What is fraudulent conveyance?

On Behalf of | Jul 13, 2023 | Asset Protection Planning |

While planning your estate in New Jersey, you may encounter confusing legal terms and concepts. Among them is the term ‘fraudulent conveyance,’ an important concept that carries significant implications for your estate planning process.

A thorough understanding of fraudulent conveyance can help you better manage your estate.

Defining fraudulent conveyance

Fraudulent conveyance refers to the act of intentionally transferring property to prevent creditors from reaching it. Essentially, it occurs when you move assets with the intention to defraud, hinder or delay your creditors.

New Jersey follows the Uniform Fraudulent Transfer Act, which allows creditors to undo fraudulent transfers. If you have transferred an asset with fraudulent intent, a court may order it to return to your estate, making it available to satisfy your creditors.

The signs

It is important to recognize the signs of fraudulent conveyance to avoid it. The courts may deem any transfers made without receiving reasonably equivalent value in return, especially when the debtor becomes insolvent following the transfer, as fraudulent. Similarly, hiding assets, incurring debts beyond your ability to pay or transferring all or substantially all your assets may also be signs of fraudulent conveyance.

Potential consequences

If you engage in fraudulent conveyance, you could face severe consequences. Creditors may have the right to undo the transfer and seize the asset. They can also seek damages and other relief if they find you did attempt to hide your assets.

Preventing it in estate planning

The best way to prevent fraudulent conveyance in your estate plan is to create and execute the plan long before any large debts arise. Engage in fair transactions and always ensure to receive reasonably equivalent value when you transfer an asset.

Understanding fraudulent conveyance is essential for everyone involved in the estate planning process. It helps ensure that the transfer of assets happens transparently and lawfully, protecting the interests of all parties involved.

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