Fraudulent Transfer to Nevada Asset Protection Trust

Fraudulent transfer law casts a big net, and courts will undo almost any transfer that is clearly intended to avoid present or even future unknown creditors. In this case, a California appellate court reversed a transfer of assets to a Nevada asset protection trust four years prior to a creditor’s lawsuit being filed.

The debtor testified that he created a Nevada trust and transferred to the trust almost all of his assets. He had less than $500 in his own name after the transfers. After transferring his assets to the trust the debtor retained control over the assets, and he used the trust assets and income to pay his personal expenses. He even testified that the formed the trust for asset protection purposes. The court found it clear from the debtor’s own testimony that he created and funded a Nevada asset protection with the clear intent to protect the assets from his creditors.

The debtor did not know the complaining creditor when he created the Nevada trust. There was not dispute of the debtor’s argument that the complaining party was not a foreseeable creditor at the time of the asset transfers. The court found that the complaining creditor was still a “future creditor” and that the Act does not required that future creditors have a claim at the time of the transfer. A unforeseeable creditor may still reverse transfers intended to hinder or delay any future creditor.

The facts in this case were unusually adverse for the debtor. The debtor operated the Nevada trust as his alter-ego by maintaining complete control and by paying personal expenses directly from the trust. His admission that his goal in setting up the trust was asset protection removed any doubt that he was protecting himself from creditors. This case illustrates that the passage of time, four years in this case, does not innoculate asset protection planning from fraudulent transfer attacks.

Last updated on May 22, 2020