Q. My mother has some fault in a small car accident. I’m concerned that she doesn’t have enough car insurance and think she should place her life savings beyond the reach of a lawsuit. Your thoughts?
A. Your Mother’s insurance agent can best advise on whether she needs additional coverage. As a general rule the minimum required by law is rarely enough collision or liability coverage given the cost of vehicles and medical care.
While I am an advocate for families protecting their life savings professionals involved in asset protection planning must screen clients and know the rules of fraudulent transfers which could nullify a transaction. While actual fraud may be difficult to prove, constructive fraud is routinely spotted by the courts from circumstantial evidence. This includes:
- Transfers to an insider such as an extended family member
- Title or ownership is changed but control or possession of the assets remains after the transfer
- The transfer was concealed
- Creditors are in hot pursuit, i.e. a lawsuit is already pending or apt to be filed
- The transfer(s) represents all of the debtor’s assets
- Consideration was not equal to the value of the assets
- The Debtor becomes essentially insolvent after the transfer(s)
- The Debtor transfers to a lienholder who then transfers to an insider such as a partner or companion or life-long friend
- The transfer occurs near in time to a substantial debt.
The law frequently defines what is “near in time” for example the bankruptcy code has a statute of limitations for two years and a trustee can void transfers made within ten years to a domestic self-settled trust. 11 USC §548(e) (1). For Medicaid there is a five-year look back period with a presumption that gifts and transfers for less than fair market value made within that time period were done in order to qualify for Medicaid nursing home benefits. It should be noted that converting non-exempt assets like a savings account to exempt assets like paying down on the mortgage of the home is okay. Likewise transfers between spouses is okay because Medicaid looks at the couple as one economic unit. It may be possible to show a transfer or gift was not done with the thought of future medical needs such as when an elderly parent is providing for a special needs adult child.
Revocable living trusts where the grantors are the trustees do not protect from creditors. These kinds of trusts are most valuable for avoiding probate, estate planning purposes and privacy concerns. Irrevocable trusts and some kinds of corporations, LLC and Family Limited Partnerships can be utilized to put life savings beyond the reach of creditors provided the transfers themselves are not done with intent to hinder, delay or defraud a future foreseeable creditor.
It should be noted that some qualified assets like ERISA plans are excluded from the debtor’s bankruptcy estate and others non-qualified and private retirement plans may receive favorable consideration under state laws. Your mother should consult with a professional if she desires more aggressive protection of her assets.
Disclaimer: Information contained in this column is meant to be of general information on frequently asked questions concerning disability, elder law, estate planning and probate law, and does not contain specific legal advice to a client. No attorney-client relationship is created by reading this column. 7/2018