Any creditor can attack the implementation of an asset protection plan simply by making allegations that transfers of your assets to other people or entities or the investment of money in exempt assets (such as annuities) thereby constitutes a fraudulent transfer or fraudulent conveyance because these conveyances were implemented with the intent to hinder, avoid, or delay creditor collection. Any asset protection conveyance can be challenged as “fraudulent” for four years even if you had no obligation or duty to the challenging creditor when your asset protection planning was implemented.

The terms “fraudulent transfer” and "fraudulent conveyance” have a bad implication, and many people incorrectly confuse these technical legal terms in asset protection law with the tort of either common fraud or even with criminal fraud. As a result, some people are afraid that asset protection planning could result in their being held liable for damages in fraud or they may even be charged with criminal fraud. However, nothing can be further from the truth. In court decisions in federal courts and courts in a number of states have held that a fraudulent conveyance to avoid creditors claims is neither tortious fraud or criminal fraud. As a result, a creditor claiming that part of your asset protection planning involved a fraudulent conveyance cannot charge you with the crime of fraud nor can he seek additional civil damages based on common law theories of fraud, deceit, or misrepresentation.

Therefore, asset protection planning is unlikely to increase your liability and it’s doubtful that it would get you in trouble. In nearly every case, even if part of your asset protection planning is successfully challenged as a fraudulent conveyance, a court will only put you back in the same legal situation you were in prior to your asset protection plan being implemented.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.