The objective was to establish a vehicle into which assets could be placed which

• protected the assets from attack through the US judicial system
• would at worst be entirely tax neutral and at best enable routine Estate Tax planning to be done.

To attain the first objective, the assets had to be removed from the USA into a jurisdiction which had no Reciprocal Enforcement of Judgements Agreement. But how should they be held? An overseas company could not be used because, for a US person, there were severe tax implications in using a foreign corporation. Quite apart from the enhanced reporting requirements implicit in a Controlled Foreign Corporation (CFC), and other provisions of the Code, there are certain punitive Capital Gains Tax rules in relation to basis step-up. Thus the use of companies as Asset Protection structures was ruled out.

This left the possibility of using an offshore Trust mechanism. For tax purposes, the offshore Trust was brilliant, since a trust established by a US person from which he was also capable of benefiting was a Grantor Trust, and therefore entirely transparent for tax purposes. Thus the offshore trust was tax-neutral, while still providing excellent Asset Protection.

There were, of course, drawbacks. The most serious problem of all was perceived to be the issue of fraudulent transfer, by reference to the sixteenth century ‘Statute of Elizabeth’. (Fraudulent Conveyances Act 1571 (13 Eliz I Cap 5) . The principles in this Act have been adopted in one way or another by every country which looks to England for the source of its law (in the USA, the Uniform Fraudulent Transfer Act 1984). Where a person effects a transfer to a trust with the intent to defeat any future creditor, the transfer can be set aside and the trust declared void.