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Southpac is a trust company that operates in several Non-U.S. jurisdictions, including the Cook Islands and Nevis (both have aggressive asset protection laws that seek to attract international asset protection trusts). Most individuals seeking non-U.S. asset protection utilize a trust company that has no connection with the U.S., so that a U.S. court cannot obtain jurisdiction over them to compel them to turn over assets in their control. Thus, for example, the use of affiliates of banks and trust companies with U.S. offices is discouraged.
Unfortunately for Southpac, a recent New York Supreme Court [enhanced version available to lexis.com subscribers] case found it to be subject to New York jurisdiction in regard to a Cook Islands trust it is administering as trustee. Generally, in personam jurisdiction in the U.S. can be avoided by restricting contacts with that jurisdiction so that they do not cross the threshold of minimum contact.
Southpac took the legal position that it did not have the requisite contacts in New York. In particular, Southpac argued that it: (1) does not own, lease or have any other interest in any real property located in New York; (2) does not have an office in New York; (3) does not have a bank account in New York; (4) does not have any officers or employees in New York; (5) does not have a telephone number in New York; (6) has never filed a lawsuit in New York; (7) has no investments in any business located in New York; (8) is not licensed to do business in New York; (9) has never warehoused or stored inventory or supplies in New York; and (10) does not advertise in New York.
The case at issue involved whether the settlor of the trust fraudulently conveyed assets to the trust so as to defeat the interests in those assets of the settlor's divorcing spouse. The court's opinion notes several facts that it believed creates jurisdiction for Southpac in New York. It it is not clear which particular items were critical for the finding, and whether any one of them was deemed sufficient or only all together gave rise to the requisite minimum contacts. These items included:
A. That the transferred assets were originally located in New York;
B. An allegation that Southpac participated in the fraudulent conveyance;
C. That Southpac enlisted the aid of the settlor's New York broker;
D. That Southpac has an interactive website which invites and promotes fraudulent conveyance transfers; and
E. The transfer occurred after an action with the settlor's spouse had already commenced.
However, even if the Trustee is subject to New York jurisdiction, unless the trustee has assets in the U.S. that a New York court can reach or unless it has offices in jurisdictions that will enforce foreign (i.e., New York) judgments, as a practical matter there may be little the New York court can do to enforce its decrees against the trustee.
To avoid these attempted clawbacks a foreign asset protection trusts should be established at a time when there are no significant pending or current creditors. If established when creditors are already on the scene, they are less effective and may create problems for those who assist in their creation.
View more information from Marc J. Soss at http://www.fl-estateplanning.com/ and http://info.fl-estateplanning.com/
Marc Soss' practice focuses on estate and tax planning; probate and trust administration and litigation; guardianship law; and corporate law in Southwest Florida. Marc is a frequent contributor to LISI and has published articles and been quoted in the Florida Bar, Rhode Island Bar, North Carolina Bar, Association of the United States Navy, Lawyers USA, Military.Com, Forbes.Com, and CNN Business. Marc also serves as an officer in the United States Naval Reserve.
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