Bronx Fraudulent Transfers

Estate planning is more than making a last will and testament or trust. It is also planning for your future financial and personal needs. One important issue to think about is that one day you may not be able to live on your own. You may need to move into an assisted living facility, memory care facility or nursing home so that you can get help with activities of daily living or constant medical attention. Such facilities are quite expensive, costing thousands of dollars each month. Even if you have a substantial savings you may still be able to qualify for need-based government funds that will pay for your long-term care needs. However, you must plan in advance in order to qualify for such government funds without having to first deplete your hard-earned savings. In addition, such planning cannot be at the expense of stiffing your current creditors. With improper planning, you may find yourself in deep financial difficulty, including being accused by your creditors of making a fraudulent transfer. The best way to protect your assets without winding up in a sticky financial and legal situation is to work closely with a qualified Bronx Fraudulent Transfers Lawyer to ensure that your estate planning meets your financial goals and that it is free of any costly complications.

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When is a transfer fraudulent?

Fraudulent transfers often occur when a person is experiencing financial difficulties and is contemplating filing for bankruptcy. During a bankruptcy, under the law the bankruptcy trustee has the right to seize certain assets of the debtor, sell them and use the proceeds to pay creditors. In order to avoid having an asset end up the hands of the bankruptcy trustee or creditor, some debtors sell or transfer ownership of property shortly prior to filing for bankruptcy. As a part of the bankruptcy process, the trustee will review recent sales and transfers of property that occurred to determine if they were fraudulent.

A transfers may be considered questionable if it was made to a relative, friend or colleague. Fraudulent intent will also be presumed if you transferred the property and did not receive market value for it. Of course, if it is clear that you transferred the property in an effort to avoid using it to pay creditors, the transfer would be considered fraudulent.

A fraudulent conveyance can be either actual fraud or constructive fraud. If you transfer property within a year of filing for bankruptcy and it can be shown that your intent was to avoid paying creditors, then it is likely that the bankruptcy court will find that you committed actual fraud. On the other hand, if you transferred property for less than its reasonable value, and you could not pay your debts at the time of the transfer, then a court may determine that you committed constructive fraud. For a finding of constructive fraud intent is irrelevant.

Consequence of Fraudulent Transfers

A consequence of a fraudulent transfer may be that the court reverses the transaction. This is the likely consequence if the person who receives the property at issue in a fraudulent transfer is aware of the fraud. However, if the new owner of the property was unaware that your had creditors who had claims against your property, then the purchaser will be permitted to keep the property.

How do I effectively and legally protect my assets?

A sound asset protection plan that is a part of your overall estate plan can be an effective way to both protect assets from future creditors and avoid fraudulent transfer liability. While the law does not allow you to create an asset protection plan to evade current creditors, it is acceptable to create an asset protection plan to protect assets from future creditors. A future creditor may be an assisted living facility. With proper planning, instead of using your assets to pay for assisted living, Medicaid will pay for it. This is sometimes referred to as Medicaid planning.

An effective way to protect assets is by transferring assets to an irrevocable living trust. A trust agreement is an estate planning vehicle that holds property for the benefit of another person. To create a trust you as the grantor would transfer property into the trust. The trust then becomes the legal owner of the property. A living trust can be revocable or irrevocable. When you create an irrevocable trust you name someone else as the trustee. You cannot change the terms of the trust. It is permanent. Thus, you give up control over the assets. Because you give up ownership and control over the assets, your creditors cannot reach them. However, you are still able to enjoy the benefits of the assets. For example, you can name a family member as the beneficiary of the trust. This would enable you and your family to continue to benefit from the property without the property being legally owned by you.

A revocable trust, on the other hand, is not an effective estate planning to protect assets and avoid fraudulent transfers. With a revocable trust you are the trustee and have the authority to change or revoke the trust at any time. If you decide that the trust is no longer necessary, then you are free to dissolve it. With a revocable trust even though you transfer your assets to the trust, you still maintain a significant amount of control over the trust and the assets.

In order for an irrevocable trust to be an effective tool, the timing of when you set it up is critical. If you are on the verge of filing for bankruptcy and you create an irrevocable trust immediately prior to doing so, you may run into a fraudulent transfer problem.

