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September 28, 2018 In Civil Litigation

Tennessee Fraudulent Transfers to Avoid Creditors

Tennessee Fraudulent Transfers to Avoid Creditors

Pursuant to the Tennessee Uniform Fraudulent Transfer Act, creditors can seek to set aside certain fraudulent transfers. Creditors must prove that a fraudulent transfer occurred through actual fraud or constructive fraud.

Actual Fraud

Under the actual fraud statute, a plaintiff must prove that the transfer was made “with actual intent to hinder, delay, or defraud” a creditor. In determining actual intent to defraud a credit, the statute lists eleven (11) factors that may be considered. Those factors are:

(1) The transfer or obligation was to an insider;
(2) The debtor retained possession or control of the property transferred after the transfer;
(3) The transfer or obligation was disclosed or concealed;
(4) Before the transfer was made or obligation was incurred, the debtor had been sued or
threatened with suit;
(5) The transfer was of substantially all the debtor’s assets;
(6) The debtor absconded;
(7) The debtor removed or concealed assets;
(8) The value of the consideration received by the debtor was reasonably equivalent to the
value of the asset transferred or the amount of the obligation incurred;
(9) The debtor was insolvent or became insolvent shortly after the transfer was made or
the obligation was incurred;
(10) The transfer occurred shortly before or shortly after a substantial debt was incurred;
and
(11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Tenn. Code Ann. § 66-3-305(b).

The “Badges of Fraud”

Since proving fraudulent intent almost always requires circumstantial evidence tough, courts also consider what have been deemed “badges of fraud” in determining whether there was intent to defraud.

1. The transferor is in a precarious financial condition.
2. The transferor knew there was or soon would be a large money judgment rendered
against the transferor.
3. Inadequate consideration was given for the transfer.
4. Secrecy or haste existed in carrying out the transfer.
5. A family or friendship relationship existed between the transferor and the transferee(s).
6. The transfer included all or substantially all of the transfer’s nonexempt property.
7. The transferor retained a life estate or other interest in the property transferred.
8. The transferor failed to produce available evidence explaining or rebutting a suspicious
transaction.
9. There is a lack of innocent purpose or use for the transfer.

If a plaintiff is able to prove the existence of one or more of those factors or one of the “badges of fraud”, a presumption of fraud arises. Once that presumption has arisen, the burden shifts to the debtor to prove that there was no fraudulent intent in the transfer of an asset. Typically, debtors present evidence that one or more of the factors or “badges of fraud” is not applicable to rebut this presumption.

Constructive Fraud

If a creditor cannot show actual intent to defraud him or her, a credit may still show that a transfer still amounted to constructive fraud. To prove a constructive fraudulent transfer, a creditor has to prove that: (1) The creditor’s claim arose before the transfer; (2) the debtor was not paid a reasonable value for what was transferred; and, (3) the debtor was insolvent at the time of the transfer or became insolvent because of the transfer.

The Act addresses insolvency and states that a debtor is insolvent if either “the sum of the debtor’s
debts is greater than all of the debtor’s assets, at a fair valuation” or the debtor “is generally not paying
such debtor’s debts as they become due.” Thus, a debtor need not intend to fraudulently transfer an asset to avoid a creditor, if the debtor would otherwise be insolvent but for the transfer.

Patterson Bray Attorneys

If you are creditor seeking to avoid the fraudulent transfer of a debtor, please call Patterson Bray today at 901-372-5003. We’ve helped other creditors like you collect judgment, and we can help YOU recover your damages.  Call us today.

 

July 11, 2016 In Contracts, Estate Planning

Joint Property Ownership Pitfalls and Solutions

Joint Property Ownership Pitfalls and Solutions

joint property ownershipOur law firm has worked on a couple of cases lately involving joint property ownership; that is, property owned by a group of several individuals. Owning a piece of land or real estate with a group of individuals or family members can lead to many problems, a few of which we will discuss here.

What Happens to Real Estate When a Person Dies?

In Tennessee, real property typically passes outside of Probate in accordance with the publicly recorded property documents in the County where the property is located.  A person can also plan for the disposition of real property in a Will or Trust.  If you die owning real property in your sole name, though, it can cause significant problems for your Beneficiaries that can be avoided by proper planning.

In both cases I mentioned above, the group of individuals came into joint property ownership because of intestate succession (i.e., dying without a Will).  You may think that you do not need a Will because your property will pass to your heirs regardless.  However, there are many problems and burdens that your heirs will face if property passes to them through intestate succession.  Here’s what can happen if a landowner dies without a Will:

  • Land may pass to heirs who do not wish to be landowners.
  • Land may pass to heirs who do not know that they are now landowners (i.e. lost heirs).
  • Land may pass to heirs who are not prepared for the responsibility of owning real estate (i.e. paying real estate taxes, maintaining insurance, upkeep of the property)
  • If there is a mortgage, payments may be required very soon after the death of the original owner and before any inherited owner has a chance to determine how to address the new ownership – i.e. sell the property, allow it to be foreclosed upon, etc.
  • The title to the property will be unclear and extra effort will be required to determine all legal owners in a joint property ownership situation. It can be very difficult to locate heirs and to determine with certainty who all owns a piece of property, especially if some of the original heirs have died, or if the family isn’t in close contact or is spread across the country. A title search may be required, and title searches can be expensive.

