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South Carolina Bankruptcy Laws

Learning Center | South Carolina Bankruptcy Laws
  1. Avoidance of transfers to asset protection trust

A new § 348(e) allows a trustee to avoid any transfer by the debtor to a self-settled trust or similar device made within 10 years of filing the petition, with “actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.” This provision would allow recovery of funds transferred by the debtor to an asset protection trust, but apparently only if the trustee could establish that the transfer was made in connection with avoiding a particular claim, rather than simply as a general asset protection device. It is common practice for debtors to shield assets by transfer to trusts as part of legitimate estate planning practices. Some less savory practices involved foreign asset trusts. From a logistical standpoint, it would be very unlikely to defeat a trust that was formed before a particular obligation came into existence and it is clear that this provision was meant to deal with transfers arising in response to of immediately prior to some potential liability issue.

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