When estate planning clients come to me with creditor issues, and a request to protect their assets from their creditors, an in-depth discussion must be had between us on the legal ramifications of fraudulent conveyances.
A fraudulent conveyance is a knowing or intentional transfer by you of your assets in an attempt to place your assets beyond the reach of your known creditors. It is a transfer of title from you to another for the purposes of avoiding debt. This is unlawful.
When a fraudulent conveyance takes place it creates a cause of action or potential lawsuit against the property you conveyed. It opens the door for a creditor to reach that asset for re-payment or levy despite the fact that you transferred it out of your name. These types of legal actions often involve court injunctions to stop the conveyance or prevent the new owner from benefitting from the asset, or the appointment of a receiver to take over the asset and remove it from the hands of the new owner. This can be an embarrassing, expensive and involved lawsuit that is best avoided.
There are also ethical considerations for attorneys and clients when estate planning involves asset protection conveyances. If the creditor involved is a known or present creditor of the client, any conveyance of an asset for the purposes of placing the asset out of the reach of the creditor can be a fraudulent conveyance. However, if the planning involves asset protection from future or possible creditors, a transfer of assets in the midst of estate planning may be acceptable but this largely depends on whether or not the creditor was reasonably anticipated or if the creditor problem was just in the realm of possibility.
To avoid the legal ramifications of a fraudulent conveyance for you, as your attorney I must conduct a strict due diligence process to examine all of your assets and creditors to determine if a conveyance would be or could be deemed fraudulent. If your creditor issues are overwhelming or personally crushing, I would refer you to a bankruptcy attorney for further consultation.
All clients, no matter if they have creditor issues or not should still have good estate planning documents put into place as there are a variety of methods in skilled estate planning that can protect families and livelihoods without the dangers of wading into fraudulent conveyances.
Please call us for a consultation today if you are worried about creditors and what may happen to your assets in the event of your death or incapacity.