Increased Costs for Inherited Owners

When a piece of property passes through intestate succession, when ownership is unclear, or when a piece of property is owned by a large group of individuals, there will be extra expense involved when the property is sold. As a general matter, the entire sales process will take longer than usual. Each separate legal owner must be found and consulted with.  Then, each owner must agree to all parts of the sale process (i.e. negotiating the price, negotiating and completing repairs, and signing all required paperwork).  It can be very difficult getting a group of family members or individuals to all cooperate and agree during the course of a real estate transaction.

Inherited owners who want to sell property can expect to have to do some additional work with the buyer’s title company such as filing probate documents, getting releases from TennCare, and dealing with potential creditors of the deceased person.  A title company may require proceeds to be escrowed for up to a year after the deceased person’s death.

Legal Issues of One Owner Can Affect Other Owners

Inherited and multiple owners can also come with their own personal problems.  A judgment lien or a bankruptcy filing of one inherited owner will immediately attach to the inherited property, which could cause delays and problems for any co-owners wishing to sell the property.

Ways to Avoid Common Problems of Joint Property Ownership

If you must own property with a group of individuals or family members, or if you desire to pass property to a group of people, there are ways you can accomplish joint property ownership which lessen the burden and expense involved. Speak with an Estate Planning Attorney or Property Lawyer about the best way to achieve your personal goals. For example, more effective “joint ownership” can be achieved in the following ways:

  1. Own as Joint Tenants with Rights of Survivorship. This type of ownership is common with married couples, but it can also be used with any individuals wishing to create this type of joint tenancy.  Upon the death of one joint tenant, the remaining tenant owns the property outright.  This results in protection from a debtor-tenant’s creditors because liens can only attach to the right of the debtor-tenant, which is nothing more than a “potential survivorship right.”  This protection ends if the non-debtor tenant dies and the debtor- tenant then owns the property outright.  One negative of this type of ownership is that the property will only pass to the other joint tenant, so the Estate of the first to die loses any equity to pass on to other individuals.  In addition, potential gift tax issues may arise since the Grantor is “gifting” rights to the property to the person they are creating a joint tenancy with.
  2. Own the Property in a Limited Liability Corporation.  Ask a business organization attorney about property ownership through an LLC. The rights of the members will depend on the structure of the LLC. Creating an LLC requires maintenance of paperwork to the State to keep the LLC active which will be required if the LLC wants to sell the property.
  3. Put the Property Into a Living Trust.  This is achieved by conveying the property to a Trustee on behalf of a Trust. (A Trust itself can’t own property; rather it must be an individual Trustee on behalf of the Trust.)  The property will then be maintained and distributed in accordance with the Trust Agreement.  A Living Trust allows the Grantor to make changes during his or her lifetime (therefore keeping control and autonomy) but also allows for the streamlining of management and an easy transition of the property upon the death of the original Grantor.  The successor Trustee can sell or manage the property outside of Probate, and depending on the Trust terms, without the input of or disruption to the Beneficiaries.

Beneficiary Deeds

Tennessee does not offer this, but some states allow the use of a Beneficiary Deed to clarify how a property is to pass upon the owner’s death. Essentially, a Beneficiary Deed lets a person name a beneficiary and only takes effect upon the death of the owner. Ask your Estate Planning Attorney about the availability of Beneficiary Deeds if you own property in multiple states.

Right to Partition

If you are tied up in joint property ownership, or if you own a piece of property with a group of individuals or family members and you want to end the relationship and go your separate way, you can. In Tennessee, you have the legal right to what is called “partition.” Speak with a civil litigation attorney about filing a partition lawsuit. In this kind of lawsuit, you ask the judge to partition the property, either “in kind” or “by sale.”

Need Help with a Property Ownership Issue?

Have questions about joint property ownership or other real estate issues? Please call us at 901-372-5003 or send Patterson Bray an email.

November 5, 2015 In Estate Planning

Using The Tennessee Investment Services Trust Act To Create A Self-Settled Asset Protection Trust

The Knowledge You Need on the Tennessee Investment Services Act of 2007

The “Tennessee Investment Services Act of 2007,” (the “Act”) allows a person to create a self-settled asset protection trust. Tennessee is still one of only a handful of states to enact legislation permitting the creation of a self-settled, or self-created, asset protection trust.

Before the Act was passed in Tennessee, an individual could not protect his or her wealth from creditors and lawsuits while also retaining some control of his or her assets.   The Act allows an individual to create his or her own trust and maintain a certain level of control over the trust, while also protecting his or her assets from creditors and lawsuits.

