Monday, April 29, 2013
As I have previously discussed, problems have emerged for Arline Grant, whose husband established two Foreign Asset Protection Trusts to shield their assets from creditors. These trusts are usually established with a foreign trustee for the benefit of a United States grantor and their family members. Typically within this scheme, the trustee has discretion over the distributions that it gives to the beneficiaries. The grantor of the trust, however, usually retains the discretion to alter the trustee. This is usually how the grantor retains control over the trust. Current events have shown us that this scheme might lead to some unfortunate consequences. These consequences are a direct result of poor estate planning.
In United States v. Grant, a federal district court in the Southern District of Florida has ordered Arline Grant to exercise her authority to alter the trustee in this case. Before the court order, the trustee was a foreign corporation and therefore outside of the jurisdiction of the federal courts. The court has ordered her to replace the foreign trustee with a U.S. trustee to ensure that the trust would be within the reach of the jurisdiction of the courts. Now, the assets of the trust are reachable by the courts, which was contrary to the whole purpose of creating the trust. There are two points that should be taken away from this case. First, it might have been a better idea for the trust to limit who can be replaced as the trustee based on jurisdiction limitations. Second, it is never a good idea place assets that are outside the reach of the IRS. Often times, this can lead to criminal liability.
See Charles Rubin, Bad Planning In Foreign Asset Protection Trust Scenario, Rubin On Tax, Apr. 26, 2013.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.