June 7, 2011
In his article Recent Developments in Asset Protection Law published in the Wealth Strategies Journal, Jay D. Adkisson presents a litany of recent court cases which impact asset protection and estate planning. Adkisson details more than forty cases from District, Appelate and Circuit courts across the country that raise important questions in the areas of fraudulent transfers, bankruptcy fraud, executor interests, pre-bankruptcy planning, trusts, and business entities, among others issues. Find a complete description of these cases in Adkisson’s full article in the Wealth Strategies Journal.
Of particular interest are two cases—one in Florida and one in California—which deal with fraudulent transfers and estate planning.
In re Quaid, (2011 WL 285645, Bkrtcy.M.D.Fla., Jan. 26, 2011,), a Florida Debtor sought to protect his assets from Creditors by transferring his assets to a self-settled trust, declaring the assets exempt because of the spendthrift provision contained within the trust.[1]
However, the Orlando Division of a U.S. Bankruptcy Court ruled that a spendthrift provision does not apply to assets in a self-settled trust (i.e., a trust where a beneficiary is also a settler) when the beneficiary contributes assets to this trust. Ultimately, the money that Debtor intended to shield—which amounted to almost $400,000—was included in his estate, allowing his assets to be reached by his Creditors.
Months later in California, the case of Struyk v. Meltzer (2011 WL 1019916, Cal.App. 4 Dist, Unpublished, Mar. 23, 2011), raised important questions of fraudulent inter-spousal transfer of assets. In this case, a Debtor Husband—owing $500,000—transferred assets to his wife, who had no debts, by quitclaiming his interest in his residence to her.[2] The wife then assumed the residence as her “sole and separate property.”
Both the husband and wife were sued for a fraudulent transfer. In their defense, they argued that there was no evidence the wife had any knowledge of the husband’s fraudulent intent, and therefore “did not accept quitclaim of the residence ‘with actual intent to hinder, delay or defraud’” the husband’s Creditor.[3]
However, the jury found that the Husband did intentionally transfer the property to the Wife in order to defraud his creditor, which ultimately led to a “a jury verdict well in excess of the value of the assets that she received, which is a permissible result as the court describes. In other words, not only did this transfer totally fail, but it made things a lot worse and merely created a second debtor for the creditor to chase.”[4]
These cases confirm a perhaps obvious intuition—that fraudulent transfers can prove counter-productive at best, and disastrous at worst. Both cases, by stipulating that a Creditor will be able to reach a Debtor’s assets even if these assets are placed in a self-settled trust or transferred to a spouse, serve as a warning call to those who attempt to escape Creditors by hiding assets through questionable methods. These cases also serve to remind all of us of the importance of using knowledgeable professionals in the estate planning and bankruptcy process to avoid the disastrous results that potentially accompany fraudulent transfers.
In his article Recent Developments in Asset Protection Law published in the Wealth Strategies Journal, Jay D. Adkisson presents a litany of recent court cases which impact asset protection and estate planning. Adkisson details more than forty cases from District, Appelate and Circuit courts across the country that raise important questions in the areas of fraudulent transfers, bankruptcy fraud, executor interests, pre-bankruptcy planning, trusts, and business entities, among others issues. Find a complete description of these cases in Adkisson’s full article in the Wealth Strategies Journal.
Of particular interest are two cases—one in Florida and one in California—which deal with fraudulent transfers and estate planning.
In re Quaid, (2011 WL 285645, Bkrtcy.M.D.Fla., Jan. 26, 2011,), a Florida Debtor sought to protect his assets from Creditors by transferring his assets to a self-settled trust, declaring the assets exempt because of the spendthrift provision contained within the trust.[1]
However, the Orlando Division of a U.S. Bankruptcy Court ruled that a spendthrift provision does not apply to assets in a self-settled trust (i.e., a trust where a beneficiary is also a settler) when the beneficiary contributes assets to this trust. Ultimately, the money that Debtor intended to shield—which amounted to almost $400,000—was included in his estate, allowing his assets to be reached by his Creditors.
Months later in California, the case of Struyk v. Meltzer (2011 WL 1019916, Cal.App. 4 Dist, Unpublished, Mar. 23, 2011), raised important questions of fraudulent inter-spousal transfer of assets. In this case, a Debtor Husband—owing $500,000—transferred assets to his wife, who had no debts, by quitclaiming his interest in his residence to her.[2] The wife then assumed the residence as her “sole and separate property.”
Both the husband and wife were sued for a fraudulent transfer. In their defense, they argued that there was no evidence the wife had any knowledge of the husband’s fraudulent intent, and therefore “did not accept quitclaim of the residence ‘with actual intent to hinder, delay or defraud’” the husband’s Creditor.[3]
However, the jury found that the Husband did intentionally transfer the property to the Wife in order to defraud his creditor, which ultimately led to a “a jury verdict well in excess of the value of the assets that she received, which is a permissible result as the court describes. In other words, not only did this transfer totally fail, but it made things a lot worse and merely created a second debtor for the creditor to chase.”[4]
These cases confirm a perhaps obvious intuition—that fraudulent transfers can prove counter-productive at best, and disastrous at worst. Both cases, by stipulating that a Creditor will be able to reach a Debtor’s assets even if these assets are placed in a self-settled trust or transferred to a spouse, serve as a warning call to those who attempt to escape Creditors by hiding assets through questionable methods. These cases also serve to remind all of us of the importance of using knowledgeable professionals in the estate planning and bankruptcy process to avoid the disastrous results that potentially accompany fraudulent transfers.
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