Hope Remains for Jeffrey Epstein’s Accusers: How to attack his estate and The 1953 Trust

Let’s be clear about one thing –  I’m not suggesting that Jeffrey Epstein was a good guy. In no way is this article a defense of him. 

There are many important lessons to be learned here. 

Thankfully, Epstein’s estate planning was shockingly bad. If there’s a silver lining to this whole mess, it appears that he left the door open for his accusers to receive compensation for their suffering. 

The Facts

Epstein’s will has been made public. You’ve really screwed up when your criminal defense attorneys are the witnesses to your will.

Article SECOND of his will states:

I give all my property, real and personal, wherever situated, after the payments and distributions provided in Article FIRST, to the then acting Trustees of The 1953 Trust (“Trust”) created under that certain Trust Agreement of the 1953 Trust (the “Trust Agreement”) dated August 8, 2019, as the same may be amended from time to time, to be held in accordance with the provisions comprising the Trust Agreement at the time of my death. 

This provision is critically important for Epstein’s accusers.

A layperson would be forgiven for thinking that Epstein’s assets are now out of reach because everything was transferred to a trust. 

However, this language constitutes a “pour-over” will – a type of will that is intended to ensure that the deceased’s assets are transferred (i.e. poured-over) into a trust. A pour-over will only applies to property that had not already been previously distributed.

The critically important aspect of pour-over wills is that the affected assets do not transfer directly from the Testator to a trust. Rather, upon the death of the Testator, assets transfer to the Testator’s estate and then to the trust. 

Put simple, upon his “suicide,” some (and potentially all) of Epstein’s assets were transferred to his estate – which assets and their value we do not know at this time. The distribution of the estate’s assets will now be dictated by a probate court – a huge error with respect to estate planning. 

Because of his death, Epstein’s accusers must now successfully sue his estate to receive compensation. Some have already filed suit. Given the apparent sloppiness of his estate planning, it seems reasonable to believe that Epstein’s estate is worth hundreds of millions – potentially enough to satisfy judgments against it.

Domicile of Epstein’s Estate

I recently spoke with Mike Abel, an Arizona based Asset Protection and Estate Planning lawyer, about this fiasco. He’s fascinated by this matter and anticipates that it might take a decade or so before Epstein’s estate and all the suits against it are resolved. He speculates that lawyers on all sides are set to make over $100 million.

Governments aren’t about to miss out on the action.

Abel suspects that it will likely take a year or two before the proper domicile of the estate is determined. 

Epstein’s will was filed with the US Virgin Islands (USVI) probate court. However, it’s unlikely that the State of New York will let that happen without putting up a fight. New York has one of the highest estate taxes in the country at a whopping 16% for estates over $10.1 million. 

Through a USVI-based company, Epstein owned a residence in New York City and apparently spent significant time there. Because of his ties there, the state government of New York will certainly be arguing that Epstein’s estate is domiciled there so they can tax it.

Don’t forget about the IRS. It will certainly be in the mix fighting for a nice chunk of the estate as well.

His death frustrates his accusers’ access to evidence who stand to gain from information that might come to light with states like New York and the IRS fighting to tax the estate. Their likelihood of success would improve dramatically if a single government prosecutor had the stones to indict the alleged co-conspirators to the child sex trafficking ring. But Epstein and his network are protected – there’s no other legitimate explanation for his non-prosecution deal in 2008. 

Having high-priced, talented lawyers alone isn’t enough. He likely had dirt on politicians and government bureaucrats who pulled strings behind the scenes. There’s ample evidence that his influence was far reaching. 

Executor of Epstein’s Estate

Darren Indyke and Richard Kahn are listed as executors of Epstein’s estate. Boris Nikolic was listed as a successor executor to serve in place of Indyke or Kahn if necessary. However, Nikolic announced that he has no intention of fulfilling any such duties.

It was a wise move by Nikolic – not only because being associated with Epstein is a bad look but because the role is not risk-free. Executors can be personally liable for bad faith arguments made on the estate’s behalf. 