Part of qualifying for Medicaid is that your assets and monthly income must each fall below certain levels. Medicaid has a 5 year "look-back" requirement. Medicaid will review your finances for 5 years prior to when you apply for Medicaid to see if you gave away any money. Not only does this mean transferring money to a trust, it also means giving gifts to friends and family members. Any money that you gave away will be subtracted from Medicaid funds for which you would be eligible. For example, if you gave your sister $500 as a birthday gift, instead of paying $5,000 toward your assisted living bill, Medicaid will only pay $4,500. Similarly, if you transfer $100,000 into an irrevocable trust 3 years prior to moving into an assisted living facility, if your monthly bill is $5000, Medicaid will not pay it for the first 20 months.

Thus, in order to properly protect your assets from future creditors and for Medicaid planning, you must set up an irrevocable trust over which you have no control, and you must do so well in advance.

Funding an Irrevocable Trust

Funding a living trust means transferring assets that you own to the trust. You will no longer be the owner of the assets you put in the trust. The trust will own them for the benefit for the beneficiary or beneficiaries that you name in the trust agreement. You can transfer practically any type of property to a trust. Common trust assets include bank accounts, investment accounts, real estate, jewelry, precious metals, works of art, and other collectibles.

In order to fund a trust with cash, you would open a bank account in the name of the trust and simply deposit cash into that back account. Each time you deposit money into that bank account owned by the trust, you will be adding to the trust's principal. Similarly to fund a trust with stocks or bonds, you would have to follow the same procedure: open a brokerage account in the name of the trust and transfer investments to it.

To fund a trust with real property such as a house, you would have to re-titled the property from your name to the name of the trust. A new deed will have to be executed and filed with the appropriate government agency. To fund your trust with personal property such as jewelry, works of art, antiques, or collectibles you would need to draft a document memorializing that you are transferring ownership of the property to the trust. Particularly in the case of property such as a vehicle, before any property is transferred to a trust, an expert should be consulted to advise you of the property way to effect the transfer and to advise of any negative financial consequences of such a transfer.

Other Benefits of an Irrevocable Trust

In addition to protecting assets from future creditors and avoiding the pitfalls of a fraudulent transfer, other benefits of transferring property to an irrevocable trust include estate tax savings and probate avoidance. If you give away assets during lifetime those assets will not be included in your taxable estate at your death. This is important as the value of the property that your beneficiaries will receive from your estate will be reduced by the amount of estate taxes that must be paid. Taxes and other debts owed by your estate must be paid before property is distributed to beneficiaries. If your estate does not include enough cash to cover estate taxes owed, other estate property such as real estate may have to be sold to satisfy the debt owed for estate taxes.

Property that your placed in an irrevocable living trust will not have to go through the probate process. Probate is the legal process during which the New York Surrogate's Court determines the validity of a will and authorizes the distribution of assets. There are several steps in probate. First the executor whom you name in your will submit your will to the Surrogates' Court. The judge will review you will and determine whether or not it is valid. If the judge determines that is valid, the court will allow the executor to being the process of administering your estate. The executor will have to first locate, inventory and determine the value of your estate. Then estate debts will have to be paid. The final step is for the assets to be distributed to the beneficiaries names in your will.

Probate takes time; it usually takes at least 9 months, but can take well over a year. During this time your beneficiaries will not have access to the property that you left for them in you will. If there are any problems during probate such as probate litigation or a will contest or issues related to estate taxes, then probate will take even longer. Assets that are in a trust that you made during your lifetime will not have to through probate. Instead, beneficiaries will receive the property fairly quickly after your death.

To ensure that your assets are adequately protected and that you do not risk suffering the consequences of making a fraudulent transfer, it is important to contact an experienced Manhattan Fraudulent Transfers Lawyer. The staff at Stephen Bilkis and Associates have extensive experiencing setting up comprehensive estate plans that include living trusts as well as wills and advanced health care directives. We will help you develop an overall estate plan that reflects your individual goals. Contact us at 1-800-NY-NY-LAW (1-800-696-9529) to schedule a free, no obligation consultation regarding your estate plan.

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