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Kansas Estate Planning Lawyer Explains Fraudulent Transfers

Weber Law Dec. 10, 2017

When people engage in estate planning, they often have as their primary objective the transfer of their assets to their loved ones. People design estate plans that specify which assets they want to pass to whom, and they often consult with estate planning attorney to ensure that they have set up those transfers correctly and also that they have planned for those transfers to happen in a way that will pay as little tax as possible. All of this is fine, in fact, it is the very nature of estate planning and central to the work that estate planning attorneys do.

One of the reasons that it is critical for people to work with estate planning attorneys is that estate planning activities are governed by laws. When you set up your estate plan to make transfers of your various assets, those transfers must be arranged in accordance with all applicable laws for them to be valid. If a transfer is done improperly, at best, the gift will fail, frustrating the purpose of having engaged in estate planning in the first place, and at worst the estate could also be subject to penalties for fraudulent transfer.

The topic of fraudulent transfer applies to the estate of any person who has one or more creditors, which means that it applies to almost everyone. It is a rare person who has absolutely zero creditors, and all it takes is one creditor challenging one gift to unravel an entire estate plan. Creditors may challenge any estate planning strategies, such as trusts or gifts if they think they were done fraudulently.

Some people believe that they don’t have to concern themselves with understanding fraudulent transfer rules because they would never, ever intentionally defraud anyone. Unfortunately, this is simply not true. Both intentional and unintentional fraud are covered by the Uniform Fraudulent Transfer Act (UFTA), which has been adopted by most states.

Actual fraud happens when someone makes a transfer or enters into an obligation with the intent to defraud, delay, or hinder any current creditor or any probable future creditor. Actual fraud gets proven by evidence regarding the circumstances surrounding a transfer. Your actual intent, then, matters less than how the transfer looks to others from the outside.

Constructive fraud happens when you make a transfer without getting a reasonably equivalent value in exchange for it if you were insolvent (you had more debts than assets) at the time you made the transfer, or if you became insolvent as the result of the transfer. Part of preventing yourself from claims of constructive fraud includes maintaining a constant awareness of your net worth so that you can understand the impact of any transfer or contemplated transfer on your solvency. If you find that you are anywhere close to insolvent, hold off on making those gifts or transfers until you can increase your net worth to a more comfortable level by settling or paying off some debt or accumulating more assets.

If you have questions about transfers or any other estate planning topic, call the law office of J. Joseph Weber, P.A. to set up an initial consultation. You can also connect with us online. Our Wichita office is open Monday through Friday, from 8 a.m. to 5 p.m. We even offer some weekend and evening hours by appointment.