T & T: Let us start by thanking you for submitting the latest version of the Comparative Grid. Your Grid certainly provides an excellent overview of the various points which those who favour legislative specificity should look for in a given country's APT law.

ENGEL:You're welcome. The concept of legislative certainty was first introduced to your readers in an article of mine that appears in Volume I. Number 9, of Trusts & Trustees. That article should be read in conjunction with a review of the Grid, which is to be reproduced along side the text of this interview.

T & T: Now, as we previously discussed, during the course of this interview we very much wish to get to the heart of, shall we say, the somewhat mild controversy which exists over whether statutory specificity is a good thing in the APT context. Do you have some initial comments to make on this?

ENGEL:My law practice involves planning. This is what I am, a planner. As a planner, I like certainty. My clients like certainty. Whenever possible I will strive to provide a client with the means by which to achieve the desired planning end. I strive to provide as much certainty as possible. Emphasis on "as possible".

I, of course, fully recognise that complete certainty exists perhaps, only in the State of Utopia. Therefore, it is important to distinguish between specificity and certainty. Statutory specificity does not translate into complete certainty. An excellent example is provided by the recent Orange Grove decision wherein the High Court of the Cook Islands held that for purposes of 13 of the Cook Islands International Trusts Act 1984, as amended, a creditor's cause of action accrues on the date a verdict enters. What this means for the plaintiffs in the Orange Grove case is that their claim is not barred by the running of the statute of limitations. Of course, the plaintiffs in that case will still need to prevail in a trial on the merits, will still need to show beyond reasonable doubt that the settlor harboured actual fraudulent intent against the plaintiffs when the transfers to the subject trust were made and will still need to show that the transfers left the settlor insolvent. Statutory specificity will assist the planner and his clients in these regards, but the point I wish to make at this time is that, as this unanticipated interpretation illustrates, statutory specificity is not tantamount to certainty. At least a modicum of uncertainty will exist whenever one's planning is subject to being second-guessed or re-analysed by third parties such as an adversary or a court. I believe acknowledging this is only being practical. This is also another way of saying that, like with everything else that is open for debate and what isn't? - there are two sides to the coin. When I flip the certainty coin, it constantly lands specificity-side up. I wish to note that the result of the Orange Grove decision, which is not exactly a model of judicial analysis, will be overridden as part of amendments to the Cook Islands trust law which are now pending.

Trusts known as Asset Protection Trusts are probably set up more often than any other type of trust and they are subject to the greatest amount of criticism and comment. TRUSTS & TRUSTEES
put some leading questions on APT's to a leading practitioner .

T & T: As you flip the certainty coin, are you concerned with the comment that it is a badge of fraud for a settlor to utilise a jurisdiction whose law is so specific and so protective?

ENGEL:No. Each case will turn on its own facts and circumstances. If an APT is settled by one who has nothing pending, threatened or expected, then in my view a court would be hard-pressed to find that fraudulent intent existed, particularly just because the choice of proper law was in favour of a country which provided thorough and protective law. More importantly, even if an aggressive advocate in the courts of Country X argues under some stretch of local law that fraudulent intent existed, under a properly designed and administered asset protection structure the assets funded into the structure can be expected to remain protected. This will particularly be the case if the trustees hold the subject assets outside the jurisdiction of Country X.

T & T: But does not utilising what may be regarded as aggressive APT law give a judge the opportunity to conclude a settlor had fraudulent intent, otherwise the settlor would not have selected such law? At least this is an argument I hear advanced by professionals in offshore financial centres such as the Isle of Man and Jersey.

ENGEL:I believe that in the mind of many judges, simply going offshore would be a badge of fraud. That judge is not going to be persuaded simply because, say, Jersey law was selected as the proper law rather than Bermuda.

T & T: Concerning your point about the trustees holding the subject assets outside the jurisdiction of Country X, need not the court in that circumstance merely threaten to hold the settlor in contempt of court
if the settlor does not repatriate the assets to Country X?

