How Do I Protect Assets in a Trust if I File Bankrputcy?
Full Question:
Answer:
Generally, assets in a trust that is irrevocable and which the debtor is not a beneficiary are less likely to be subject to creditors' claims in bankruptcy than those in an irrevocable trust in which the debtor is a beneficiary. I suggest you consult a local attorney who can review all the facts and documents involved.
Transfering assets right before filing bankruptcy may throw up red flags for examination.
The elements of a fraudulent conveyance transfer are defined as follows by the Uniform Fraudulent Transfer Act:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(ii) intended to incur, or believed or reasonably should have believed that he [or she] would incur, debts beyond his [or her] ability to pay as they became due.
Bankruptcy Code section 548(e)(1) provides:
In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if –
(A) such transfer was made to a self-settled trust or similar device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or similar device; and
(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.
For further discussion, please see:
http://www.abiworld.org/committees/newsletters/litigation/vol5num4/Bankruptcy_Lit_June_2008_Asset%20Protection_Ostrow_Article.pdf