Three Asset Protection Trust Claims, Fact-Checked
A Massachusetts firm's article makes three claims about offshore trusts and DAPTs. What the courts and the DAPT statutes actually say about each.
This post responds to Offshore Trusts Are Giving Way to Trusts Back on Shore, an article on the website of Cushing & Dolan, P.C., a Massachusetts law firm. It was first published in February 2020, last updated in March 2021, and is still online.
We are correcting it because its errors could steer readers toward costly choices. Three of its specific claims misstate how courts treat these trusts. A reader who relied on them could pick the wrong state, the wrong structure or the wrong timing, and those decisions are expensive and hard to undo.
Claim 1: Judges are starting to jail people who can't produce offshore assets
Verdict: Misleading. Courts have jailed people over offshore trusts, but not for failing to do the impossible, and not recently for the first time.
Genuine inability is a defense
Inability to comply is a complete defense to civil contempt. The U.S. Supreme Court held in Maggio v. Zeitz (1948) that a person may not be jailed for refusing to do something impossible.
What courts reject is impossibility the debtor built on purpose. If you set up a trust so that you "can't" bring the money back, that inability doesn't count.
What the leading cases held
- FTC v. Affordable Media (9th Cir. 1999). A couple moved money into a Cook Islands trust, then said the foreign trustee would not return it. The court found their inability was the intended result of their own trust design.
- In re Lawrence (11th Cir. 2002). A Florida options trader funded a Mauritius trust about two months before a $20.4 million arbitration award. He kept the power to replace trustees and add beneficiaries, which the court treated as real control.
A more accurate version
If you move assets offshore after a claim appears, or keep meaningful control over the trust, a court may find you able to comply and jail you until you do. That risk is real and has been settled law since around 2000.
Claim 2: There is no definitive case law on DAPTs for non-residents
Verdict: Technically true, but misleading. No court has definitively settled the question, but every court that has touched it has gone against the non-resident.
What is true
The U.S. Supreme Court has never decided how one state's DAPT law applies to a resident of another state. No appellate court has squarely ruled on it in a case with a clean, non-fraudulent transfer.
What the claim leaves out
- In re Huber (Bankr. W.D. Wash. 2013). A Washington resident set up an Alaska DAPT. The bankruptcy court applied Washington law, which does not protect self-settled trusts, and the trust's protection failed. It is a trial-level decision with bad facts, since transfers were made as creditors closed in, but it is the most direct ruling on the question.
- Toni 1 Trust v. Wacker (Alaska 2018). Alaska's own supreme court held that its statute claiming exclusive jurisdiction over these disputes cannot stop a Montana court or a federal bankruptcy court from hearing them. The court did not decide the choice-of-law question. But the ruling leaves creditors free to sue in the settlor's home state, where local law is likely to apply.
Real estate adds another limit. Property is generally governed by the law of the state where it sits, whatever trust holds it.
A more accurate version
No appellate court has definitively ruled on whether a DAPT protects a non-resident. But the courts that have addressed it have refused to, and no reported decision has upheld one across state lines.
Claim 3: DAPTs protect in nearly every circumstance, even from alimony and child support
Verdict: Most DAPT states expressly let family claims through. Many DAPT statutes raise the creditor's burden. Nevada, for example, requires proof by clear and convincing evidence. Many also shorten the challenge window: Nevada and South Dakota use two years, versus the four years common under general fraudulent transfer law.
The window is not shorter everywhere. Delaware gives creditors four years, no shorter than the usual baseline. Virginia's period is five years and restarts with each new transfer.
Family claims: the exception is the rule
Child support claims can reach DAPT assets in about 18 of the roughly 20 DAPT states. Alimony claims can reach them in about 10, including Connecticut, Delaware, Hawaii, Mississippi, Missouri, New Hampshire, Ohio, Rhode Island, South Dakota and Tennessee. Nevada is the notable state with no exception creditors at all.The claim's picture of near-total protection describes Nevada. It does not describe the typical DAPT state.
A transfer found to be fraudulent can be undone regardless of the DAPT statute. And a resident of a non-DAPT state may get little protection from any creditor who sues in their home state's court.
Bankruptcy itself is a large gap. Under 11 U.S.C. § 548(e), a trustee can undo transfers to a self-settled trust made within 10 years before filing, if made with intent to hinder, delay or defraud creditors. No state waiting period shortens that.
What this means if you're considering an asset protection trust
The right structure depends on where you live, where your assets sit and what claims you might face. A few points hold in almost every case.
- Plan early. A trust funded after a claim appears invites a fraudulent transfer challenge, and offshore, it invites contempt.
- Don't keep hidden control. Powers to replace trustees or restore yourself as beneficiary are exactly what sank the Lawrence trust.
- Check the state's exception creditors. If divorce or support claims are a concern, the choice of DAPT state matters a great deal.
- Know your residence risk. A DAPT is on its strongest footing when you, your assets and any likely lawsuit are all in a DAPT state.
- Plan around the 10-year bankruptcy window. No state statute can shorten it.
Sources
- In re Lawrence, 279 F.3d 1294 (11th Cir. 2002): full opinion
- Using Contempt Power to Force Repatriation of Offshore Trust Assets: American Bankruptcy Institute
- Chadwick v. Janecka case analysis
- Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018) case analysis
- Domestic asset protection trusts: state list and limits
- Delaware DAPT: challenge window and exception creditors
- Domestic Asset Protection Trusts: A Practical Guide: exception creditors by state
- FTC v. Affordable Media, 179 F.3d 1228 (9th Cir. 1999); Maggio v. Zeitz, 333 U.S. 56 (1948); In re Huber, 493 B.R. 798 (Bankr. W.D. Wash. 2013); 11 U.S.C. § 548(e)
Frequently asked
Frequently asked questions
Genuine inability to comply is a complete defense to civil contempt; the U.S. Supreme Court held in Maggio v. Zeitz (1948) that a person may not be jailed for refusing to do something impossible. What courts reject is inability the debtor created, as in FTC v. Affordable Media (9th Cir. 1999) and In re Lawrence (11th Cir. 2002).
No appellate court has definitively ruled on it. But the courts that have addressed it have refused to protect the non-resident, including In re Huber (Bankr. W.D. Wash. 2013), and Toni 1 Trust v. Wacker (Alaska 2018) held that Alaska's statute cannot stop another state's court or a federal bankruptcy court from hearing the dispute.
In most DAPT states, no. Child support claims can reach DAPT assets in about 18 of the roughly 20 DAPT states, and alimony claims in about 10. Nevada is the notable state with no exception creditors at all.
Under 11 U.S.C. section 548(e), a bankruptcy trustee can undo transfers to a self-settled trust made within 10 years before filing, if they were made with intent to hinder, delay or defraud creditors. No state waiting period shortens that.