The Case for Caution: Fraudulent Conveyance Risks in Estate Planning
Probate & Property Magazine: January/February 2010, Volume 24, Number 1
By William R. Culp Jr. and Christian L. Perrin
William R. Culp Jr. is a partner and Christian L. Perrin an associate in the Charlotte, North Carolina, firm of Culp Elliott & Carpenter, PLLC.
The U.S. economy is still feeling the effects of a severe recession because of a global credit crunch. Almost all asset classes have substantially declined in value, and interest rates are near historical lows. As a result of these economic factors, estate planning lawyers see tremendous opportunities for individuals to transfer assets and establish long-term financing at low interest rates. In taking advantage of these opportunities, however, estate planning lawyers and their clients should be aware of and analyze the risk that a client's creditors may challenge an estate planning transaction as a fraudulent conveyance. Transfers of property pursuant to legitimate estate planning are typically not challenged as fraudulent conveyances during periods of regular economic growth. But, given that estate planning transfers typically reduce a client's assets and may have an incidental benefit of asset protection, such transfers that are made in times of economic volatility have an increased risk of being challenged as fraudulent by a transferor's creditors. This article explores the risks and potential consequences relating to fraudulent transfers that estate planning attorneys and their clients will face when undertaking customary estate planning techniques during an economic downturn.