ENGEL:You are assuming that the settlor would have the power to repatriate the assets.

The academic answer is that one cannot be held in contempt of court for failing to produce what it is impossible to produce. Under a proper structure this is not a power the settlor would have.

The practical answer is that economics drive the litigation machine, at least in America which accounts for a disproportionate amount of the world's APT business. Having been involved in approximately 50 APT cases wherein some form of challenge or controversy developed subsequent to the settlement and funding of the APT - about 5 per cent of the cases in which I have been involved as a planner - I can assure you that cases involving a challenge tend not to go this far as it is simply uneconomic for them to proceed to this point.This is particularly the case given the likely result.

T & T: By "likely result" you mean ...

ENGEL:By likely result I mean the adversary not being able to access the protected assets and the settlor not being held in contempt of court for failing to be able to repatriate the assets. It should be superfluous for me to state that this, of course, assumes a structure that is properly planned, properly funded, properly implemented, and properly administered.

T & T: We are interested in your point about a challenge tending not to go too far. Can you tell us more about this?

ENGEL:Simply stated, and recognizing that economics drive litigation, the wind in an adversary's sails is often knocked out if the adversary is deprived of its ability to threaten the defendant with a legal shakedown designed to force a settlement. I know this very well, for I have seen on many occasions the favourable result which can be produced by merely providing opposing counsel with a copy of the applicable protective and specific statutes. And this, I hasten to add, is another benefit of specificity, that is, the impact it has on an adversary.

T & T: How would you respond to the comment that some of the aggressive jurisdictions have simply "gone too far" with the protection provided?

ENGEL:One man's "too far" is another man's "not far enough". No doubt, the drafters of the Cayman Island's APT provisions, which provide for a six year statute of limitations on challenging transfers to an APT, feel that the four year statute generally found among most of the states in the US goes "too far". The drafters of these provisions likely feel the same about the three year statutes that can be found in a few US states like Louisiana, Delaware and Maryland. The drafters of the law in these states likely feel the same about the two year statutes that appear under Cook Islands law, Bahamian law, and elsewhere. For all I know, the drafters of these provisions feel the same about the one-year statutes that appear under the US Bankruptcy Code and Liechtensteinian law. Then, of course, there are the jurisdictions like Belize and Gibraltar which claim one can achieve "instant protection" due to there being no applicable statute of limitation.

The comment has also been made that some of the provisions to be found in modern-day trust legislation "go too far" by allowing a settlor to retain certain degrees of benefit under, or control over, a trust once settled, or by providing that foreign judgments and court orders will not be recognized. These are attributes which are not entirely inconsistent with American trust law, and which advisors in many offshore financial centres have for years claimed exist under their law. However, in most situations the attributes appear to exist as a matter of lore rather than as a matter of law. In other words, no authority or precedent can be provided to buffer the claimed position. All that a number of OFCs have done through their asset protection-style provisions is to cover these attributes as a matter of statutory specificity - to turn lore, or perhaps custom, into law.

As a planner, I feel that if protective law is available to my clients, then I should take advantage of it without making moral judgments like "Country Y's statute of limitations is too short", or "Country Z's provisions allow a settlor too much benefit".

This leads to an important point I would like to make about the Comparative Grid. Your readers should keep in mind that the various items which are "x'd" are not weighted. Thus, for example, the Grid reflects that the Cayman Islands and the Bahamas both have a specific statute of limitations on challenging transfers to a trust. However, the Grid does not reflect that the period is six years in the Cayman Islands, and two years in the Bahamas.

T & T: I certainly take your comment about one man's "too far" being another man s "not far enough". Are you concerned over a court finding that a trust settled pursuant to the law of a particular OFC fails to any longer resemble a trust?

