Can Creditor Challenge Disclaimer of Inheritance As A Fraudulent Transfer?

A debtor expects to inherit a significant amount of assets from a parent while he is already subject to a civil judgment. The debtor is concerned that the inherited assets will be exposed to his judgment creditor. The debtor is considering executing a formal “disclaimer” of the inheritance so the assets will not be titled in his name. The disclaimer would cause the assets to transfer as if the debtor predeceased the parent, and the assets would in most cases pass to the debtor’s children in equal shares.

There had been court decisions which held that a debtor’s disclaimer of an inheritance may be challenged as a fraudulent transfer. More recent decisions in Florida and other states have held that inheritance disclaimers are immune from fraudulent transfer attacks. One Florida federal court decision said that a disclaimer cannot logically be a fraudulent transfer because as a matter of law the disclaimer means that the debtor had predeceased the owner of the assets. Florida’s disclaimer statute stated that a property disclaimer legally means that the disclaiming party never owns the property. A California federal appeals court held that because a disclaimer “relates back” to the time when the deceased party was alive the debtor had an interest in the property which he could have fraudulently transferred.

A disclaimer may be an effective means of protecting a family inheritance. Florida statutes and federal tax law have precise procedures and time limits for the execution of a legally effective disclaimer.

About the Author

Jon Alper is an expert in asset protection planning for individuals and small businesses.

Jon Alper

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