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Nassau County Fraudulent Transfers

While estate planning is a way of creating a plan to effectively and efficiently transfer wealth to others, another reason to create an estate plans is to protect 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 or to other people with the intention of keeping those assets from creditors. While transferring assets to a trust is not illegal, not is selling or giving away property, 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 consequences may be a serious. The best way to avoid an inadvertent fraudulent transfer is to work closely with an experienced Nassau County fraudulent transfers lawyer to ensure that your estate planning meets your goals of protecting your assets and that it also is in compliance with the law.

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 assets during bankruptcy by selling or transferring ownership of specific assets prior to filing for bankruptcy. As an experienced Nassau County fraudulent transfers lawyer will explain, 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. Indicia of a fraudulent transfer include:

  • Selling property for less than the fair market value. This typically happens when a debtor “sells” property to a family member or friend. Doing so makes it appear as if transaction is not a bona fide sale, but simply an effort to prevent the creditor or bankruptcy trustee get a hold of the asset.
  • Transferring assets to an insider, such as a family member or trusted friend. This type of transaction my raise a red flag with the bankruptcy court. It may seem as if you are gifting the asset to prevent the creditor or bankruptcy trustee get a hold of the asset. Or, the bankruptcy court may think that the transfer is not real and that you get it back at some future date.
  • Transferring ownership to someone else, but keeping the property for your use. This type of transaction also has the signs of not being a bona fide gift or sale.
  • Becoming insolvent after the transfer. This is a factor that the court will consider in determining the reason for the transfer. It will look suspicious if you sell an asset, especially below market value, then soon thereafter you declare that you are insolvent.
  • Failing to disclose a transaction. Hiding a sale, gift, or transfer from the court will cause the court to become suspicious that the transfer was completed for a fraudulent purpose. Otherwise, why hide it?
  • Conducting a transfer in an unusual way. Any transfer that was conducted outside of the normal way you conduct business or in an illogical manner would raise concern as to the reason for the transfer and the reason for the unusual way of completing the transfer.
Example

Holly owned a children’s clothing store in a strip mall for almost 20 years. Unable to effectively compete with online retailers, Holly’s revenue steadily declined. She tried everything to boost sales. She ended up having to take out loans that she secured with her inventory to pay for various business expenses. She got to the point where she was not making enough money in sales to make loan payments. Soon Holly faced the fact that she was insolvent. Desperate for cash to pay her mounting bills, she contacted a friend who owned a thriving children’s clothing store a few towns away and offered to sell her a lot of inventory at a loss. The friend agreed. However, she did not use the money to make payments on her loans. Instead she made a car payment, paid her utilities bills, and made some personal purchases. A few weeks later, Holly’s filed for bankruptcy and closed her store. According to an experienced Nassau County fraudulent transfers lawyer, the bankruptcy court will look closely at the selling of inventory because Holly sold it at a loss, she sold it to a friend, she did not use the proceeds to pay her creditors, and she filed for bankruptcy soon after the sale.

Consequence of fraudulent transfers

If the bankruptcy trustee deems a transaction to be fraudulent, it has the power to unwind the fraudulent transfers and recover either the property or its value. Sometimes the trustee must file a lawsuit against the recipient of the asset in order to recover the property or its value. The trustee is likely to do this if he (or she) believes that the beneficiary of the transfer was aware of the fraud. For example, John was once quite financially comfortable and had significant assets. After experiencing 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. As a fraudulent transfers attorney in Nassau County will explain, the sale of the 4 cars in this case would like be deemed fraudulent transfers. However, if the new owner of the property was unaware that you had creditors who had claims against your property, then the purchaser is more likely to be permitted to keep the property.

Be aware that creditors who suspect that a debtor is to transfer of property in order to avoid paying the debt may be able to obtain a temporary restraining order and preliminary injunction to prevent the transfer before it occurs.

Avoiding fraudulent transfers

A sound asset protection plan that is a part of your overall estate plan would be an effective and legal way to protect assets from creditors and avoid being subject to fraudulent transfer liability. While the 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.

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 fraudulent transfers lawyer serving clients in Nassau County. 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, and that will help ensure that your estate avoids the pitfalls associated with probate. Contact us at 1-800-NY-NY-LAW (1-800-696-9529) to schedule a free, no obligation consultation regarding your case. We represent clients in the following locations: Nassau County, Suffolk County, Westchester County, Bronx, Brooklyn, Long Island, Manhattan, Queens, and Staten Island.

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Mr. Bilkis handled both my father and mother's estate issues through very difficult times he was compassionate kind and understanding. In fact the whole firm showed great empathy. Despite the emotional hard time we were having that quickly and efficiently handle all the matters that were necessary to get us the result we desired. Can't recommend them enough. B.B.
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