The majority of U.S. asset protection attorneys prefer the Cook Islands trust for their clients’ offshore asset protection. A Hungarian trust or Hungarian asset management foundation is often a better asset protection solution for many U.S. clients.
Pertinent Features of a Hungarian Trust
The Hungarian Trust is described in the Hungarian Civil Code. The Hungarian trust vests full legal title in the name of the trustee whereas the Cook Islands trust law, based on English common law, preserves for the settlor a separate beneficial interest in trust assets.
Assets in a Hungarian trust are under the umbrella of European Union laws and regulations. Hungary provides political stability of an independent nation incorporated into the EU. Hungary’s banking industry is fully integrated into the EU banking system.
Hungarian Asset Management Foundation
The Hungarian asset management foundation (“AMF”) is a recent addition to Hungarian law that provides U.S. persons some asset protection advantages. The AMF is not a traditional “trust.” The AMF is a mixture of asset management and a trust relationship. The AMF reserves to the client discretion over AMF investments and distributions. The Code provides greater confidentiality by shielding disclosure of confidential information to public authorities.
Important Similarities Between Hungarian Entities and Cook Islands Trusts
Hungarian entities and Cook Islands trusts each provide effective asset protection for U.S. persons. Neither jurisdiction recognizes U.S. judgments or court orders. Both jurisdictions discourage successful fraudulent actions against foreign held assets by making creditors prove fraudulent intent beyond a reasonable doubt in a foreign court. The income tax treatment and reporting requirements for U.S. persons are the same in both jurisdictions.
Advantages of Hungarian Trusts and AMFs
We have found that the Hungarian trust and AMF have advantages that make them the preferred asset protection tool for some of our U.S. clients.
Hungary Provides Smoother Onboarding and Client Acceptance:
Cook Island trustees are more particular about whom they accept as clients after performing independent know-your-customer inquiries, and they often refuse clients with legal troubles. Also, Cook Islands trustees can refuse to defend trust assets against claims from creditors in clients’ pre-existing lawsuits or claims. Other clients who are involved in criminal proceedings or even investigations have difficulty being accepted for a Cook Island Trust.
Banking and Financial Accounts Easier in Hungary
Banking and asset managements for Cook Islands trusts requires that U.S. clients are comfortable with Cook Islands financial institutions. Clients wanting the political stability and insurance of the E.U. have found it comparatively expensive and time-consuming for the Cook Islands trustees to place client money in well-known EU financial institutions. Because Hungary is fully integrated in the EU financial system, opening trust accounts in the best-known EU financial companies is quick and less expensive for Hungarian trustees.
Creditor Fraudulent Transfer Actions Are More Difficult
A well-motivated creditor can initiate a fraudulent transfer claim in Cook Islands or Hungary. Legal actions in the Cook Islands use the English language, and legal pleadings are similar to like actions in U.S. courts.
Legal actions, including fraudulent transfer suits, brought in Hungary must be in native Hungarian language including pleadings and oral argument before a tribunal. U.S. pleadings must be translated, and creditors must hire Hungarian attorneys. The language rules are a practical defense against U.S. creditors pursuing fraudulent transfers to a Hungarian Trust.
The Hungarian AMF provides additional barriers to creditors’ fraudulent transfer claims. U.S. law is hostile to foreign asset protection trusts. In practice, offshore trusts imply improper evasion of creditors or taxes. Because the AMF legally is not a “trust” a U.S. person avoids negative association with offshore trust planning. The U.S. person should be able truthfully to state that his assets are under a financial management contract with a Hungarian AMF rather than testifying that he transferred to an offshore asset protection trust.
Who Should Use a Hungarian Asset Protection Trust?
We often recommend Hungarian trusts or AMFs to clients who either were rejected by the more exacting Cook Islands KYC standards, have existing judgments and civil litigation, who are about to transfer non-exempt assets offshore and could use a Hungarian AMF, or who appreciate the relative efficiency and political stability of integration into the EU financial system.
About the Author
Jon Alper is a U.S. attorney with Alper Law. He has been advising clients with asset protection including foreign trusts for over 30 years.