It will be interesting to see what arguments the estate makes to defend against Epstein’s accusers. 

In Rem Jurisdiction

Let’s assume that Epstein’s accusers prevail in court.

Can they actually get paid?

There are multiple layers to answering that question. We must begin by examining the assets controlled by the estate.

Governments have what is called “in rem” jurisdiction over things physically located within its borders.

Through various USVI companies, Epstein owned several real estate properties – five of which are located within the US and USVI. According to his will, their combined value is an estimated $171.9 million. 

Since the properties are located within the US, a court could use its in rem jurisdiction to help satisfy claims against the estate. While they might fetch significantly less at auction, the proceeds would go a long way towards compensating the accusers.

Then there is the matter of his hedge fund – another USVI entity. The will lists “Hedge Funds & Private Equity Investments” with an estimated value of $195 million. Again, US courts have the power to force the estate to use its assets to satisfy judgments against it.

The same goes for cash held in US banks and equities and other assets physically located in the US, held through US entities, and anything held by US institutions regardless of foreign ownership (ie, a US securities held by a foreign entity). 

France

Epstein’s will lists a property in Paris with an estimated value of $8.7 million, though it might be rather difficult to actually get France to auction the property given the nature of Epstein’s crimes. 

Police did search Epstein’s property in Paris. But there’s a reason why movie director, fellow scumbag, and convicted child rapist Roman Polanski fled there before serving his sentence in the US. Who knows how France would respond to successful civil suits against Epstein. 

Offshore Assets

Epstein has reportedly been tied to offshore companies and financial activities.

If offshore assets exist and they are currently owned by the estate, then they are effectively under the control of the probate court should they be needed to satisfy a judgment. The estate’s executors would face contempt of court charges and likely jail time for failing to comply with court orders.

However, offshore assets that were put into The Trust 1953 (Trust) prior to the will are a potential problem for the accusers.

The 1953 Trust

Suppose the accusers prevail in court but their award exceeds the value of Epstein’s estate. They could attempt to seek restitution from the Trust and be compensated with its assets.

Details of the Trust remain a secret.

We don’t know where it is domiciled, when it was created, and whether or not it was funded prior to Epstein’s death.

Let’s operate under the presumption that it was funded while Epstein was alive.

The worst case scenario for the accusers is that the Trust is domiciled in a fiercely independent jurisdiction like Cook Islands or Nevis with a private trust company owned by a foundation domiciled in yet another foreign jurisdiction serving as its Trustees.

Why?

Most jurisdictions do not automatically recognize foreign court decisions. As a result, the accusers would potentially have to relitigate matters in the Trust’s domicile even though they have been settled in a US court. Because the Trustees would have to be local in the Trust’s country, US courts lack the jurisdiction to direct their actions. 

Fortunately for the accusers, the US government would still have in rem jurisdiction over all assets located there even if the Trust is foreign.

The best case scenario for the accusers is that the Trust is domiciled in the US or USVI. 

Why?

A US or USVI court would then have in rem jurisdiction over all of its US-based assets. Moreover, if the trustees and/or protector (a person or institution responsible for ensuring that the trustees are adequately performing their duties) are US-based, then a US court will have the ability to force them to comply with a court order.

Stripping The Trust

Regardless of where the Trust is domiciled, there are two primary arguments as to how a court could strip the Trust of its assets.

Fraudulent Transfer

The easiest and most obvious argument for the accusers to make is that assets were transferred to the Trust in anticipation of litigation.

Virtually all jurisdictions recognize the fraudulent nature of placing assets inside a trust after it’s strongly suspected that lawsuits are impending. It’s a last-ditch move done primarily to frustrate soon-to-be creditors.

Prosecutors in New York accused Epstein of running a sex trafficking ring as early as 2002. It wouldn’t be surprising to learn that he engaged in similar illegal activities before then. In 2008, Epstein plead guilty to one count of solicitation prostitution with a minor under the age of 18 and was sentenced to just 18 months in jail with extremely lenient terms. He settled several cases out of court in 2009. Accusations against him continued.

