I received a call from someone who said they had money and stocks in a financial account titled in the name of a revocable living trust created by the caller as part of her estate planning. The caller and her spouse were named as the trust beneficiaries. The caller expected to be sued by a bank for her default on a business loan. The caller asked if she could protect the money and stock by amended the trust to remove herself as an eligible beneficiary and make the trust irrevocable thereafter.
The issue is whether a change in the terms of an existing trust may be reversed as a fraudulent conveyance. The caller did not propose a change in the title to the property, and to that extent, there is no transfer of title that could be reversed under the fraudulent transfer laws. However, the effect of the trust amendment effectively puts the caller’s interest beyond collection.
This asset protection strategy has been tried before by other debtors, and it did not work . Court have held that the amendment of a trust, or other document, to protect the debtor’s interest is a fraudulent transfer even without a formal conveyance of title to the asset in the trust.
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