By: Robert Bernstein
August 15, 2023
In much of asset protection territory, it is a fraudulent transfer or avoidance transfer that we are worried about the most. The reason for that is that much of this protection is not just about keeping the assets in the client’s control but also keeping them away from creditors. Generally, what I mean by an asset staying in client’s control, is that the client, the client’s family or business entity practically (even if not legally) controls the property after the transfer. So, if the asset is currently owned by Fred alone and Fred transfers the property to himself and his wife, Ethel, then Fred still practically controls the property because it is owned by Fred and Ethel. That might successfully keep it out of the hands of creditors down the road if it gets past either the time for an attack or successfully defends and attack.
In general, we’ve seen the best defenses against a claim of fraudulent transfer (aside from the expiration of the statute of limitations to bring the attack) to be either that the transferee gave reasonably equivalent value for the transfer or that the transferor had no equity (above liens) in the property transferred. To deal with the statute of limitations, the sooner you get the transfer done, the sooner that clock starts (and ends). That is why planning and thinking ahead are critically important. Even a risky transfer can work out if done early enough to allow the clock to run out on the statute of limitations.
The idea of transferring property that has little or no equity needs a bit more exposition. In a future post, we will cover that more in depth.
We have more to say about Asset Protection Planning in our next post or podcast. Stay tuned…