Most asset protection cases involve private creditors — plaintiffs’ attorneys, judgment holders, disgruntled business partners. The Grant case is different. The creditor was the Internal Revenue Service, the debt was $36 million in back taxes, and the debtor died before the case resolved. What remained was his widow, two offshore trusts, and a federal government that pursued her for more than a decade.
The structure held longer than almost anyone would have predicted. It also had a drafting flaw that eventually cracked it open. Both of those outcomes are worth understanding in detail.
What the Case Was About:
Mr. Grant established two separate offshore asset protection trusts in different foreign jurisdictions, then proceeded to owe the IRS approximately $36 million and die. His wife, Arline, was named as a beneficiary of both trusts. When the IRS came for the money, they came for her.
The case ran through the Southern District of Florida across multiple proceedings spanning roughly a decade. The critical procedural moments were in 2005, 2008, and 2012 — each one a distinct chapter in what became the most thorough stress test of offshore trustee independence against a federal creditor that U.S. case law has produced.
Before going further: like FTC v. Affordable Media, this case involves bad underlying facts that created difficult law. A $36 million tax debt and a federal government plaintiff are not the conditions under which most legitimate asset protection planning gets tested. The structural lessons, however, transfer directly to clean money, pre-litigation planning, and normal civil creditor risk.
2005: The Repatriation Order
At the conclusion of the original trial in 2005, the court directed Mrs. Grant to request that the offshore trustees repatriate the trust assets to satisfy the IRS judgment. This was the standard first move — order the beneficiary to instruct the trustee to return the funds.
Mrs. Grant complied. She contacted the trustees, made the requests, and when the existing trustee refused, she attempted to replace him with a trustee who would comply. She was unable to accomplish repatriation for more than two years. The trustees held.
2008: The Impossibility Defense Works
In 2008, the government returned to court arguing Mrs. Grant had failed to comply with the repatriation order and sought further sanctions. The court denied the motion. The judge’s reasoning is worth quoting directly because it is the clearest judicial statement of what impossibility of compliance actually requires in the offshore trust context:
The court found it was reluctant to fault Mrs. Grant for her trustees’ denial of her requests, noting that the failure to repatriate was not for lack of effort — she had tried for over two years, including attempting to replace the trustee. She had sufficiently established that she was not able to repatriate the offshore funds.
That is the impossibility defense working exactly as designed. The independent trustee, operating under a governing instrument that prohibited compliance with foreign court compulsion, refused to act. The beneficiary had no legal mechanism to override that refusal. The court could not punish her for failing to accomplish what the trust structure had made legally impossible.
This is the same structural dynamic that protected the Andersons’ assets in FTC v. Affordable Media — with one critical difference. In Anderson, the impossibility defense failed as to the settlors personally because they had voluntarily created the mechanism. In Grant, Mrs. Grant was a beneficiary, not the settlor, which gave her a cleaner impossibility argument. The court accepted it.
2012: Self-Inflicted Collapse
The 2008 win was not the end. In 2012, the government filed a second motion to compel after discovering that Mrs. Grant had, in fact, received a distribution from the trust — $221,000 directed to her children’s accounts in the United States.
The court’s response was unambiguous. It found that her ability to receive repatriated funds — even a relatively small amount, even directed to third parties — directly contradicted the position she had taken in 2008. She had told the court she could not access or move the funds. Then she did. The court found this a brazen flouting of its authority, noting that repatriated funds were ordered to pay down the tax liability, and their use for other purposes, including for her general sustenance, ran plainly against the court’s order.
The 2012 reversal was entirely self-inflicted. The structure did not fail. Mrs. Grant destroyed her own impossibility defense by making a distribution while subject to a court order. That is not an asset protection problem. It is a compliance problem.
The Fatal Drafting Flaw
The more instructive failure is structural. Mrs. Grant held what the trust instrument described as the non-reviewable, sole and complete discretion to remove and replace the trustee at any time.
That provision, without a duress carveout, was a fatal drafting error.
The entire legal logic of the offshore trust impossibility defense rests on the beneficiary or settlor having no practical capacity to compel trustee action. Once a court order is entered, the question the court asks is simple: can this person actually make the trustee comply? If the answer is yes — because they can remove and replace the trustee with someone who will comply — then impossibility fails. The person has the power; they are simply choosing not to use it. That is not impossibility. That is refusal, which courts treat as contempt.
