Offshore and Domestic Asset Protection Trusts: Why They Fail Californians

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

Who this page is for: California residents in every band, from families under $15 million single or $30 million married up through the $15 million to $100 million and $100 million and up bands, who’ve been pitched a Cook Islands, Nevis, Nevada, Alaska or other “asset protection trust.” This is a creditor question, not an estate tax one, so the size of the estate doesn’t change the answer. Part of our strategies that backfire series.

What is an offshore asset protection trust?

It’s an irrevocable trust you fund with your own money, name yourself as a discretionary beneficiary, and place with a trustee in a foreign country so that a U.S. judgment creditor has to start over in a foreign court. The trusts in the reported cases below sat in the Cook Islands and Mauritius. A “domestic asset protection trust” is the same idea with a trustee in a state that has passed a statute allowing it, such as Alaska (AS 34.40.110, discussed in the Toni 1 Trust case below).

A foreign trustee holds the assets. A “protector,” often the settlor or someone close to the settlor, can replace the trustee and veto actions. And a “duress” clause tells the trustee to ignore any instruction you give while a court is ordering you to bring the money back. In the Affordable Media case, the Ninth Circuit described those provisions as built to frustrate U.S. courts by removing the settlors as trustees and blocking repatriation once an “event of duress” occurred (179 F.3d at 1232). A federal judge in the Bilzerian case wrote that Cook Islands law gives a settlor “much greater control” over the trust than any U.S. jurisdiction allows (112 F. Supp. 2d 12).

The pitch

In the pitch, you move your brokerage account into a Cook Islands trust now, before anything happens. If someone sues you, they’ll have to hire a lawyer in the islands, prove their case again under local law, and meet a short local deadline. Meanwhile the trustee won’t send the money back, and you can’t be blamed, because the trust document took away your power to make it. You keep enjoying the money through distributions. Most plaintiffs will settle for less, or walk away.

The foreign trustee part does happen. In Affordable Media the trustee refused the repatriation order. In Lawrence the settlor said his attempt to appoint a new trustee was met with silence, and the court said he had to know it would be ignored. The step that fails is telling a U.S. judge you’re unable to obey. Judges treat that as a problem you created on purpose, and the remedy is contempt against you, in person, here.

Does California have a domestic asset protection trust?

No. California has no statute that lets you put your own money in a trust for yourself and keep your creditors out, and Prob. Code § 15304 says the reverse. If you’re a beneficiary of a trust you created, a restraint on transfer of your interest is invalid against your creditors (§ 15304(a)). If the trustee has discretion to pay you income or principal, your creditor can reach the most the trustee could pay you, up to your share of what went into the trust (§ 15304(b)). The trust itself stays valid. It doesn’t protect you.

A trustee’s discretion to pay or reimburse your income tax on trust income doesn’t make you a beneficiary for this purpose, and a creditor can’t reach anything because of that discretion alone (§ 15304(c)). That helps an irrevocable grantor trust built for estate tax reasons. It doesn’t create a self-settled shield. The longer walk-through of § 15304 is on our California asset protection myths page.

Will a California court apply Nevada, Alaska or Cook Islands law?

Probably not when the settlor, the assets and the creditors are all in California. The cases below come from other states, but they turn on the kind of home-state policy that § 15304 states for California.

In Waldron v. Huber (In re Huber), 493 B.R. 798 (Bankr. W.D. Wash. 2013), a Washington real estate developer set up an Alaska asset protection trust on September 23, 2008, as his bank loans were going bad. The bankruptcy court used the Restatement (Second) of Conflict of Laws § 270. That rule honors the trust’s chosen law only if the chosen state has a substantial relation to the trust and its law doesn’t violate a strong public policy of the state with the most significant relationship. The settlor, the creditors, the beneficiaries and the lawyer were all in Washington, and everything but a $10,000 certificate of deposit came from Washington. Alaska’s links were the trust administration and one trustee. Washington has treated transfers to self-settled trusts as void against creditors since 1854, so the court applied Washington law, held the transfers void, and also avoided them under 11 U.S.C. § 548(e)(1).

