Any creditor can attack the implementation of an asset protection plan by alleging that certain transfers of your assets to other people or entities or the investment of money in exempt assets (such as annuities) constitutes a fraudulent transfer or fraudulent conversion because these conveyances were done with the intent, or effect, to hinder, avoid, or delay creditor collection. Any asset protection conveyance can be challenged as “fraudulent” for up to four years (in Nevada and most U.S. states) 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 connotation, and many people incorrectly confuse these technical legal terms in asset protection law with the tort of common law fraud or even with criminal fraud. As a result, some people are fearful that asset protection planning could result in their being held liable for damages in tortious fraud or even charged with criminal fraud.
JUST THE OPPOSITE IS TRUE, several state court decisions, as well as some federal courts, have held that a fraudulent conveyance to avoid creditors claims is not tortious fraud and is not criminal fraud. As a result, a creditor who claims that part of your asset protection planning involved a fraudulent conveyance cannot also charge you with the crime of fraud and cannot seek additional civil damages based on common law theories of fraud, deceit, or misrepresentation.
The laws of fraudulent conveyances in Nevada and in Florida are based on specific statutes, particularly Nevada Revised Statutes Chapter 112 and Florida Statutes 222.30 and 726.101. These Statutes provide that a creditor may seek from a court equitable remedies to undo a fraudulent conveyances made to implement an asset protection plan. These equitable remedies are designed to put property back into the debtor’s hands so that the same property is available to satisfy a creditor’s judgment. Additionally, if you had transferred property to a third party, such as a friend or family member, and the transferee (recipient) is unable or unwilling to return the property, the court may impose a money judgment against your transferee for the value of the property conveyed. Even then, you are not liable for any additional damages based on the value of property fraudulently conveyed.
Therefore, asset protection planning is very unlikely to increase your liability and unlikely to get you in trouble. In almost all cases, even if part of your asset protection planning is successfully challenged as a fraudulent conveyance, a court will only put you back in essentially the same legal situation you were before your asset protection plan was implemented.
However, If the asset transfer involves a transfer to a foreign trust, any Judgement issued by the court to “reverse” the transfer or conveyance would likely have no value in the foreign jurisdiction.
Certainly if using a
Bahamas International Asset Protection (Legacy) Trust the transferred assets would have the protection of the (Bahamas) Fraudulent Disposition Act, 1991 where a creditor MUST initiate (extremely costly) proceedings in the Supreme Courts of the Bahamas to prove that the Settlor willfully intended to defraud him, that the obligation owed was in existence at the time of the formation of the trust and that the Trust serves no other purpose than to defraud him.
When a Trust is settled with multiple Beneficiaries including several international charities it is easy to understand that this is nearly an insurmountable task. The Fraudulent Disposition Act, 1991 establishes that any such action must be commenced within two years of the date of the Asset transfer. Once the statute of limitations runs out, the creditor can no longer bring a claim of fraudulent conveyance.
