UVTA Includes Important Provisions About "Insolvency"

Your ability to transfer assets for asset protection purposes depends to a great extent on whether or not you are “insolvent” at the time of a transfer.  Insolvency is generally defined in terms of your ability to pay your debts as they become due. 

The Uniform Voidable Transactions Act (“UVTA”) - - a uniform law which will likely be followed by many states - - has two important provisions dealing with insolvency. 

Section 2(b) of the UVTA states that a debtor that is generally not paying debts as they become due other than as a result of a bona fide dispute, is presumed to be insolvent.  Excluding a bona fide dispute from the insolvency calculation is helpful.  In the event that you are refusing to pay a creditor for a good reason, you should not be deemed “insolvent”. 

The UVTA, however, places a burden on the debtor to essentially prove solvency at the time of a transfer.  In other words, if you are moving some assets for asset protection purposes, you must be able to show that you are solvent at the time of the transfer. 

This is another reminder that the best time to transfer assets for better protection is when you are clearly solvent and before you have any significant creditor issues. 

Uniform Fraudulent Transfer Act is Now the Uniform Voidable Transactions Act

In 2014, the National Conference of Commissioners on Uniform State Laws adopted several amendments to the Uniform Fraudulent Transfer Act (UFTA).  Over 40 states have enacted some form of the UFTA, and most will likely in due course adopt the recent amendments. 

One of the amendments changed the name of the law.  It is now called the Uniform Voidable Transactions Act (UVTA).  Changing the word Fraudulent to Voidable is significant.

Certain transfers that used to be called fraudulent may not seem fraudulent in the way that word is usually used.  For example, if you move $10,000 from your bank account to your husband’s bank account, you may not feel like you are committing fraud.  But if you are insolvent at the time of that transfer, one or more of your creditors may be able to void that transfer and get those funds.

Words are important and this name change is helpful.  The transfer of assets and the timing of the those transfers need careful consideration.  Transfers that may not seem “fraudulent” to you may in fact be voidable by a creditor.  Restructuring assets before you have any creditor issues is always the best strategy.

Growing Awareness of Ohio as a Top Asset Protection Jurisdiction

It has been a little more than two years since Ohio became one of the top asset protection jurisdictions in the United States.  Many people -- including many attorneys--are still not fully aware of this dramatic development.  But word is slowly getting out.  We are getting more and more inquiries about Ohio’s Legacy Trust Statute and other Ohio asset protection alternatives.

The Ohio Asset Management Modernization Act (Ohio House Bill 479) was signed by the Governor on December 20, 2012 and became effective in March, 2013.  This law authorized asset protection trusts in Ohio; increased the homestead exemption to $125,000 ($250,000 for a married couple); and made some other asset protection improvements in Ohio law.  Shortly before that, another Ohio statute made significant asset protection improvements to Ohio’s limited liability company statute.  That law (Ohio House Bill 48) became effective on May 4, 2012.  The combination of these relatively recent Ohio statutes has made Ohio a top asset protection jurisdiction.  Ohio residents now have far greater asset protection alternatives.  And residents of other states can, under the right circumstances, also take advantage of these new Ohio laws. 

Business owners, physicians and other professionals, real estate developers, high net worth individuals, and others whose assets may be at above average risk, are slowly becoming more aware of the asset protection alternatives that are now available in Ohio.  Ohio residents can also sometimes take advantage of asset protection laws in other states.  This is increasingly less necessary, however, since the alternatives now available in Ohio are some of the best in the country.

Obligations as a Guarantor Could Hinder Your Asset Protection Options

Signing a personal guaranty for your business or a relative can have a variety of financial implications. It can also limit your asset protection alternatives.

Asset protection planning frequently involves the transfer of assets. An asset transfer will be a “fraudulent conveyance” if it renders you insolvent (that is, if it means you may not able to meet your financial obligations).

Many of us have personally guaranteed loans for a business, a child, or other family member (perhaps a lease obligation or student loan). It can be easy to forget about these potential obligations.

I am certainly not suggesting you should avoid all guarantees. It is important to keep in mind, however, that personal guarantees must be taken into account in deciding whether you can transfer assets to an asset protection trust, limited liability company, or any other person or entity.

Most Asset Protection Trusts Are Not Designed For Estate Planning

It is highly advisable to focus on asset protection and estate planning at the same time. Keep in mind, however, that you will likely need separate documents for each type of planning.

Most people who set up an asset protection trust (“APT”) -- either domestic or foreign -- usually want to (i) retain some sort of control over the trust assets and/or (ii) continue to benefit from the assets held in the trust. They also generally want to decide what happens to the assets upon their death. This generally means that assets held in your APT will be included in your estate for federal estate tax purposes. In more technical terms, contributions to an APT will be an incomplete gift; and the trust settlor will likely hold a testamentary power of appointment over the assets.

