By James Burns, Esq. | Law Office of James Burns | www.jamesburnslaw.com

Introduction

Offshore Asset Protection Trusts (OAPTs) have long been touted as the gold standard in shielding wealth from lawsuits, creditors, and unforeseen liabilities. But over the past two decades, U.S. courts have shown increasing willingness to pierce these structures when they detect abuse, fraudulent intent, or continued control by the settlor. For high-net-worth individuals in California and Orange County considering offshore planning, recent legal developments underscore the need for strategic, lawful execution.

This blog explores notable cases where offshore structures went sideways, legal codes involved, and key asset protection lessons—especially for estate planning attorneys, trustees, and professionals who structure these entities.

For related reading, check out our other popular blog posts on asset protection and estate planning at www.jamesburnslaw.com/blog.

What Is an Offshore Asset Protection Trust?

An Offshore Asset Protection Trust is a trust formed under the laws of a foreign jurisdiction, such as the Cook Islands, Nevis, or Belize. These jurisdictions offer:

• Strong anti-creditor statutes
• Short statutes of limitations on fraudulent conveyance
• High evidentiary burdens for claimants
• Statutory non-recognition of foreign (U.S.) judgments

They are especially attractive for high-net-worth individuals seeking to preserve wealth, protect real estate holdings, or insulate inheritances. However, these benefits can unravel quickly if the trust is established with fraudulent intent or the settlor retains too much control.

U.S. courts maintain in personam jurisdiction over citizens, allowing them to compel a U.S. resident to act—even if trust assets are overseas. This is where most OAPT failures begin.

 

Case Study #1: FTC v. Affordable Media LLC (Anderson Case)

Citation: 179 F.3d 1228 (9th Cir. 1999)

In this foundational case, the Andersons created a Cook Islands trust while under investigation by the Federal Trade Commission (FTC) for fraudulent investment schemes. They transferred assets to the offshore trust and claimed they could no longer access the funds.

Outcome: The Ninth Circuit ruled that the Andersons created their own "impossibility" and held them in civil contempt. They remained jailed until they repatriated the funds.

Legal Insight: Even if a foreign trustee has legal control, courts may find implied control if the settlor appears to orchestrate outcomes.

Case Study #2: U.S. v. Thompson (2025)

Jurisdiction: U.S. District Court, Ohio

Tommy Thompson, a treasure hunter who recovered gold from the S.S. Central America shipwreck, transferred assets to a Belize trust. He then refused to disclose the location of 500 missing gold coins.

Outcome: He was jailed for nearly 10 years under civil contempt and began serving a criminal contempt sentence in 2025.

Legal Insight: Courts aggressively punish bad-faith actors—even when offshore trusts are technically valid.

Case Study #3: U.S. v. Grant

Jurisdiction: U.S. District Court, Southern District of Florida

Patrick and Denise Grant transferred substantial wealth to a Nevis trust. Despite the appearance of separation, the IRS demonstrated ongoing influence and control by the Grants.

Outcome: The court ordered repatriation and invalidated the trust protections.

Legal Insight: If the IRS or a court finds evidence of ongoing involvement, the trust's structure will not hold.

Case Study #4: U.S. v. Butselaar (2025)

Jurisdiction: Federal Court

Frank Butselaar, a tax attorney formerly with Greenberg Traurig, created offshore structures for DJ Tiësto to conceal $28 million in income.

Outcome: He pled guilty to criminal tax evasion and conspiracy and is now serving 30 months in prison.

Legal Insight: Attorneys setting up noncompliant offshore trusts can be criminally liable under 26 U.S.C. §7201.

Case Study #5: Barclays Bank v. Inc & Co Leaders (2024)

Jurisdiction: UK High Court

Executives of a private equity group diverted £13.7 million to the British Virgin Islands after violating asset-freezing orders.

Outcome: The individuals were found in contempt and sentenced to 22 months in prison.

Legal Insight: Foreign courts, like U.S. courts, are cracking down on fraudulent use of offshore structures.

Case Study #6: Jerome Schneider Case

Jurisdiction: Federal Case (U.S.)

Jerome Schneider promoted the use of fake offshore banks to evade taxes. He and attorney Eric Witmeyer were charged with wire fraud and conspiracy.

Outcome: Both were convicted. Their case is often cited as a textbook example of how offshore planning crosses the line into criminal conduct.

Legal Insight: Fabricated financial institutions and attorney complicity invite swift federal prosecution.

Case Study #7: Leonard Cohen Estate (2025)

Jurisdiction: Los Angeles Superior Court

This high-profile case involves allegations that attorney Reeve Chudd, while representing the estate of Leonard Cohen, facilitated unauthorized changes to estate planning documents—allegedly benefitting Cohen's former manager, Robert Kory. Though not involving an offshore trust, the case reveals growing judicial scrutiny over the conduct of estate and trust attorneys, especially when conflicts of interest or undue influence are suspected.

Outcome: The matter is ongoing as of 2025. Chudd and his firm face civil liability claims for breach of fiduciary duty and possible forgery.

Legal Insight: While offshore elements are not present, this case underscores the increasing legal exposure attorneys face when they overstep ethical or legal bounds in trust and estate planning.

