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Unwinding Fraudulent “Estate Planning” Transfers

The lack of reasonably equivalent value in return for the transfer of an asset common indicates that a fraudulent transfer has occurred. However, estate planning commonly involves transfers of significant assets to trusts or to loved ones without reciving any value in return, other than the transferor’s satisfaction from sharing his/her life’s wealth with loved ones. If an “estate planning” transfer impairs a creditor’s ability to collect debts owed, it might violate Illinois’ Uniform Fraudulent Transfer Act (“IUFTA”).

The IUFTA recognizes several types of fraud, with the most common being “actual” and “constructive” fraud. “Actual” fraud (“fraud in fact”) requires a showing that a debtor transferred an asset with the actual intention of hindering, delaying or defrauding a creditor.

Even if a person transferring a home for “estate planning” reasons had the noblest intentions (maybe to keep a home in the family for future generations). The transferor might even believe he had sufficient assets to pay his debts. However, §5(b) of the IUFTA lets a creditor prove intent circumstantially, using eleven factors colloquially known as the “badges of fraud.”

Our transfer could involve several badges, including:
• The transfer of wealth to an insider (in this case a family member)
• Retaining possession or control of the property after the transfer
• The transfer of the home amounted to substantially all the debtor’s assets
• The debtor became insolvent shortly after the transfer

A court viewing the totality of the circumstances may find enough badges to infer fraudulent intent.

The IUFTA also permits avoidance claims based upon “constructive” fraud (“fraud in law”). These claims require no proof of intent to defraud; the court presumes fraud based upon a showing that the debtor transferred an asset for for less than its reasonably equivalent value, leaving the debtor unable to meet his obligations.

Schwartz & Kanyock, LLC are pre-eminent attorneys in the field of fraudulent transfer litigation, having written a leading treatise and an Illinois Bar Journal article on the topic. If a debtor’s estate plan has frustrated your attempts to collect on legitimate debt, we can help. To schedule an appointment to discuss your case, call us at 312-436-1442 or contact our Chicago office online.

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