The Portnoy, Brooks, and Lawrence cases demonstrate that under the right facts and circumstances, courts can and will enter orders finding spendthrift provisions of asset protection trusts invalid. These cases and this Article discuss a path that a bankruptcy court may follow to find that property transferred to an asset protection trust is property of a bankruptcy estate. Such a finding may lead to effective remedies for creditors, such as denial of a discharge to a debtor, orders compelling a debtor to direct a trust trustee to transfer assets, with contempt orders if the debtor fails to comply, and, possibly, a claim against a professional who assisted a debtor in setting up the asset protection trust. In cases involving domestic trusts, because the bankruptcy court will have personal jurisdiction over the trustee, any judgment entered by a bankruptcy court would be binding on the trustee and a bankruptcy trustee or a creditor should be able to pursue remedies against the trust trustee. In cases involving offshore trusts, such as In re Brooks and the Hess article mentioned at the beginning of this paper, where an asset such as stock of a domestic corporation is at issue, a court may be able to order the cancellation of stock transferred to a trust and the issuance of stock to a creditor or a bankruptcy trustee. However, unless and until governments take legislative action to prevent transfer of assets to asset protection trusts, creditors will not have completely effective remedies against a debtor who transfers assets to an offshore asset protection trust.
Offshore and "Other" Shore Asset Protection Trusts,
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