The Impact of the Anderson Case on Asset Protection Planning

By Robert J. Mintz
© Copyright 2000, 2002 Robert J. Mintz

The recent case of FTC vs. Affordable Media (known as the Anderson case) raises several important points regarding asset protection planning:

1. For many  individuals, an offshore arrangement may be a valuable and legitimate component of a plan to protect assets from unforeseen liabilities arising in the future. When property is held outside the jurisdiction of the U.S. courts the level of protection for that property is enhanced and the leverage to negotiate a favorable settlement of a dispute is significantly increased. It is difficult to seriously argue that point. However, a Foreign Asset Protection Trust (FAPT)--or any type of asset protection planning-- is not useful, appropriate or ethical if you are intending to engage in criminal or fraudulent activities,  seeking to evade taxes or other legitimate obligations or attempting to "hide" property from a spouse.
   
   
2. When a Foreign Asset Protection Trust is used in the permitted manner, it is important that the trust agreement is drafted so that you will not be regarded as holding impermissible powers or rights. In Anderson, the District Court determined that the defendants had the legal ability to repatriate trust assets. That is, based upon the evidence presented in the case, the factual finding of the Court was that the defendants had the power to retrieve the funds in the offshore trust at any point. They were held in contempt for their failure to obey the court order to do so. Because the alleged acts by the defendant involved a fraudulent scheme of such magnitude--and the Judge was determined not to let the defendants "get away" with millions of dollars stashed overseas-- the case may have no impact in the typical debtor-creditor context. Neverthless, as always, the degree of authority retained by you--as the settlor--and your formal designation with respect to the administration of the trust (as beneficiary, protector or co-trustee) are crucial issues which must be carefully considered.
   
   
3. It should also be noted that even in circumstances as egregious as those reported in Anderson, the FTC and the Court failed to "break" the trust or reach assets held in the trust. The trust company in the Cook Islands has abided by the terms of the trust agreement--even under severe pressure from an agency of  the U.S. Government--and has refused to turn over the funds to the U.S. Court.
   
   When the FTC initiated legal action in the Cook Islands to have itself appointed as Protector of the trust (and gain control over the assets), the trust company successfully resisted the action and defended the assets of the trust. The  position taken by the trust company and the language of the trust agreement were upheld by the High Court of the Cook Islands. Having been defeated in that course, the FTC is now proceeding with a new legal action in the Cook Islands, arguing that the transfer of funds to the trust was a fraudulent conveyance under Cook Islands law. Whether or not they will be successful with this argument is not known. But, it is interesting that a) the defendants have been purged of the contempt charges, and b) despite all of it's efforts to obtain the defendants assets, the only remaining option available to the FTC is to proceed in the Cook Islands, under the laws of that country--exactly as required under the trust agreement itself.
   
   
4. Sophisticated asset protection plans often combine a variety of foreign and domestic entities. In addition to the Foreign Asset Protection Trust, offshore structures may include International Business Corporations, International LLC's, offshore annuities and a wide assortment of banking arrangements. These offshore elements are frequently joined  with domestic entities such as Family Limited Partnerships, Limited Liability Companies, corporations, grantor and non-grantor trusts, and qualified and non-qualified retirement plans. At last count, six states have passed legislation permitting the creation of domestic Asset Protection Trusts--providing more new opportunities for creative planning.