LEGAL GUIDE
Written by attorney Sebastian Gibson | May 22, 2010

Fraudulent Transfers and Fraudulent Conveyances in California

In this time of financial uncertainty and risk, consulting with a fraudulent transfer attorney or a fraudulent conveyance lawyer is about being smart before it's too late. Those with the ability to protect their families should utilize the options an asset protection lawyer can provide to protect and preserve one's assets and wealth so those assets can be passed down to family members who may need them more than ever in a future without medicare or social security. An individual who transfers assets for the sole purpose of preventing creditors from obtaining those assets in litigation may be found by a court to have fraudulently conveyed or transferred the assets. If a court finds that the individual fraudulently conveyed his or her assets, the court will void the transfer and return the assets to their previous status or owner, in which case, they will be vulnerable to being attached by the creditor or plaintiff. To avoid a claim that there has been a fraudulent transfer, or at least to provide the debtor or defendant with a good defense to such a lawsuit, an asset protection plan should be put in place years before any such claims arise. That asset protection plain should also be part of a much more valid purpose, such as being just one piece of the individual's estate and tax planning efforts, which may include the drafting of a will, a family limited partnership and/or offshore trust. Additionally, transfers made for genuine business reasons and estate planning such as providing a way to successfully pass on a family business to one's heirs are a legitimate reason to set up a family limited partnership. Where the transfers are made for consideration, such as for limited partnership interests, they should be protected by the savings clause of Section 9 of the Uniform Fraudulent Transfers Act. Family limited partnerships should only be structured so that general partners receive a proportionate interest in the FLP based upon the amounts of their capital contributions. A partner who obtains a disproportionately small interest compared to a spouse, for instance, who contributes the same amount of capital, can face a claim based on a cause of action for fraudulent transfer in some states by a creditor for the amount given away without receiving a fair consideration. When assets aren't liquid such as real estate, they can't be transferred offshore. The remedy in such a situation when an individual is seeking asset protection for illiquid assets offshore is to sell the assets (and lease a home, if the asset is the family home) and transfer the proceeds to an entity such as a foreign trust or offshore LLC. Remember, anyone can sue anyone else in America for any reason whatsoever. It doesn't mean they will win. And having an estate plan that includes transfers of assets to family limited partnerships or offshore trusts long before such litigation has begun doesn't mean you will automatically prevail against a creditor. Asset protection is instead, a way to provide you with a defense to such a lawsuit that, if the asset protection planning is implemented properly, and the asset protection scheme is argued well before an astute judge in a state with laws favorable to you, it should help an individual prevail in most such litigation. No attorney can guarantee success and if any attorney does guarantee it, they may well be in violation of state bar rules. What is good for the client who is seeking asset protection is equally good for the attorney concerned with becoming embroiled in fraudulent transfer claims and litigation. Asset protection schemes utilizing foreign trusts and offshore LLC's should only be used as part of a comprehensive estate and tax planning strategy to provide a defense, if needed, against a claim that the sole purpose of the creation of a foreign entity was to defeat the claim of a creditor. In compliance with IRS requirements, we must advise you that any U.S. federal tax advice or fraudulent transfer and fraudulent conveyance advice contained in this informational article is not intended to be used nor is it published in order for it to be used and you may not use it for the purpose of avoiding penalties or fines under the Internal Revenue Code. It is not intended to be used nor is it being published in order to promote, market or recommend any specific transaction, tax-related matter or estate planning tax scheme to any party.

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