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Raymond &Arline Grant Case

By Rob Lambert - Email Editor

Date : 17-Nov-2005

We will be watching the Arline Grant case as it unfolds. You will be hearing lots about this case at cocktail parties and in conversations at the water cooler. I suspect it will become as infamous as both the Lawrence and Anderson cases.

Arline and her deceased husband, Raymond, established Asset Protection Trusts in Bermuda and Jersey in 1983 and 1984. Apparently, beginning in 1977, they were investing in some pretty heavy duty and probably shady tax shelters. All we know from the case is that $36 million in back taxes were assessed against them in 1991.

Arline and her husband made installment payments to the IRS of $3,000 per month until some agent wised up and terminated this silly installment agreement. Suit was then brought against Arline and her husband seeking payment of the entire amount due, which was over $36 million.

The IRS has huge powers to collect taxes. Once a tax is assessed, this creates a lien against “property” of any type that the taxpayer owns (broadly construed).

In this case, the issue became whether Arline (her husband was deceased by this time) had the power to repatriate the assets. Well, she certainly did. The Trust gave her absolute and unfettered discretion to change Trustees at any time. There were no limitations on this or on her power to invade principal. The court found that she had complete power to change Trustees at any time; hence, go get to the dough.

Arline then advanced the utterly lame argument that she had “no wish to appoint a U.S. Trustee” and therefore shouldn’t be forced to do so. Of course, the court didn’t buy this argument. She was ordered to appoint U.S. Trustees to repatriate the assets.

That is all that has played out to date. What do you think will happen?

Well, there are a few scenarios.

Arline might comply with the order and thereby avoid going to jail for contempt. I suspect that if she doesn’t comply, she will soon find herself living with Bubba, or in her case, Bubbette!

Whether or not Arline appoints new U.S. Trustees, I am not confident that the funds will be repatriated. The existing foreign Trustees might feel compelled to challenge such an order in their country (this may depend on the terms of the Trust agreement). Remember, no country in the world enforces U.S. tax judgments. A foreign court will not be inclined to make an exception in this case, especially if the foreign court feels that the U.S. Judge is infringing on his country’s sovereignty. Judges can be very protective when they feel pushed around by some “foreigner.” (In this case, the U.S. Judge!)

We will be watching this case as it plays out in the legal system. As soon as there is anything to report, you will read about it here.

You might ask what did Arline and her advisors do wrong? Simply, she insisted on staying in control. If she had not retained unfettered power to appoint a new Trustee, this case would have read differently. The judge made it clear that the key issue he was considering was whether she had power to appoint a new Trustee and repatriate the assets. Secondly, if the Trusts had been settled well before the tax liabilities were known, I think it would have been a different case. (The Judge did not have to deal with the issue as to whether the settlement of the Trust was a fraudulent conveyance, which I am pretty sure it was since the Trusts were settled AFTER the aggressive tax shelter investments were made!)

Remember the old adage: “Pigs get eaten.” I think Arline may find that she is about to go on the barbecue.

If you want to read the case, you can find it by clicking here.

I have also started a thread on the Asset Protection Bulletin Board where those of you who agree or disagree with this case are welcome to post.

It is my opinion that it is decided correctly. She and her deceased husband just plain did it wrong.

Have a healthy and protected week.

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