The fix is straightforward and should be standard drafting in every well-constructed offshore trust: the power to remove and replace the trustee must be suspended, by the instrument’s own terms, any time the beneficiary or settlor is acting under legal duress. When a court order exists, the removal power goes dark. The beneficiary cannot replace the trustee. The trustee acts independently. Impossibility is preserved.
This is not a theoretical refinement. It is the specific drafting gap that the Grant case identified in live litigation against the IRS. Every governing instrument that omits this language carries the same vulnerability.
The Four-Pillar Analysis
Timing worked in the Grants’ favor. The trusts were established before the IRS liability crystallized into a formal judgment. Fraudulent transfer arguments were available to the government but did not succeed in unwinding the structures. Pre-existing planning before an identifiable creditor arises is the irreducible foundation.
Control is where the case cuts both ways. For three years the independence of the trustee held perfectly — the trustee refused to comply, and Mrs. Grant’s inability to override that refusal was judicially recognized. The control flaw was not in the trustee’s behavior. It was in the instrument’s failure to suspend the removal power under duress, which created a theoretical capacity to override that the court could have leveraged.
Jurisdiction performed as designed. The foreign trustees, in jurisdictions that do not recognize U.S. court orders, refused to comply with the repatriation directive for years. No foreign court enforcement mechanism was available to the IRS. The assets remained beyond the physical reach of U.S. enforcement.
Collectibility is the bottom line. The IRS pursued this case with resources and tenacity that no private creditor would sustain. They had two attorneys general’s offices behind them and a decade of litigation. And for the bulk of that period, they could not collect. The final crack came not from any legal theory the IRS developed but from Mrs. Grant’s own misstep in making a distribution while under court order. Without that misstep, the record suggests the assets would have remained protected indefinitely.
The IRS Is a Different Creditor
The Grant case makes one thing unmistakably clear: the IRS is categorically unlike any private civil creditor. No plaintiff’s attorney has the resources, the statutory authority, or the institutional will to pursue a judgment for a decade through multiple courts against a widow in her eighties. Most private creditors capitulate well before year two of a foreign trustee standoff.
This does not mean the IRS cannot be beaten by a properly structured offshore trust — Grant demonstrates that it can be, for years, even under maximum enforcement pressure. But the IRS will not make the cost-benefit calculation that drives most creditors to settle or walk away. When federal tax liability is the threat, the planning must be cleaner, the drafting must be tighter, and the behavioral compliance during any subsequent legal proceedings must be impeccable.
What This Case Means for Structure Design
Three drafting requirements emerge directly from United States v. Grant:
First, any power in the beneficiary or settlor to remove or replace the trustee must include an explicit duress suspension. The instrument must state, in plain terms, that this power is unavailable during any period in which the holder is subject to legal compulsion — including court orders, injunctions, contempt proceedings, or any governmental enforcement action.
Second, the trustee’s authority to refuse repatriation demands must be self-executing. It cannot depend on the beneficiary’s decision to invoke it. The instrument must prohibit the trustee from complying with foreign court orders as a matter of governing law, independent of any instruction from the beneficiary.
Third, behavioral compliance during litigation is not optional. Mrs. Grant’s $221,000 distribution destroyed a three-year record of judicially recognized impossibility. Once a repatriation order is in place, any movement of funds — to any account, for any purpose — will be treated as evidence that the claimed impossibility was a lie. That is a client counseling issue as much as a drafting issue.
The Real Answer to the Threshold Question
The original article posed the threshold question well: if you were Arline Grant, knowing everything that happened, would you still have wanted the trust?
The answer is almost certainly yes. Without the trust, the IRS collects $36 million the moment a judgment is entered. With the trust, the IRS pursues a decade-long litigation campaign and still cannot collect. The trust bought years, preserved leverage, and created conditions under which a negotiated settlement — at a fraction of the original liability — was always available as an exit. That is not a failure. That is the structure working under conditions that would have produced immediate collection without it.
The lesson is not that offshore trusts fail against the IRS. The lesson is that even maximum federal enforcement pressure cannot reach properly drafted, independently administered trust assets held in non-recognizing jurisdictions — until the beneficiary makes a mistake the instrument should have prevented.
Structure before stress.
By: Brian T. Bradley, Esq.