Swap Washington for California and § 15304 for Washington’s statute, and the analysis reads the same way. A Californian with a Nevada trust company is in Huber’s position.

The Alaska Supreme Court closed a second door in Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018). Alaska’s statute says only Alaska courts can hear fraudulent transfer claims against an Alaska asset protection trust. The court held that statute “cannot unilaterally deprive other state and federal courts of jurisdiction.” A Montana court and an Alaska bankruptcy court had already set the transfers aside, and those judgments stood.

Cases won and lost

Every reported case below went against the settlor. The “win,” where there was one, was that the money stayed offshore while the settlor sat in contempt.

1. FTC v. Affordable Media, 179 F.3d 1228 (9th Cir. 1999): contempt affirmed

   Denyse and Michael Anderson put commissions from a telemarketing Ponzi scheme in a Cook Islands trust. When a federal court ordered them to repatriate the money, the foreign trustee treated the order as an “event of duress,” removed them as co-trustees and refused. The district court held them in civil contempt and ordered them taken into custody on June 17, 1998. The Ninth Circuit affirmed. It upheld the finding that they still controlled the trust as its protectors, and it said that in the asset protection trust context, the burden of proving impossibility “will be particularly high.” The court released them on December 22, 1998, while finding they remained in contempt (179 F.3d 1228, fn. 3). As of the 1999 opinion, the assets had not been repatriated.

2. In re Lawrence, 279 F.3d 1294 (11th Cir. 2002): Mauritius trust, Florida law, jail

   Stephan Lawrence put about $7 million into an offshore trust in January 1991. Two months later an arbitrator entered a $20.4 million award against him. The trust chose Mauritius law, but the bankruptcy court applied Florida law and held the trust property of his bankruptcy estate. When he didn’t turn it over, he was held in contempt with a $10,000 daily fine and jailed. The Eleventh Circuit affirmed. It held that an impossibility the settlor created himself is no defense, and that the trust’s duress amendment was void as to creditors under Florida law. It also reminded the lower courts that civil contempt “cannot last forever” and has to be reviewed at reasonable intervals. In 2004 Lawrence was still seeking release from prison (Lawrence v. Goldberg, 573 F.3d 1265, 1268 (11th Cir. 2009)).

3. SEC v. Bilzerian, 112 F. Supp. 2d 12 (D.D.C. 2000): contempt of a $62 million order

   Paul Bilzerian owed more than $62 million under 1993 disgorgement orders and said he had nothing to pay with. The SEC showed the court a structure of offshore trusts and family entities, including a revocable Cook Islands trust he and his wife had created in 1995. He was removed as a beneficiary on December 21, 1998, a month after the court’s order to show cause, and he didn’t give the court a copy of the trust instrument. The court found him in contempt.

4. In re Huber, 493 B.R. 798 (Bankr. W.D. Wash. 2013): Alaska trust set aside

   Covered above. The settlor’s home state law governed, and the transfers were void under that law and avoidable under the 10-year bankruptcy rule.

5. Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018): no exclusive Alaska forum

   The Alaska Supreme Court held that its own legislature couldn’t stop Montana and federal courts from deciding fraudulent transfer claims against an Alaska trust.

The common thread is control. In each case the court looked past the duress clause to what the settlor could still do, such as replace the trustee or resign as protector, and treated the inability to comply as self-made.

A worked example

Take a hypothetical California surgeon with $5 million in a brokerage account. In 2026, after a patient’s lawyer sends a demand letter, a promoter moves the account into a Cook Islands trust with the surgeon as a discretionary beneficiary and the surgeon’s brother as protector. Nobody files a Form 3520.

The surgeon is a beneficiary of a trust the surgeon created, so a California creditor can reach what the trustee could pay the surgeon, which is everything (Prob. Code § 15304(b)). The transfer came after a threat of suit, to a trust the surgeon still benefits from, so the patient can sue to avoid it for at least 4 years (Civ. Code §§ 3439.04(b), 3439.09(a)). If the surgeon files bankruptcy within 10 years, the trustee can avoid it under 11 U.S.C. § 548(e)(1). If a judge orders the money back and the foreign trustee refuses, the surgeon is the one facing contempt, as the Andersons and Lawrence did. And the unfiled forms carry penalties that, after three years, total $2.5 million (see the reporting section below).