One of the biggest perks of the Act is the trustmaker’s ability to retain a certain level of control over the trust. The trustmaker may retain the following rights, which include, but are not limited to, the rights to:

  • direct the investment of the assets;
  • receive distributions of principal at the discretion of the trustee;
  • live in a home owned by the trust;
  • veto distributions to any other permissible beneficiaries;
  • direct the distribution of the trust assets upon death to any one or more persons;
  • remove the trustee and other trust advisors and appoint their successors under certain provisions

 

In order to meet the statutory requirements, the trust must be carefully drafted and administered. For example, the trust must be irrevocable, meaning that the terms of the trust cannot be modified. Additionally, Tennessee law must govern the trust, and at least a portion of the assets of the trust must be administered in Tennessee. The person creating the trust cannot serve as Trustee, and the trustee of the trust must either be a resident of Tennessee or a corporate fiduciary authorized to conduct business in Tennessee. The trustmaker must also sign an affidavit that states, among other things, that the transferor of the assets to the trust is solvent and does not intend to defraud his or her creditors.

The Act implements a two year “look back” rule. This means that, after two years have passed since the assets were transferred to the trust, the trustmaker’s creditors cannot seize the assets of the trust to satisfy claims against the trustmaker.

It is important to note that the Act does NOT apply to certain creditors, claims or judgments, including those for past due child support, past due alimony or support of a spouse of former spouse or agreements setting forth division of marital property.

In summary, the Tennessee Investment Services Act of 2007 provides an asset protection opportunity for individuals who are concerned about the loss of their assets due to unforeseen creditors. The trust presents a unique solution to those who wish to protect their assets during their lifetime while still retaining the ability to manage those assets and benefit from them.

September 8, 2011 In Estate Planning

Probate Process: How long does it take?

Probate Process: How long does it take?

probate process, how long does it takeHow long does the probate process take? I often pose this question at seminars and get a variety of answers. Two of my favorite answers are “years” and “forever.” While neither answer is correct, it typically indicates that someone in the room (or perhaps a friend or neighbor) has had a bad experience with Probate Court at some point. In Tennessee, a Probate Estate must remain open for a minimum of four (4) months from the time of first publication. This period is designed to give creditors time to come forward and assert a claim against the Estate.  An Estate must remain open the full four (4) months regardless of whether the deceased person had any debts.

Time Starts to Run on the Date of “First Publication”

When an estate is opened in Shelby County Probate Court, the clerk’s office notifies The Daily News, and they publish a public notice regarding the opening of the Estate, typically within a week of the opening of the Estate. This first publication marks the start of the four (4) months, and the Estate cannot be closed until 4 months after the date of first publication.

However, bear in mind that this is a minimum amount of time, and there is no guarantee that the Estate can be closed at the end of the 4 months. I frequently tell clients that 6-9 months is a more realistic average for a straightforward Probate Process. The “first accounting” is not due until 15 months from the opening of the Estate, so if the Estate is closed out within that 15 month period, you are still doing pretty well.

Why does the Probate Process take so long?

So what makes the probate process last beyond the 4 months? A number of factors often contribute to how long a Probate Estate is open. Preliminarily, there are 8-10 steps that must be completed for every Probate Estate regardless of the size of the Estate, the cooperation of the Beneficiaries, or the debts of the deceased person. If these steps have not been completed or if the proper letter has not been received from Tenncare of the Tennessee Department of Revenue, the Estate cannot be closed. If there are minor Beneficiaries involved and the Will does not contain instructions on holding those funds in trust, we often have to seek court guidance and have additional hearings regarding handling these funds. Likewise, if Beneficiaries are fighting, the Probate Process will often take significantly longer than the 4 month minimum. If the decedent left a number of debts, and creditors have filed claims against the Estate, each valid claim must be paid in full or settled before the Estate can be closed. If the decedent had property in more than one state, the process can take much longer. These are just a few of the factors that can contribute to a lengthier Probate Process.

Every Probate Case is Different

Although the correct answer is rarely, if ever, “years” and definitely not “forever,” the Probate Process can last much longer than Beneficiaries are expecting. The Probate Estate that is open for years is not the norm, but most attorneys who do a lot of Probate work will typically have at least a couple of cases that drag on for one reason or another. In many cases, where everything is straightforward, 6 months should be a reasonable estimation of how long it takes. Unfortunately, we often can’t predict when we open an Estate the circumstances that may arise, so while it may seem simple on the front end, it could also turn out to be more complex. If we know some of the complicating circumstances in the planning stages, we can often  incorporate strategies to avoid some of the Probate pitfalls.

Need help with Probate Court?

Please call us at 901-372-5003. We know you have a lot on your mind and the thought of going to court can be overwhelming. We are experienced probate lawyers and we can guide you through the Probate Process.

How to Avoid Probate

Did you know that you can eliminate the Probate Process altogether through revocable living trust planning? If you would like to learn more about Probate or about planning to avoid probate, please call us. We can guide you through an Estate Plan designed specifically for you and your family.