Offshore Trusts, Onshore Litigation
Probate and Property, November/December 1999, Volume 17, Number 6
By Gideon Rothschild and Daniel S. Rubin
Gideon Rothschild is a partner with Moses & Singer LLP in New York City and is Chair of the Probate and Trust Division's Asset Protection Planning (J-3) Committee. Daniel S. Rubin is an associate with Moses & Singer LLP in New York City.
The effectiveness of the so-called "spendthrift trust" in protecting an individual's beneficial trust interest from creditors has been firmly established in the United States ever since the Supreme Court's 1875 landmark decision in Nichols v. Eaton, 91 U.S. 716, 725 (1875). ("[T]he doctrine, that the owner of property . . . cannot so dispose of it, but that the object of his bounty . . . must hold it subject to the debts due his creditors . . . is one which we are not prepared to announce as the doctrine of this court.") With limited exceptions, however, state laws do not permit an individual to place assets in trust for his or her own benefit (a so-called "self-settled trust") while at the same time effectively placing those assets beyond the reach of creditors. For this reason, U.S. residents must look to the laws of select offshore jurisdictions that, seeking to generate trust business and attract U.S. capital, have statutorily extended common law spendthrift protections to self-settled trusts, provided that the trusts were not created or funded in fraud of existing creditors.