This post is simply a reminder that focusing on asset protection and estate planning at the same time is highly advisable. But you need to keep in mind that each type of planning will likely require separate documentation.

Keep Bankruptcy Code §548(e) in Mind if You Have a DAPT

About 16 states now have laws that allow a Domestic Asset Protection Trust (DAPT). These trusts can be very useful to protect assets in many situations.

But keep in mind that a DAPT (like other asset protection strategies) is designed to protect your assets and keep you out of bankruptcy. It may be less useful if you actually file for bankruptcy.

§548(e) of the Bankruptcy Code gives a bankruptcy trustee the right to challenge a conveyance made to a DAPT within ten years of the time it is made. That is a long time. Outside of bankruptcy, a creditor would likely have nowhere near that amount of time to challenge a conveyance as being fraudulent. Moreover, a bankruptcy trustee may have a lot more power and resources to challenge alleged fraudulent conveyances than many creditors would.

So this is just a reminder that a DAPT may be significantly more vulnerable to an attack by a bankruptcy trustee than by a creditor outside of a bankruptcy situation. This is also a reminder to document transfers to a DAPT (with evidence of your solvency at time of transfer) in case the transfer is later attacked as being "fraudulent".

Thorough Estate Planning Can Help Protect Assets - and Provide More Privacy

Much of my work is centered on helping clients protect their assets during their lifetimes.  But most people also want to make sure that their assets are protected after their deaths.

A recent article in the New York Times describes a very public fight among relatives of actor/comedian Robin Williams.  His widow and his children from prior marriages are fighting over money and personal belongings.  Mr. Williams obviously could afford excellent attorneys, and his estate planning documents may have been very well prepared.  Even so, you can never underestimate the possibility of family members disagreeing about things after your death.

This is simply a reminder that even with the help of excellent attorneys, devising and implementing an effective estate plan is still a challenge.  It is clearly worth the time and effort.  It is a blessing to surviving family members when things are spelled out as thoroughly as possible.  This not only helps family harmony (by avoiding unnecessary arguments), but can also save a lot of family money. 

Careful estate planning should be part of your asset protection planning.

Correcting Your Credit Report May Be Harder Than You Think

Many people assume it is relatively easy to correct an error in their credit report.  That is simply not the case.  In one of my recent blog posts I explain that debtors often face an uphill battle when they try to remedy a creditor mistake.

Now a new FTC report says that about one in four consumers who disputed information in their credit reports ultimately just give up trying to correct the report. 

A recent article by Sheryl Harris in the Cleveland Plain Dealer contains helpful information about how to check the accuracy of your credit report.  If you find an error, you should definitely try to get it corrected.  Just be aware this may take more effort than you would expect.

Nursing Homes Use Guardianship Law as a Collection Tool

An amazing article on the front page of today’s New York Times reports that nursing homes in New York are increasingly seeking guardianship over certain residents simply to gain control of their finances.  The author, Nina Bernstein, acknowledges that in some instances, a nursing home might seek guardianship because there is no relative capable of helping the patient.  But in many cases, nursing homes are simply using the guardianship process as a collection tool!

Even if a family member wins the guardianship fight, that family member may have to pay thousands of dollars (or even tens of thousands of dollars) in legal fees.  So at a minimum, a nursing home can use the guardianship process as leverage to get a contested bill paid.  A number of judges in New York seem to be going along with these guardianship petitions.

There are several asset protection lessons here.  First, having your estate planning documents in order - - including a health care power of attorney and a financial power of attorney - - is important from an asset protection as well as a personal standpoint.  Second, this is a reminder about how far creditors might go in trying to collect debts.  So getting an asset protection plan in place before you have any creditor issues could save you (and your family) a lot of money.  It also could save family members a lot of needless anxiety. 

Insurance Should Be Part of Your Asset Protection Plan

Articles that seemingly have nothing to do with asset protection might still provide valuable asset protection reminders.  A recent article by Teresa Dixon Murray in the Cleveland Plain Dealer is a good example.  The article discusses an individual who keeps more than $100,000 hidden at home! 

That reminds me of at least two asset protection considerations.  First of all, hiding assets is rarely an effective asset protection plan.  You could hide cash at home, but homeowners insurance generally covers only about $200 in cash in the event of a fire or robbery.  So while hiding cash may seem like a good idea, it probably is not for many reasons -- including the fact that is uninsured.

The article also reminds me that most of us rarely conduct a periodic view of all of our life, auto, casualty and other insurance policies.  That periodic review could be worthwhile because it may identify significant assets that are not properly insured.

There are many asset protection strategies that are worth considering.  Some of them can be fairly complex.  An offshore trust arrangement, domestic asset protection trust or one or more LLCs could be a reasonable choice for certain individuals in certain circumstances.  But as I have mentioned many times before, you should not overlook the most basic forms of asset protection.  And one of those items is insurance.  It is a very worthwhile exercise to periodically review your biggest risks and ask whether they are (or could be) insured.