Invariably, off-shore asset protection plans are dismissed by U.S. courts as shams and offer the debtor no real legal protection.

Domestic asset protection, where the entity formed is located in the U.S. and the transfer of assets is not intended to defraud a known or potential creditor, provides a potential debtor with a solid layer of protection. In fact, the term "asset protection" in this context means taking advantage of the limited liability protections (one is liable up to the amount invested in the entity only) provided to shareholders of a corporation, limited partners of a limited partnership and members of a limited liability company. When a debtor is challenged in court, the debtor has solid statutory and case law supporting the structure and the inquiry inevitably becomes whether there was a fraudulent transfer of assets.

There is a "sleaze" factor involved with offshore asset protection - the attempt to hide one's assets offshore -- that is absent from domestic asset protection. Also, with offshore asset protection, the debtor is challenging the jurisdiction of the U.S. court system, a dangerous argument to make before someone with the power to toss you in jail for contempt of court. In short, domestic asset protection recognizes the jurisdiction of the U.S. court and relies on the laws of the state to protect the creditor, whereas, offshore asset protection flouts the court's jurisdiction.

In contrast to domestic asset protection concepts which are grounded in solid U.S. law, offshore asset protection schemes are usually an expensive and worthless exercise in delusion. Attorneys, bankers and foreign countries enrich themselves by convincing naive, paranoid, and often nefarious citizens to spend thousands of dollars creating trusts and companies in foreign jurisdictions which have favorable debtor laws.

In the real world, however, these debtor-friendly foreign laws are essentially worthless. Because the foreign laws are purposely designed to protect debtors by overruling settled trust law, they cannot withstand an attack on public policy grounds. When challenged in court, offshore asset protection trusts have never stopped any U.S. court from taking action against the assets or against the debtor personally. Typically, the debtor is ordered to return the assets to the jurisdiction of the court or be held in contempt of court (and placed in jail) until he or she complies.

Another claim made in favor of asset protection is that the foreign country will not enforce a U.S. judgment against a U.S. settlor (debtor) who created the offshore asset protection trust. The focus of this argument is misplaced. The critical issue is whether a U.S. court having jurisdiction over the debtor (because he or she is domiciled in the court's  state) will nullify the transfer of assets to an offshore asset protection entity under state law principles or otherwise rule that the transfer of assets to the offshore asset protection entity was invalid or illegal in the first place.