ENGEL:This does not concern me, assuming that the trust is properly structured and administered. Each case will turn on its own facts and circumstances. What will matter to a court will be the terms of the particular instrument, and not how much broader the particular instrument could have been drafted under the applicable law. Moreover, the decision of a given court may be of little to no concern if the court does not have jurisdiction over the trustees of the assets.

Having said this, I know that a carefully crafted APT will accomplish the twin goals of protection for the assets and flexibility for the settlor, and will satisfy the provisions of the selected law as well as the provisions of the settlor's home country. For example, with regard to my American clients, I take comfort in knowing that, as noted earlier, as a matter of American trust law it is certainly not inconsistent with the concept of the trust for its settlor to retain certain degrees of control over, or benefit under, the trust once
settled.

T & T: Finally, let me ask about whether it makes sense to use a civil law foundation, or Stiftung, rather than a trust, if a client has asset protection goals in mind. For example, the claim has been made that a family foundation under Isle of Man law could be founded, and as no adverse precedent exists in the US with regard to rights retained by the founder, the structure would be more protective.

ENGEL:I do not believe this to be sound advice. To me, this suggests that since a very small risk exists that a court may not recognize
an APT as a trust, one should use a planning vehicle we all know from the outset will not be recognized as a trust, and for which there is little to no statutory law or case law in the home jurisdiction to guide the planner and the client. Where does this leave us on the certainty continuum? While foundations do have their place on the ladder of asset protection planning tools, it would be a rare case when I would advise a client to use a foundation in lieu of an APT.

Provisions

* presently
  undetermined

Jurisdiction

(i)
Statutory
recogni
tion of
different
classes
of
creditors
(ii)
Specific
Statute
of
Elizabeth
override
provis-
ions
 
(iii)
Statute
of
Limitat-
ions on
challeng-
ing an
APT
(iv)
Statutory
certainty
that
settlor
can be a
bene-
ficiary
(v)
Statutory
certainty
that
Settlor
can
retain
some
degree of
control
(vi)
Statutory
certainty
regard-
ing non-
recogni-
tion of
foreign
judg-
ments
(vii)
Who has
burden
of
proving
fraud-
ulent
intent
(viii)
What
standard
of proof
is applic-
able in
establish-
ing
fraud-
ulent intent
(ix)
Trust
remains
valid if
fraud-
ulent
transfers
deter-
mined to
have
taken
place
(x)
Retro-
active
protect-
ion
afforded
immig-
rant
trusts
(xi)
Statutory
certainty
regard-
ing
require-
ments
for
freezing
assets for
an APT
(xii)
Effect or
import-
ance of
post-
transfer
solvency
(xiii)
Binding
effect of
choice
of law
(xiv)
Forced
heirship
override
provis-
ions
(xv)
Comm-
unity
property
provis-
ions
Anguilla       X X                 X  
Bahamas X X X       X   X       X X  
Belize       X X X             X X  
Bermuda X   X       X   X         X  
Cayman X X X       X   X       X X  
Cook Islands X X X X X X X X X X X X X X X
Cyprus X   X X     X           X X  
Gibraltar X X             X     X X    
Marshall Islands     X X X   X   X X   X X X  
Mauritius X X X X     X X         *    
Nevis X X   X X X X X X X   X X X X
Niue       X X X             X X  
Seychelles     X X     X X         X X  
Turks & Caicos X           X         X X X  

Seminars & Events:

April, 2017 - CELESQ
“An Asset Protection Planning Primer for Estate Planning, Tax and Creditors Rights Lawyers”
Live Web Cast
May 31 – June 1, 2017 - 

SOUTHPAC TRUST OFFSHORE PLANNING INSTITUTE CONFERENCE 2017, “Asset Protection in a Changing World” (31 May 2017) and “Questions & Answer Panel on Industry Challenges to Asset Protection Structures” (1 June 2017)
Las Vegas, Nevada

 

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Contact Information

Barry S. Engel
Email: info@engelreiman.com