Why Should American Courts Enforce Offshore Asset Protection Trusts?

Richard C. Ausness (Ashland Oil Professor of Law, University of Kentucky College of Law) has recently published his article entitled The Offshore Asset Protection Trust: A Prudent Financial Planning Device or the Last Refuge of a Scoundrel?, 45 Duq. L. Rev. 147, 148-49 (2007).

Here is an excerpt from the introduction to his article:

In recent years, a large number of Americans have established “asset protection trusts” in foreign countries. An asset protection trust is a self-settled spendthrift trust which is created in order to protect the settlor’s property from the claims of creditors. Virtually all American jurisdictions recognize spendthrift trusts, which prohibit both voluntary and involuntary alienation of a third party beneficiary’s interest in a trust; however, most do not allow a settlor who has retained a beneficial interest in a spendthrift trust to protect that interest from the claims of creditors. A growing number of present and former British possessions, however, have enacted laws that allow foreigners to create self-settled spendthrift or asset protection trusts in their territory. Although legal commentators disagree about the legitimacy of these offshore trusts, American courts have treated them with undisguised hostility. In this article, I argue that offshore asset protection trusts serve a legitimate purpose and, therefore, American courts should enforce them, at least when certain conditions are met.