The taxpayer's advisors are subject to IRC Sec. 7206 which states that any person who willfully aids or assists in the preparation of a false return is also liable. A recent article in Forbes magazine illustrates the ingenuity of judges in dealing with off-shore asset protection trusts. The court then ordered new stock issued to the creditors. As it turns out, the Cook Islands use New Zealand judges to rule on legal issues.
Foreign judges have little incentive to uphold laws that are blatantly anti-creditor.
In another bizarre case, a U.S. debtor using an Island of Jersey asset protection trust was tossed into a Jersey criminal hospital by a pursuing creditor. As the settlor of a Jersey trust discovered, the concept of debtor's prison was apparently alive and well in the Island of Jersey. And if you attend the proceedings, watch out for debtor's prison. Of course, if you don't attend the lawsuit or fail to provide evidence to defend your position, expect the judge to rule against you. Also, settlors should expect a public policy attack against trusts in which they have no beneficial interest, but retain the power to revoke the trust, although there are not yet case law deciding this point.