Presuming the Trust was funded at some point prior to his death, the accusers could argue that all assets transferred since 2002, and possibly earlier, were “in anticipation of litigation.”

I suspect they would prevail.

However, the estate could defeat such a claim by proving that it was not left insolvent by the transfer to the Trust. Further information is needed to determine the proper outcome of a fraudulent transfer claim.

Improper Funding – Illegally Acquired Assets 

The source of Epstein’s wealth is a mystery. 

He was associated with a Ponzi scheme back in the 80s and 90s – at the time, it was the largest such scheme in US history. He escaped prosecution, but that might speak more to his political connections than his innocence.

Unfortunately for his accusers, the statute of limitations for these activities have likely expired. 

Regarding his more recent business dealings, Twitter user @quantian1 proposed a theory that gained a lot of traction as to how Epstein continued to amass wealth.

Essentially, he speculated that Epstein would invite wealthy and powerful individuals to his properties and record videos of them engaged in embarrassing and illegal activities with underage girls. Rather than demanding a giant lump sum as blackmail, Epstein would invite them to invest in his hedge fund. Then, Epstein would take compensation commensurate with the legitimate hedge fund managers – 2% of assets under management and 20% of profits. 

Under this scheme, he would be able to provide a seemingly legitimate source of his wealth should a government bureaucrat pry into his affairs. It’s a far more plausible explanation for a sizeable fortune than regularly receiving multi-million dollar checks and wire-transfers from dozens of seemingly unrelated sources.

@quantain1 further speculated that Epstein could invest his fund’s assets in the S&P 500 and US government bonds. These investments can be executed without world-class investing skills and without a support team of financial analysts and quants.

This theory appears to be supported by accounts from prominent Wall Street veterans – no one can recall trading with Epstein which is extremely odd considering the size of his fund. 

Furthermore, because Epstein would have dirt on his investors, he would be protected from lawsuits about investment strategies and portfolio performance. 

Proving this in court will not be easy. Presumably, Epstein’s accusers were not investors in his fund. It’s highly unlikely that the blackmailed investors would step forward to divulge the mechanics of Epstein’s operation. Accusers might be forced to prove that the trustees were aware of his illegal activities. 

Supposing @quantain1’s theory is correct, Epstein’s “investors” could actually be co-conspirators and enablers of his crimes and potentially guilty of misprision of a felony.

Innocent Owner Defense

There is another potential significant obstacle faced by the accusers. Most jurisdictions have a legal doctrine known as the “innocent owner” defense. Essentially, the current owner of property cannot be forced to surrender it if his innocence is proven by a preponderance of the evidence.

If the beneficiaries can prove their innocence regarding Epstein’s alleged schemes and activities, then a court may rule that the assets should remain in the Trust.

Latest Developments

Denise N. George, the attorney general for the USVI, filed a suit in the Superior Court of the Virgin Islands against Epstein’s estate alleging that Epstein engaged in sexual abuse of minors.

Epstein’s estate has set up a “victims’ compensation fund” though it has been reported that lawyers paid by the estate are burning up money that should go to victims. 

This mess is a long way from being settled. Expect a ton of fireworks as information continues to come out and as the legal battles continue.

Takeaways

It should go without saying, I do not work with anyone engaged in illicit activities. 

That said there is a lot to be learned from Epstein’s poor planning. 

Epstein’s poor planning left uncertainty regarding the proper jurisdiction for his estate – that is an unforgivable mistake. Figure out where your estate should be administered and structure your affairs such that there can be no confusion.

It likely would have been much more difficult for Epstein’s victims to get at his assets if he had transferred them to The 1953 Trust during his lifetime – a move would have reduced the options available to creditors in gaining compensation.  

Proper planning cannot be done in haste at the last minute. Maximize your trust’s effectiveness and transfer your assets sooner rather than later. 

If you’d like to discuss your estate planning, you can contact us.

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