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Fraudulent Transfers & Fraudulent Conveyance in Asset Protection

Privacy & Secrecy to Hide Assets

Asset Protection: Questions on Protecting Your Assets

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One of the most important things to keep in mind is that if you wait to protect your assets until a legal claim is filed, it may be too late. Many actions to transfer your assets after a lawsuit has been filed could be considered a fraudulent conveyance. This means that the court could seek repossession of assets from the transferee. If you are in a high risk profession, it is recommended that you retain some of your assets to be available to creditors. This will prevent the courts from obtaining all of your transferred assets.
The best way to avoid any of this is to get an asset protection plan in place before you think it will ever be needed. Many state courts have said that there must not be any potential of a claim when you place your assets beyond the reach of the creditors. This is typically a period of one to three years prior to a claim being filed; however, there are ways to get around the rules if implemented correctly by exchanging assets of equal value for a financial instrument. Most attorneys do not understand or know how this could be done. This is what differentiates sophisticated estate planners.

Protecting Assets from Creditors without Defrauding Them

It is always important to be aware of legal rules against defrauding your creditors. There are laws in place that define fraudulent conveyance. The laws state that the conveyances were made when the transferor of assets was rendered insolvent by incurring an obligation. It also states that conveyances were made without any fair consideration when the original owner of the assets engaged in any business transaction that leaves the transferor with small capital. In addition, it states that the conveyances were made when the transferor believed he may incur debts that he or she will be unable to pay. Lastly, the conveyances were made with the intent to hinder or defraud creditors.
Fraudulent conveyance requires that you have the specific intention of defrauding creditors. It is difficult to prove this intent, so the courts have a specific set of guidelines that are used to determine intention. However, if you are solvent when you make the transfer, you are less likely to be guilty of fraudulent transfer. The key is to be aware of whether you are solvent or not.

Privacy vs. Secrecy

A fraudulent transfer is not always considered to be a felony. However, if there is proof that there has been efforts made to hide the assets, this may constitute a felony under United States laws.
In regards to privacy, those individuals who evade taxes and launder money are searching for a way to hide their income and assets from the government. Government employees typically regard privacy as a code word that is used by people who are looking for help in order to implement an illegal transaction. In most cases, when there is an excessive concern for privacy and secrecy, there is usually an act of fraud in the making.
Many lawyers who work with asset protection will advocate disclosure to tax agencies. Corporations, limited liability companies and partnerships are entities that are authorized by law. This gives them certain rights without having to obtain consent from the state. If financial affairs of the corporation or partnership are not fully disclosed, the state will not allow any benefits of a separate entity. A trust is a little different and does not require any type of registration with a government agency. This is because a trust is just a contract between a grantor of the trust and the trustee. Irrevocable trusts may offer some protection, but a revocable trust does not provide any asset protection at all. A revocable trust is revocable which allows you to annul the contract; thus, negates the asset protection level of an irrevocable trust.
There are a few forms of asset protection that rely on evasion and secrecy instead of making use of the law openly. In this case, the desire for that privacy can turn into a potential felony. If secrecy is essential to the asset protection plan, the chances are it is illegal.
Since 9/11 and the Patriot Act, it is almost impossible to hide assets in secrecy and no good asset protection firm will advise this strategy because it does not work. Banks and other financial institutions are required by law to “know their customer” and the penalties are fierce. It is much more effective and some would say outright fun to share your structure with someone threatening to sue you (when you have a solid irrevocable trust in place) and tell the person to “go ahead and sue me because you will never get a dime.” Showing them the structure will deter any smart person – and certainly any smart contingency lawyer - if you are set up correctly. What contingency lawyer would waste his time suing you if s/he had no prospect of collecting money for their time?

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