We are frequently asked by clients and fellow professionals for examples of offshore asset protection plans withstanding creditor attacks. The truth is that properly drafted and implemented asset protection plans are rarely, if ever, breached by creditors. But you only really hear about them when they fail. So, if there are tens of thousands of successful offshore asset protection trusts, why are there not more examples of their effectiveness?
Most structures are never attacked.
Asset protection structures are analogous to insurance policies. While many policies exist, there are only few that have claims. Trusts work the same way in the sense that few are ever used to protect the client. Most trusts exist to protect from unexpected claims.
Adding to that, the very existence of such a structure often discourages a creditor from pursuing legal action. The disclosure of the existence of an offshore asset protection plan will often make a creditor rethink their strategy. While no statistics are available, our experience shows that less than 10 percent[i] of our clients ever have a claim from a creditor. As a result, most structures never come under attack
Settlements are common.
If less than 10 percent of clients ever have a creditor claim, less than 1 percent of clients have a claim that results in execution on a judgment (a court order to seize unprotected assets). This is primarily due to the fact that offshore asset protection structures put the client in an excellent bargaining position. When faced with the impossibility of attacking assets in an offshore trust, creditors often accept settlements for pennies on the dollar. The aggressive, uneducated, ill-advised or emotionally driven creditor may still reject any settlement offers and pursue the suit regardless of the impossibility of pulling back assets from a properly implemented offshore trust.
Most cases are not published.
A case is typically published when, at the appellate level, it is impactful on a specific issue. Cases reiterating established law and decided before appeal are rarely published and are not widely circulated among the legal and scholarly communities. The law pertaining to offshore asset protection trusts is long established and litigated. As such, the most commonly published cases are ones where an error in the planning on the part of practitioner results in the court’s need to decide on a previously unreviewed area of the law.
Creditors do not want their weaknesses advertised.
Most clients have no interest in publicizing their success in court. Creditors have even less. The last thing an aggressive creditor wants is to lay out a blueprint to defeating claims and forcing settlements. For these reasons, creditors are careful to avoid media attention, and often require confidential settlements.
Because of the lack of coverage of asset protection success stories, we will take it upon ourselves to document the different ways these trusts have helped our clients. Our newly announced series, “Asset Protection Success Stories,” will focus on individual client success stories. Each article will feature a unique issue pertaining to offshore planning, the type of assets protected or the nature of the creditor attacks. Our hope is that the advisor community at large will benefit from this shared knowledge and more carefully consider the asset protection options in their advisory toolboxes.
[i] This number may seem high to other professionals, but because of our experience and qualifications, we are sought out by high-risk professions like small business owners, doctors, real estate investors and fellow attorneys. As such, the percentage of our clients facing creditor claims may be higher than others in the field.