Case Study #8: Fortney v. Kuipers (2001)

Jurisdiction: U.S. District Court (Michigan)

In this lesser-known but revealing case, the Kuipers family was involved in a car accident that resulted in a catastrophic injury to Judith Fortney. On the advice of legal counsel, they transferred significant assets into an offshore trust while litigation was pending.

Outcome: Although the trust itself wasn't pierced in this particular case, the planning was scrutinized in subsequent legal literature as a cautionary tale. It spotlighted the ethical and strategic dangers of making offshore transfers under the shadow of liability.

Legal Insight: Timing is everything. Even if the court does not act to reverse a transfer, such moves often cast doubt on the settlor's credibility and increase litigation risk.

Though not offshore-related, attorney Reeve Chudd was sued for allegedly authorizing unauthorized trust amendments in favor of Leonard Cohen's former manager.

Outcome: The case is ongoing but demonstrates that attorneys are being scrutinized more closely for estate manipulation.

Legal Insight: Estate planning attorneys must maintain complete transparency and ethical integrity.

Additional Triggers That Can Sink Offshore Trusts

• Timing of transfer: Moving assets offshore during litigation or right before a judgment invites a fraudulent conveyance claim.
• Trust protector abuse: Settlors appointing themselves or relatives to this role often retain too much control.
• Incomplete IRS reporting: Failing to file IRS Forms 3520 and 3520-A triggers audits, penalties, and invalidates protections.
• Disregarded substance: If a trust is seen as a sham entity or "alter ego" of the grantor, it may be collapsed by a judge.

Key Legal Authorities

• 26 U.S.C. §7201 – Attempt to evade or defeat tax
• 18 U.S.C. §371 – Conspiracy to defraud the United States
• Uniform Voidable Transactions Act (UVTA) – Adopted in California to void fraudulent asset transfers
• Cal. Prob. Code §15200 et seq. – Statutory rules for trust creation and fiduciary duties

California and Orange County Considerations

California courts have aggressively pursued fraudulent transfers using UVTA and constructive fraud theories. In Kilker v. Stillman (2012), a California court voided a Nevada trust transfer based on the debtor's underlying intent.

Orange County litigants, particularly those in real estate and medical professions, should be especially cautious when using offshore trusts to shield assets.

Best Practices for Offshore Trust Success

Overcoming U.S. in personam jurisdiction entirely is not realistic, but there are several smart structuring strategies to significantly reduce the risk of court-ordered repatriation:

• Use true independence: Select a foreign trustee with no U.S. ties and avoid retaining control through roles like trust protector.

 

• Establish irrevocability and discretionary distribution provisions: Courts are less likely to compel asset return if the settlor truly lacks power to access or direct funds.

 

• Form early: The best defense is proactive planning. Trusts created before any litigation or foreseeable risk are much harder to attack.

 

• Layer defenses: Offshore trusts combined with domestic LLCs, Private Retirement Plans (PRPs), and PPLI create complexity that discourages aggressive pursuit.

 

• Comply fully: Proper IRS reporting (Forms 3520 and 3520-A) and documented estate goals help reinforce legitimacy.

 

1. Plan proactively – Don't wait for legal threats to emerge.

 

2. Separate control and benefit – Use third-party trustees and avoid serving as trust protector.

 

3. Full compliance – File all foreign trust disclosure forms and keep detailed documentation.

 

4. Layer protections – Offshore trusts work best when paired with domestic LLCs, PRPs, or PPLI.

 

5. Document legitimate intent – Use the trust to support succession, philanthropy, or multigenerational planning.

Offshore Asset Protection FAQ

Q: Are offshore trusts illegal?

A: Not at all. When used properly, they are legal and effective tools for estate and asset planning.

 

Q: Can I still be sued even if my assets are offshore?

A: Yes. Courts can order repatriation and hold you in contempt if you do not comply.

 

Q: What if I use a Cook Islands trust with a foreign trustee?

A: Courts may still rule against you if they believe you retain de facto control.

 

Q: Can lawyers be punished for helping clients structure offshore trusts?

A: Yes. If the planning involves fraud, evasion, or concealment, attorneys may face civil or criminal charges.

 

Q: Is it safer to combine offshore and domestic structures?

A: Absolutely. Many planners use Private Retirement Plans (PRPs), PPLI, and LLCs to diversify protection layers.

Conclusion: Offshore Is Not a Magic Shield

Offshore trusts can be powerful tools when used correctly. But recent cases—some right here in California—reveal how quickly the courts will dismantle them when abused.

If you're considering advanced asset protection strategies, work with a qualified attorney who not only understands the law but respects its boundaries.

Need help structuring your wealth the right way?

Contact the Law Office of James Burns at www.jamesburnslaw.com or call (949) 305-8642 for a confidential consultation.

Legal Disclaimer

The information provided in this blog is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading this article does not create an attorney-client relationship between you and the Law Office of James Burns. Asset protection strategies, including offshore trusts, involve complex legal and tax considerations that must be tailored to your specific circumstances. You should consult with a qualified attorney and tax professional before implementing any planning strategies discussed herein.