Richard B. Newman
Member
Offshore asset protection trusts and companies are often promoted to affiliate marketers, in part, by holding out that they can preclude creditors from reaching the trust assets and coerce a quick settlement. While such methods can sometimes serve as the asset protection roadblocks that they are intended to be, marketers are well-advised to consider the potential negative legal implications of such structures.
The obvious.
The Internal Revenue Service imposes strict reporting requirements upon U.S. taxpayers with offshore trusts and companies. It is unlawful to fail to report all worldwide sources of income, including foreign accounts and details of where each account is located.
Just this week, the U.S. Department of Justice announced that three California residents were sentenced to prison for hiding millions of dollars in secret foreign bank accounts. “IRS-CI will continue to devote resources to investigate individuals who engage in these types of schemes for the purpose of personal gain by defrauding the U.S. Treasury and the American taxpayer,” said Chief Richard Weber of Internal Revenue Service Criminal Investigation (IRS-CI).
The not so obvious.
There are legitimate risks associated with offshore-related strategies, including complex foreign trusts and family-owned companies and partnerships. This is especially true if they are implemented primarily to frustrate, hinder, delay or impede U.S. courts, and serve no economic purpose other than to avoid garnishment.
Federal government investigations increasingly seek more detailed information about offshore trusts, investments and companies in which U.S. citizens possess interests. FTC inquiries can include, without limitation, whether the activities that generated offshore revenue violated applicable laws, rules and regulations.
Aggressive, complicated schemes in countries that are notorious for anti-creditor policies are not viewed with judicial favor.
Consider the matter of FTC v. Affordable Media, involving a debtor who created a foreign asset protection trust in the Cook Islands prior to any legal problems and was jailed for refusing to repatriate assets.
Or the matter of FTC v. Direct Benefits Group, LLC, wherein the court ordered the defendants to provide a full accounting of all funds and assets outside of the territory of the United States which were held either by the defendants, for the benefit of the defendants, or under direct/indirect control of any of the defendants. The court also ordered all offshore funds repatriated without regard to any documents or legal structures.
Bear this in mind.
It is extremely difficult to obtain a distribution for the settlor’s benefit when a duress event occurs with foreign asset protection trusts. Therefore, a creditor (e.g., the Federal Trade Commission) can just hang out patiently and permit interest to grow on a judgment, all the while preventing the debtor and the debtor’s family from benefitting from any of the funds in question.
Legal concerns, such as being found in contempt of court, can create a virtual standoff.
It is also worth noting that creditors often seek to use otherwise exempt assets if they cannot collect due to the debtor placing other assets outside of reach. Creditors also often summon a debtor to examinations requiring the latter to establish how legal, business and living expenses are being satisfied.
One should deliberately consider the true value of a foreign asset protection plan if, when trouble arises, one will have no means to support/defend himself or is unwilling to leave the country permanently to avoid the contempt power of the U.S. courts.
Foreign asset protection trusts do not necessarily diminish the authority of a United States court over the settlor or beneficiaries, or preclude a remedy in the U.S., such as imprisonment, charges for obstruction of justice and conspiracy to obstruct justice, the denial of discharge, aiding and abetting, and fraud.
U.S. and foreign authorities may also cooperate in investigating cross-border conduct that impacts U.S. consumers.
Sometimes, a traditional domestic irrevocable estate planning trust is the smartest play of all.
Foreign asset protection hype comes with premium prices and risks.
Ask yourself this. Could you explain the asset planning protection vehicle to a judge with a straight face?
Follow the author on Twitter, at FTC Compliance Attorney.
ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.
The obvious.
The Internal Revenue Service imposes strict reporting requirements upon U.S. taxpayers with offshore trusts and companies. It is unlawful to fail to report all worldwide sources of income, including foreign accounts and details of where each account is located.
Just this week, the U.S. Department of Justice announced that three California residents were sentenced to prison for hiding millions of dollars in secret foreign bank accounts. “IRS-CI will continue to devote resources to investigate individuals who engage in these types of schemes for the purpose of personal gain by defrauding the U.S. Treasury and the American taxpayer,” said Chief Richard Weber of Internal Revenue Service Criminal Investigation (IRS-CI).
The not so obvious.
There are legitimate risks associated with offshore-related strategies, including complex foreign trusts and family-owned companies and partnerships. This is especially true if they are implemented primarily to frustrate, hinder, delay or impede U.S. courts, and serve no economic purpose other than to avoid garnishment.
Federal government investigations increasingly seek more detailed information about offshore trusts, investments and companies in which U.S. citizens possess interests. FTC inquiries can include, without limitation, whether the activities that generated offshore revenue violated applicable laws, rules and regulations.
Aggressive, complicated schemes in countries that are notorious for anti-creditor policies are not viewed with judicial favor.
Consider the matter of FTC v. Affordable Media, involving a debtor who created a foreign asset protection trust in the Cook Islands prior to any legal problems and was jailed for refusing to repatriate assets.
Or the matter of FTC v. Direct Benefits Group, LLC, wherein the court ordered the defendants to provide a full accounting of all funds and assets outside of the territory of the United States which were held either by the defendants, for the benefit of the defendants, or under direct/indirect control of any of the defendants. The court also ordered all offshore funds repatriated without regard to any documents or legal structures.
Bear this in mind.
It is extremely difficult to obtain a distribution for the settlor’s benefit when a duress event occurs with foreign asset protection trusts. Therefore, a creditor (e.g., the Federal Trade Commission) can just hang out patiently and permit interest to grow on a judgment, all the while preventing the debtor and the debtor’s family from benefitting from any of the funds in question.
Legal concerns, such as being found in contempt of court, can create a virtual standoff.
It is also worth noting that creditors often seek to use otherwise exempt assets if they cannot collect due to the debtor placing other assets outside of reach. Creditors also often summon a debtor to examinations requiring the latter to establish how legal, business and living expenses are being satisfied.
One should deliberately consider the true value of a foreign asset protection plan if, when trouble arises, one will have no means to support/defend himself or is unwilling to leave the country permanently to avoid the contempt power of the U.S. courts.
Foreign asset protection trusts do not necessarily diminish the authority of a United States court over the settlor or beneficiaries, or preclude a remedy in the U.S., such as imprisonment, charges for obstruction of justice and conspiracy to obstruct justice, the denial of discharge, aiding and abetting, and fraud.
U.S. and foreign authorities may also cooperate in investigating cross-border conduct that impacts U.S. consumers.
Sometimes, a traditional domestic irrevocable estate planning trust is the smartest play of all.
Foreign asset protection hype comes with premium prices and risks.
Ask yourself this. Could you explain the asset planning protection vehicle to a judge with a straight face?
Follow the author on Twitter, at FTC Compliance Attorney.
ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.
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