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HOW NOT TO PROTECT ASSETS
FRAUDULENT CONVEYANCES
The transfer of assets for
the specific purpose of hindering or preventing existing creditors from
reaching those assets may be deemed by a court to be a fraudulent
conveyance.
In such event, the court may
void the fraudulent transfer, returning the assets to their status before
that transfer.
The assets would then be
vulnerable to attachment and seizure by a judgment creditor.
For this reason, clients
should establish their asset protection plan before any claims arise
against them.
If it is too late to do this,
clients should at least have another valid purpose, apart from asset
protection, as the reason for the establishment of family limited
partnerships, trusts or other structures.
Other valid purpose for a
transfer of assets will usually serve as an effective defense against a
claim of fraudulent conveyance.
Estate planning and income
tax minimization
are such other valid purposes.
Thus, it is important to
implement an asset protection plan in the context of complete estate and
tax planning, including the execution of a will and the establishment of
appropriate trusts.
If the protective entities
are created principally for the purpose of estate and tax planning (with
asset protection being an incidental by-product of the estate and tax
plan), creditors will have far less likelihood of successfully arguing
fraudulent conveyance.
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