How far back can a creditor reach a transfer in California?

Under California’s Uniform Voidable Transactions Act, a creditor generally has 4 years from the transfer, or 1 year after discovering it if later, with a 7-year outside limit (Civ. Code § 3439.09). In bankruptcy, a transfer to a self-settled trust made with intent to hinder creditors can be undone for 10 years (11 U.S.C. § 548(e)(1)).

The intent test is what catches most offshore transfers. A court can weigh, among other things, whether you kept control of the property, whether you’d been sued or threatened with suit, whether you moved substantially all of your assets, whether you concealed the transfer, and whether you became insolvent soon after (Civ. Code § 3439.04(b)). An offshore trust funded after a claim surfaces checks several of those boxes at once. The creditor still has to prove the claim by a preponderance of the evidence (§ 3439.04(c)).

A creditor who wins can have the transfer set aside, attach the asset, get an injunction against moving it, or ask for a receiver (Civ. Code § 3439.07(a)). With a judgment in hand, the creditor can levy on the transferred asset or its proceeds (§ 3439.07(c)). None of that reaches a bank account in the Cook Islands directly. So the fight moves to contempt against the person who is in California.

What does an offshore trust cost in IRS reporting?

A U.S. person who transfers property to a foreign trust that has a U.S. beneficiary is treated as the trust’s owner for income tax (IRC § 679(a)), so the trust saves no income tax. You report the transfer on Form 3520, and the trust must file Form 3520-A every year (IRC § 6048(a), (b)). Missing either one costs 35% of the transfer or 5% of the trust’s assets a year (IRC § 6677).

The IRS describes Form 3520 as the return U.S. persons use to report certain transactions with foreign trusts and ownership of foreign trusts under IRC §§ 671 to 679. Form 3520-A is the trust’s own annual information return, and § 6048(b) makes you, as the U.S. owner, responsible for seeing that it’s filed. California applies the federal trust income tax rules unless its code says otherwise (R&TC § 17731), so the income lands on your California return too.

Foreign accounts add a separate filing. If you have a financial interest in or signature authority over foreign financial accounts worth more than $10,000 combined at any point in the year, you file an FBAR, due April 15 with an automatic extension to October 15 (IRS).

A hypothetical $5 million transfer that nobody reports would draw these penalties under § 6677.

A foreign trustee’s secrecy law isn’t an excuse. Section 6677(d) says the fact that a foreign jurisdiction would penalize disclosure is not reasonable cause.

What changes in California

• Self-settled trusts don’t protect the settlor. A restraint on your own interest is invalid against your creditors, and they reach the most the trustee could pay you (Prob. Code § 15304(a), (b)).
• No domestic asset protection trust statute. California’s rule is § 15304, the opposite of the Alaska model. A Nevada or Alaska trust for a Californian depends on a California court setting aside California’s own rule, and Huber shows how a court weighs that.
• Voidable transfers. The UVTA undoes transfers made with intent to hinder creditors (Civ. Code § 3439.04(a)(1)), and § 3439.04(a) protects future creditors too, since it applies “whether the creditor’s claim arose before or after the transfer.” It also undoes transfers for less than fair value by someone who was insolvent or became insolvent, as to creditors whose claims already existed (Civ. Code § 3439.05).
• Timing. 4 years, or 1 year from discovery, with a 7-year outside limit (Civ. Code § 3439.09).
• Income tax doesn’t move offshore. California follows the federal trust rules, including the foreign trust owner rule, unless its code says otherwise (R&TC § 17731).
• What California does protect. Retirement plans (Code Civ. Proc. § 704.115), home equity (Code Civ. Proc. § 704.730), and discretionary trusts that someone else creates for you (Prob. Code § 15303).

What works for Californians instead

The protections that hold up in California are the ones the Legislature wrote: insurance, the homestead and retirement exemptions, business entities formed early for business reasons, and trusts that someone else sets up for your heirs.

