrates severe consequences following concealment, dishonesty, and maintained undisclosed control.

Fortney v. Kuipers

After an automobile accident, the Kuipers transferred substantial assets into an offshore trust while litigation was pending and before liability reduced to judgment. The court expressed concern about the timing but ultimately did not pierce the trust or unwind transfers.

The analysis focused on evidentiary access and equities rather than condemning the trust structure itself. The trust remained intact, but heightened scrutiny attached to asset protection steps taken during active litigation.

Takeaway: Timing is critical in asset protection planning. While courts respect properly formed offshore structures, implementing them after events giving rise to potential liability attracts heightened scrutiny and unfavorable inferences.

Riechers v. Riechers

The court did not invalidate or pierce the offshore Cook Islands trust. Rather, it focused on the nature of transferred assets and exercised personal jurisdiction over the spouse, not the trust corpus.

The Riechers Family Trust was funded almost entirely with marital assets. Although governed by Cook Islands law and beyond the court's in rem jurisdiction, the court retained in personam jurisdiction over the spouse who established it.

The court held that assets transferred into the offshore trust did not lose their marital character merely because placed beyond the court's reach. One-half of the transferred assets' value was subject to equitable distribution, enforceable against the spouse personally.

Takeaway: While offshore trusts may be beyond a court's direct jurisdiction, courts can achieve equitable outcomes through in personam authority over individuals who control or benefit from such structures.

In re Marriage of Harnack

The Illinois Appellate Court's intervention was strictly limited to clarifying the trial court's intent regarding property distribution. The court expressly rejected broader post-judgment relief and reaffirmed that remand was limited to clarification rather than reconsideration of substantive rights.

Takeaway: This case reflects routine appellate supervision of domestic relations proceedings addressing ambiguity in post-judgment implementation rather than misconduct tied to asset protection planning.

United States v. Thompson

The court addressed efforts to conceal assets derived from recovered gold coins taken from a shipwreck subject to competing ownership claims. After recovery, Thompson transferred assets into a Belize trust and refused to disclose property location despite court orders.

The case did not involve lawful asset protection planning. It centered on willful concealment, non-disclosure, and defiance of court authority in forfeiture proceedings.

Takeaway: Offshore structures cannot be used to hide assets subject to court jurisdiction or evade legal duties.

United States v. Butselaar

The Southern District of New York addressed criminal tax evasion where a tax attorney helped a high-earning DJ conceal millions in income through offshore entities and trusts. The conduct involved deliberate misreporting, false structures, and concealment of taxable income.

This was a criminal prosecution, not a civil asset protection dispute. The offshore arrangements were part of an unlawful tax evasion scheme.

Takeaway: Trusts cannot be used to disguise income, evade taxes, or obstruct lawful reporting obligations.

United States v. Jerome Schneider

Schneider was criminally prosecuted for promoting sham offshore banks and fictitious financial institutions as tools to evade U.S. taxation. He faced wire fraud and conspiracy charges after promoting structures with no legitimate banking or trust function.

This case involved outright fraud and false representations to clients, not asset protection trusts or lawful offshore planning.

Takeaway: Offshore entities used as part of fraudulent or deceptive schemes are instruments of crime, not legitimate legal structures.

SEC v. Brennan

The SEC pursued enforcement actions arising from securities law violations, examining offshore structures in the context of concealment of fraud proceeds and enforcement evasion.

The court's concern was not offshore trusts per se, but whether defendants attempted to hide or retain benefits of unlawful activity.

Takeaway: Offshore trusts cannot conceal ill-gotten gains or avoid regulatory consequences.

SEC v. Greenberg

The SEC obtained a final securities law judgment against Keith Greenberg for disgorgement and penalties. Years later, evidence showed Greenberg lived an extravagant lifestyle inconsistent with claimed inability to pay.

The inquiry focused on noncompliance and potential asset concealment rather than trust legality. Courts examine beyond formal arrangements when evidence suggests asset diversion to avoid satisfying judgments.

Takeaway: Evidence of undisclosed asset concealment influences outcomes more than offshore trust involvement alone.

United States v. Grant

The government sought to collect substantial unpaid federal tax liabilities. Mr. Grant owed significant income taxes while offshore trusts were funded and established. Litigation focused not on formal trust validity, but whether assets were controlled and diverted to frustrate tax collection.

A central issue was Mrs. Grant's retained powers and practical control over trusts, particularly her ability to influence distributions. The court found that despite offshore situs and formal trustee structure, trust assets were repeatedly transferred into accounts associated with Mrs. Grant's family, and "Mrs. Grant directs how these funds are used."

The court found Mrs. Grant violated a prior Repatriation Order and failed to show cause. She "clearly violated the Repatriation Order" and was held in civil contempt. The court emphasized that trust assets continued being dissipated after judicial intervention, causing irreparable harm through post-judgment asset dissipation subject to federal tax liens.

Takeaway: The offshore trust itself was not deemed ineffective or invalid. The court focused on Mrs. Grant's retained control, post-judgment conduct, and order violations. Enforcement measures were directed at Mrs. Grant personally based on findings that she continued directing trust distributions and dissipating encumbered assets after judicial intervention.

U.S. v. Plath

The court found Mr. Plath in civil contempt for failing to comply with IRS summonses and a court order directing document production. The contempt finding was based on investigatory demand noncompliance, not offshore entity use.

