The Strange Case of Dr. Jekyll and Mr. Oshins – Chapter II (Foreign vs. Domestic APTs)

By Steven J. Oshins, Esq., AEP (Distinguished)

Testing his theory that in every man dwells a good and an evil force, the reserved Dr. Jekyll develops a formula that separates the two, turning him into an argumentative estate planning attorney named Mr. Oshins who tells it like it is.  Dr. Jekyll soon realizes he is becoming addicted to his darker self as he unleashes his opinions on the estate planning industry.

In Chapter I, Dr. Jekyll tackled the issue of whether Uniform Acts are good or bad.  In Chapter II, Dr. Jekyll tackles the issue of which are better – Foreign Asset Protection Trusts (“FAPTs”) or Domestic Asset Protection Trusts (“DAPTs”)?  As expected, Mr. Oshins will provide a different view of the issue than that of Dr. Jekyll.

Dr. Jekyll’s View:  Foreign Asset Protection Trusts are Better

Very simply, a FAPT is an asset protection trust established under the laws of a foreign jurisdiction that has statutes allowing a person to set up an asset protection trust in which that person is a discretionary beneficiary of the trust.  A DAPT is the equivalent, but is set up using the statutes of one of the 17 United States jurisdictions that allows these types of trusts.

Although Mr. Oshins would almost certainly disagree, a FAPT is more protective than a DAPT because the United States courts do not have jurisdiction over trusts sitused in a foreign jurisdiction, whereas under the Full Faith and Credit Clause of the Federal Constitution, a judgment in one state must be recognized by another state.  Because of this fact, DAPTs set up by residents of non-DAPT states don’t work.  They never have and they never will!

Mr. Oshins’ View:  Domestic Asset Protection Trusts are Better

Dr. Jekyll has it all wrong!  Let’s look at the scoreboard!

DAPTs just celebrated the 20th Anniversary since the first DAPT statute was effective on April 2, 1997.  And in 20 years, there still is not even one court case in a non-bankruptcy, non-fraudulent conveyance situation where a creditor got a judgment or settlement and then went to the DAPT jurisdiction and actually took assets out of a DAPT.  In other words, DAPTs have a perfect record…at least so far.

On the other hand, although there must be thousands of unreported favorable settlements where FAPTs have worked brilliantly, unlike DAPTs, which have a perfect record, there are many FAPT court cases that have gone south.  Here are many of them (which I am paraphrasing from descriptions contained at the McCullough Sparks’ website at http://www.assetprotectionatty.com/court-cases-defeating-offshore-trusts):

*In re Colburn (1992) – Debtor in bankruptcy denied a discharge and accused of fraud for not disclosing offshore trust

*Brown v. Higashi (1995) – Assets of offshore trust included in bankruptcy estate

*In re Portnoy (1996) – Bankruptcy denied and debtor accused of fraud

*FTC v. Fortuna Alliance (1997) – U.S. District Court issued arrest warrants to debtors

*Riechers v. Riechers (1998) – FAPT assets included in marital estate for divorce purposes

*Westrate v. Westrate (1998) – FAPT assets included in marital estate for divorce purposes and husband accused of fraud and threatened with criminal penalties

*In re Brooks (1998) – Assets seized by U.S. court

*FTC v. Affordable Media (1999) – Debtors jailed for refusing to repatriate assets

*SEC v. Brennan (2000) – Debtor convicted of bankruptcy fraud

*SEC v. Bilzerian (2001) – Debtor jailed for refusing to repatriate assets

*In re Lawrence (2002) – Debtor jailed for more than six years for refusing to repatriate assets

*Bank of America v. Weese (2002) – Debtors avoided prison by paying a settlement of more than $12 million

*BankFirst v. Legendre (2002) – Debtor jailed for contempt until assets were turned over five days later

*Breitenstine v. Breitenstine (2003) – Assets included in property division in adivorce

*U.S. v. Plath (2003) – Debtor held in contempt for refusing to disclose offshore accounts

*Eulich v. U.S. (2004) – Debtor found in contempt and threatened with fines and imprisonment

*FTC v. AmeriDebt (2005) – Debtor found in contempt and threatened with fines and imprisonment

*Morris v. Morris (2006) – Debtor found in contempt and threatened with fines and imprisonment

*Morris v. Wroble (2006) – Debtor found in contempt and threatened with fines and imprisonment

*Barbee v. Goldstein (2006) – Debtor in bankruptcy incarcerated for contempt until finally agreeing to terminate the trust and repatriate the assets

*Chadwick v. Green (2009) – Debtor did 14 years in jail for contempt until judge finally released him

*SEC v. Jamie Solow (2010) – Debtor jailed for contempt for refusing to repatriate assets

*FTC v. Direct Benefits Group, LLC (2011) – Court ordered all offshore funds repatriated

*Advanced Telecommunication Network, Inc. v. Allen (2011) – Debtor held in contempt

*U.S. v. Rogan (2012) – Debtor ordered to turn over the FAPT assets, but then debtor has since fled the country and was indicted for perjury, obstruction of justice and conspiracy to obstruct justice

*Indiana Investors, LLC v. Hammon-Whiting Medical Center, LLC (20__) – Plaintiffs were able to obtain temporary restraining orders which prevented the trustees and protectors from shifting the control to an offshore trustee and the bank accounts were all frozen

*Indiana Investors, LLC v. Victor Fink (20__) – Plaintiffs were able to obtain temporary restraining orders which prevented the trustees and protectors from shifting the control to an offshore trustee and the bank accounts were all frozen

*US v. Grant (2013) – The court issued a permanent injunction prohibiting the settlor’s wife and children from receiving any benefits from the settlor’s foreign trusts after the IRS obtained a $36 million judgment against the settlor’s wife

*Gilmore v. AsiaTrust New England Ltd. (2014) – California court of appeals found personal jurisdiction over the offshore trust company and could sue in California

*SEC v. Greenberg (2015) – The court held the debtor in contempt

Dr. Jekyll/Mr. Oshins – Asset Protection and the “Fear Factor”

Amazingly, there is one thing that both Dr. Jekyll and Mr. Oshins agree about – the so-called “fear factor”.

Many people misunderstand the primary goal of asset protection.  You don’t judge an asset protection technique solely on whether there are court cases approving or disapproving it.  One of the most fundamental concepts in asset protection planning is that very few disputes go all the way through the court system.  Therefore, it is often the “fear factor” that determines the result.

Is the creditor more afraid of the uphill battle that will be necessary to break through the asset protection structure?  Or is the debtor more afraid that the asset protection structure has holes in it?  Because neither party typically wants to take a big risk, just about any asset protection structure generally results in a very favorable settlement for the debtor.  But the key is to do SOMETHING.  Too many planners do NOTHING which by definition results in a 100% chance of failure.

And with that, Mr. Oshins transformed back into Dr. Jekyll.


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ABOUT THE AUTHOR

Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at [email protected] or at his firm’s website, www.oshins.com.


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