1. Insurance comes first

   Umbrella, professional liability and business liability coverage pay claims and pay for a defense. A trust does neither. For most families, more coverage does more than any structure.

2. Use the homestead exemption

   The exemption is the greater of $300,000 or the countywide median single-family sale price for the prior year, capped at $600,000, with both figures adjusted each year for inflation (Code Civ. Proc. § 704.730). The current amounts are on our California homestead exemption page.

3. Keep retirement money in retirement plans

   Amounts held in private retirement plans and profit-sharing plans designed for retirement are exempt (Code Civ. Proc. § 704.115(a)(1), (2), (b)). IRAs and self-employed plans are exempt only to the extent needed to support you and your dependents in retirement (§ 704.115(e)), so the plan type matters.

4. Form entities early, for business reasons

   Separate LLCs for separate properties or businesses keep one lawsuit from reaching every asset. A personal creditor of a member is usually limited to a charging order, which a California court can foreclose. The details are on our charging order protection page, and why a Wyoming or Nevada LLC adds little is on why out-of-state LLCs won’t save you in California.

5. Protect your heirs with a discretionary trust you create for them

   California does protect a beneficiary of a trust someone else created. If the trustee pays only as the trustee sees fit, a creditor of the beneficiary can’t compel a payment (Prob. Code § 15303(a)), and a spendthrift clause shields the beneficiary’s interest until it’s paid (Prob. Code §§ 15300, 15301). That’s the right tool for your children’s inheritance. See spendthrift trusts and creditor protection.

6. Give it away while you’re solvent, if you mean it

   Assets you give outright, or to an irrevocable trust you can’t benefit from, while you’re solvent and before any claim, are no longer yours to lose. The UVTA timing rules still apply, and you lose the money for every purpose.

What works and what fails

Who this is for

This page is for California physicians, business owners, landlords and anyone else with real liability exposure who has been offered an offshore or Nevada trust as the answer. If you already have one, the questions are whether your filings are current, whether you’re a beneficiary, and whether a court could find you still control it. For the full list of California asset protection rules, see asset protection in California and our guide to what works.

Working with Ridley Law

I work alongside your CPA and, where the matter calls for it, co-counsel. Work at this level is built for each family and quoted in writing before any drafting starts.

The first call is free and runs 30 minutes, by phone or Zoom. Book my 30-minute call or call 805-244-5291.

Frequently asked questions

Does an offshore trust work for a California resident?

It can make collection slow and expensive, but it doesn’t make you safe. A California court can treat your interest as reachable under Prob. Code § 15304, a transfer made to hinder creditors can be undone (Civ. Code § 3439.04), and a judge can hold you in contempt if you don’t bring the money back.

Is a Nevada asset protection trust valid in California?

The trust can be valid where it was formed, but a court looking at a California settlor, California assets and California creditors can apply California law, as the Huber court did with Washington law. Under § 15304, a California creditor reaches what the trustee could pay you.

Can I go to jail over an offshore trust?

Yes, for civil contempt if a court orders you to repatriate assets and finds you could. The Andersons were in custody from June to December 1998 (Affordable Media), and Lawrence was jailed after the court found his impossibility was self-created.

What tax forms does an offshore trust require?

Form 3520 for transfers and ownership, Form 3520-A filed by the trust each year, and an FBAR if foreign accounts top $10,000 combined. Missing Form 3520 can cost 35% of the transfer, and missing Form 3520-A costs 5% of the trust’s assets each year (IRC § 6677).

Does an offshore trust save income tax?

No. If the trust can benefit a U.S. person, the U.S. person who funded it is treated as the owner and pays tax on its income (IRC § 679(a)).

How long after a transfer can a creditor undo it in California?

Generally 4 years, or 1 year after the creditor discovers it if later, with a 7-year outside limit (Civ. Code § 3439.09). In bankruptcy, 10 years for a transfer to your own trust made with intent to hinder creditors (11 U.S.C. § 548(e)).

What can protect assets in California?

Insurance, the homestead exemption, retirement plan exemptions, entities formed early for business reasons, and discretionary spendthrift trusts that you create for your heirs.