Nassau County Fraudulent Transfers

One of the reasons that people chose to develop estate plans is to protect their assets from creditors and to minimize taxes. Unfortunately in doing so some people find that they have unintentionally created a serious problem for themselves called a fraudulent transfer or fraudulent conveyance. A fraudulent transfer can occur if you transfer assets from your estate to a trust with the intention of keeping those assets from creditors. While transferring assets to a trust is not illegal, depending on your overall financial situation and the timing of the transfer, such a transfer may be viewed as an intended to skirt the law. The consequence may be a serious. The best way to avoid an inadvertent fraudulent transfer is to work closely with an experienced Nassau County estate planning attorney to ensure that your estate planning meets your goals of protecting your assets and minimizing taxes and that it also is in compliance with the law.

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What makes a transfer fraudulent

Fraudulent transfers frequently occur when someone is experiencing financial problems and is considering filing for bankruptcy. If the person does ultimately file for bankruptcy, during the process the bankruptcy trustee has the right to seize assets of the debtor, sell the assets and use the proceeds to pay the debtor’s creditors. Some people attempt to avoid losing asset during bankruptcy by selling or transferring ownership of specific assets prior to filing for bankruptcy. Upon reviewing sales and transfers of property that occurred prior to the bankruptcy filing, the bankruptcy trustee will make a determination as to whether or not those transfers were fraudulent.

The trustee will look closely at transfers made to a relative or colleague. The trustee will assume fraudulent intent if you transferred the property, did not receive reasonable compensation for it and during the time of the transfer you were experiencing serious financial problems.

There are two types of fraudulent transfer: actual fraud or constructive fraud. If you transfer property within a year of filing for bankruptcy and there is evidence that your intent was to avoid paying your 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 market 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

Oftentimes the person who is the beneficiary of the transfer is aware of the fraud. Thus, the consequence of a finding that a transfer was fraudulent is that the bankruptcy trustee can actually recover the property from its new owner and use it to pay your creditors. For example, John was once quite financial comfortable and had a lot of assets. After experiences several business reverses, he decided that he needed to file for bankruptcy. He owned 4 luxury vehicles. Aware that he would lose them to his creditors after filing for bankruptcy, he sold 1 car to each of his 4 children for $500 each. He explained to his kids why he was selling the cars to them and they happily each paid the $500.

However, if the new owner of the property was unaware that you had creditors who had claims against your property, then the purchaser will be permitted to keep the property. For example, John was trying to sell one of his luxury vehicles for $45,000- the Blue Book value, but the best offer he could get was $5000 from stranger. The buyer would probably be allowed to keep the car since he had no idea of John’s intent to avoid allowing his creditors get the car.

Estate planning to avoid fraudulent transfers

A sound asset protection plan that is a part of your overall estate plan can be an effective and legal way to protect assets from creditors and avoid being subject to fraudulent transfer liability. While New York law does not allow you to create an asset protection plan to evade current creditors, the law does allow you to create an asset protection plan to protect assets from future creditors. This is why it is important to put a comprehensive estate plan in place with the help of an experienced attorney.

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 even if you file for bankruptcy. 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.

In order for a trust work as an asset protection vehicle, you must create it in advance. If you created it, transfer assets and then soon after file for bankruptcy, the transfer would likely be considered a fraudulent transfer.

Setting up a trust to avoid fraudulent transfers

In order for your estate to benefit from an irrevocable living trust, it must be set up properly and at the right time. Timing is critical. If you have financial problems and are unable to pay your debts to your creditors, transfers made to a living trust within a year of a bankruptcy filing will be considered suspicious. It is likely that the bankruptcy court will determine that transfer was made with the intent to avoid paying creditors. In addition, the language in the trust must be such that the trust is indeed an irrevocable trust over which you have no control.

Contact the Law Office of Stephen Bilkis & Associates

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 Nassau County Fraudulent Transfers Lawyer. The staff at the Law Offices of Stephen Bilkis & Associates has extensive experiencing setting up comprehensive estate plans that include asset protection plans. 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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