An Illinois court recently addressed a judgment creditor's efforts to turnover assets in offshore trusts. The Court in Dexia Credit Local v. Rogan, 2009 WL 648634 (N.D. ILL. 2009), determined that under Illinois law, courts will not honor a choice of law provision where to do so would violate Illinois public policy.

There, Rogan created a self-settled trust where the trust documents specified that Bahamian law applies. A self-settled trust is where the settlor is also the beneficiary. This trust had a spendthrift provision where it prohibited the beneficiary's interests from being assigned and from being attached by creditors. Such spendthrift provisions are permitted in the Bahamas. But, in Illinois, and in most other U.S.jurisdictions, it is void. Since Bahamian law is contrary to Illinois public policy, the Court would not apply Bahamian law to the construction and operation of the trust and held that the judgment creditor is entitled to execute on the asset of the trust.

The Rogan Court further noted that with a self-settled trust where the settlor is one of the beneficiaries and contains a spendthrift provision where Florida law applies, a creditor can reach assets up to the maximum amount the can be distributed to or for a settlor's benefit. Thus, a creditor can reach income if the settlor can only receive income or the entirety of the trust if the settlor can receive the entire corpus.

Thus, creditors can reach trust assets in self-settled trusts located offshore, but the extent of that reach is determined by the law of the state where the judgment is being enforced.