APT Facts: The Court Record on Asset Protection Trusts

There are two kinds of asset protection trust, and the court record treats them very differently. This page describes each one plainly and points to the case register we maintain for it, so you can read the decisions rather than take anyone's characterization of them - ours included.

Two Kinds of Asset Protection Trust

An asset protection trust is a self-settled spendthrift trust: you fund it, you remain a beneficiary, and a statute instructs courts not to let your creditors reach it. That is the same basic bargain in both versions. What differs is which court has to honor the bargain, and whether it can be made to.

A domestic asset protection trust, or DAPT, is created under the law of a U.S. state that has authorized them - Alaska, Nevada, Delaware, South Dakota and roughly a dozen others. The trustee is inside the United States and answerable to U.S. courts.

A foreign asset protection trust, or FAPT, is created under the law of a jurisdiction outside the United States, most commonly the Cook Islands, and administered by a licensed trustee there. A U.S. court retains jurisdiction over the settlor. It does not have jurisdiction over the trustee.

That single structural fact is what separates the two case records.

Foreign Asset Protection Trusts

A foreign trust does not work by being hidden. It is reportable, it is disclosed on annual filings, and it is entirely legal. It works because a creditor holding a U.S. judgment cannot simply present that judgment abroad and collect. In the Cook Islands, a U.S. judgment is not enforced as such; a creditor who wants the trust assets has to bring a fresh case, locally, under a standard of proof written to be demanding.

The reported decisions bear this out, though not in the way the circulating lists suggest. Several compilations of "failed" offshore trust cases are quoted at seminars and used to talk clients out of offshore planning. Our attorneys have read every decision cited across all of them. In no reported decision we have reviewed was a properly formed, timely funded foreign trust with an independent trustee defeated on the merits. Where courts did act, they acted against the person: contempt for retained control, denial of discharge for concealment, unwinding of transfers made after a claim already existed.

That distinction matters because it tells you what actually decides these cases. It is not the jurisdiction. It is timing, control, disclosure, and conduct.

The register: FAPTfacts.com - every case on every circulating list, reviewed decision by decision, with the four rules the outcomes turn on.

Domestic Asset Protection Trusts

A DAPT's protection comes entirely from the statute of the state that authorized it. That is its vulnerability. A state statute binds the courts of that state. It does not bind a federal bankruptcy court applying the Bankruptcy Code, and it does not automatically bind the courts of another state with a closer connection to the dispute. Where the deciding court declines to apply it, nothing remains underneath.

Battley v. Mortensen is the cleanest illustration. An Alaska resident used an Alaska trust, funded it before any creditor held a claim against the property, and filed the solvency affidavit the Alaska statute requires. The transfer was avoided anyway, under 11 U.S.C. section 548(e), a federal ten-year reach-back no state seasoning period can shorten. He did the compliance correctly and the structure still gave way.

That is a different kind of loss from the offshore cases. There, the settlor's conduct decided it. Here, the settlor complied and the forum decided it.

The register: DAPTfacts.com - the individual defeats, written from the decisions themselves.

For what a DAPT is and how the state statutes differ, see our practical guide to domestic asset protection trusts. For the two structures placed side by side on cost, reporting and protection strength, see Cook Islands Trust vs. DAPT.

Why the Two Records Differ

It is tempting to read the asymmetry as a claim that foreign trusts are magic and domestic ones are worthless. Neither is true, and the actual explanation is duller and more useful.

Both structures are exposed to the same federal law. Both are self-settled. Both can be unwound if funded to defeat a creditor who already existed. What differs is what happens after a U.S. court decides it wants the assets. A domestic trustee receives an order and complies. A foreign trustee receives an order from a court with no jurisdiction over it, in a country that will not enforce the judgment behind it, and does not comply - and the court, left with no way to reach the corpus, turns to the person instead.

That is why the offshore cases are full of contempt findings and the domestic cases are full of avoided transfers. The offshore losses are conduct failures the client controls. The domestic exposure is structural, and no amount of careful execution removes it.

What This Page Does Not Claim

Three limits, stated plainly, because an overstated comparison invites the obvious rebuttal.

"No reported failure" is a statement about the reviewed case record, not a guarantee. It describes what the published decisions our attorneys have read actually hold. It is not a prediction about any particular reader's situation, and no one can honestly offer that.

Section 548(e) is not a DAPT-only provision. It reaches self-settled trusts generally, offshore ones included. The distinction between the structures on that point is enforcement, not statutory text.

A DAPT is not useless. It makes protection conditional in a way worth understanding before relying on it, particularly where bankruptcy is a realistic possibility rather than a remote one. That is a different statement from "it does not work."

Read the Records Yourself

Both registers link the underlying decisions so the reasoning can be checked directly, and both are updated as new cases and new lists are reviewed. Start with FAPTfacts.com for the foreign record and DAPTfacts.com for the domestic one.

If you want a candid read on which structure fits your exposure, or whether either does, talk to our attorneys.

This article is provided for general educational purposes and does not constitute legal advice. Reading it does not create an attorney-client relationship. Asset protection planning depends on your individual circumstances, and you should consult a qualified attorney before acting. Blake Harris Law, The Offshore Asset Protection Law Firm. Attorney Advertising.