The court treated sanctions as coercive rather than punitive, emphasizing that incarceration could continue only until compliance was achieved. The contemnor "carries the keys of his prison" by choosing whether to comply.

Takeaway: The case does not reflect offshore planning failure. It illustrates consequences of refusing IRS summons compliance and court order obedience.

Eulich v. United States

The IRS sought documents and testimony relating to a Bahamian trust and related entities. The taxpayer resisted summons compliance.

The court rejected challenges and enforced summonses, reiterating that the IRS need only show legitimate investigatory purpose, information relevance, and administrative requirement compliance. Once shown, the burden shifts to the taxpayer. The court found no basis to excuse noncompliance and ordered enforcement notwithstanding the foreign trust structure.

Takeaway: Foreign trusts and entities do not shield relevant records from IRS summons authority. Taxpayers must produce evidence responsive to summonses.

FTC v. AmeriDebt Inc.

The FTC pursued enforcement alleging violations of Section 5 of the Federal Trade Commission Act. AmeriDebt engaged in deceptive acts and practices marketing debt-management services to financially distressed consumers.

The court found substantial evidence of AmeriDebt's misrepresentation of material service aspects, including fee nature and amount, affiliated entity roles, and consumer benefit expectations.

Takeaway: This consumer protection case focused on financial services marketing truthfulness and transparency, not offshore entities or asset protection structures.

United States v. Rogan

This case arose under the False Claims Act concerning a hospital administrator's role in submitting false Medicare and Medicaid reimbursement claims.

The government alleged and the court found that Rogan participated in a scheme concealing illegal physician referral arrangements and kickbacks in violation of the Stark Amendment and Anti-Kickback Act, while the hospital submitted claims failing to disclose violations.

Takeaway: This involved domestic healthcare fraud and false claims to government, not offshore trusts or asset protection structures. Offshore trusts cannot legitimize, conceal, or avoid liability for illegally obtained funds.

Indiana Investors v. Victor Fink

The defendant transferred assets into a domestic trust structured to allow future offshore control shift upon legal threats. Before transfer occurred, plaintiffs obtained temporary restraining orders freezing accounts and preventing control migration.

The case highlights that until trust administration and control actually move offshore, U.S. courts retain full authority over trustees, protectors, and financial institutions within jurisdiction. The trust remained vulnerable because control had not yet left the United States.

Takeaway: Asset protection strategies relying on future offshore transfers are ineffective until implemented and remain subject to U.S. court orders in the interim.

Gilmore Bank v. AsiaTrust New Zealand Ltd.

The California Court of Appeal held that California courts could exercise specific personal jurisdiction over AsiaTrust, a New Zealand trust company, based on purposeful and ongoing California resident contacts. AsiaTrust had "created continuing obligations between itself and California residents, purposefully directed its activities towards California residents, and purposefully derived benefits from its activities."

AsiaTrust drafted and negotiated trust documents with California trustees and counsel, communicated regularly by email and telephone with California residents, invoiced and received fees in California, and repeatedly wired trust funds into California bank accounts pursuant to California-based trustee instructions.

The decision did not involve invalidating or "defeating" an offshore trust. Rather, the holding was jurisdictional: because AsiaTrust purposefully availed itself of benefits from conducting trust business with California residents, it could be required to defend itself in California litigation. Exercising jurisdiction was fair and reasonable given California's interest in enforcing judgments and plaintiffs' interests in effective relief.

Takeaway: Offshore trust companies conducting substantial business with U.S. residents may be subject to U.S. personal jurisdiction arising from those activities.

The Real Patterns of Failure

The cited cases reflect not FAPT law failures, but execution failures.

Retained Control / Self-Created Impossibility

Some cases involve settlor-retained control or creating impossible-to-support defenses while controlling assets. FTC v. Affordable Media exemplifies this. Debtors were trust protectors, lied under oath, and retained asset repatriation power. No serious FAPT professional structures trusts this way today.

Fraudulent Transfers After Legal Trouble

Transferring assets offshore after lawsuits, bankruptcies, or judgments guarantees failure, regardless of domestic or foreign trust status. Cases like In re Portnoy and Fortney v. Kuipers failed because transfers were fraudulent, not because trusts were offshore.

Criminal Acts / Divorce / Tax Fraud

Courts are unsympathetic in cases involving criminal fines, restitution orders, or divorce settlements. Domestic asset protection trusts (DAPTs) would not have withstood these situations either.

U.S. Contempt Power Over the Debtor

A common misconception holds that U.S. courts can compel foreign trustee asset release. They cannot. When U.S. courts jail debtors, it pressures compliance, not to compel trustee action. The trust does its job: assets remain offshore. Whether debtors sit in jail or request repatriation is their choice, not a legal trust failure.

The Jurisdictional Advantage

Domestic trusts remain under U.S. jurisdiction and subject to U.S. court orders. Domestic judges can compel reaching trustees to turn over assets — a significant vulnerability. Offshore trusts add jurisdictional insulation. While courts can hold people in contempt, they cannot compel foreign trustees governed by another country's laws to act.

From a pure asset protection standpoint, offshore trusts — when timely and properly set up — offer significantly stronger protection than domestic trusts. The case law does not contradict this; it reinforces the need for proper planning regardless of jurisdiction.

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