Loophole in Fraudulent Conveyance Law

Thanks to Professor Adam J. Hirsch’s article entitled “The Uniform Acts’ Loophole in Fraudulent Conveyance Law in the December 2007 edition of Estate Planning Journal, we in the asset protection community now have a new strategy that can be invoked. It’s weird and maudlin but could work under some circumstances…particularly when we are faced with overwhelming claims and the UFTA is blocking us every place we turn. Here’s the Cliff Notes rendition. The law is split on whether disclaimers are transfers and therefore subject to fraudulent transfer law. However, Professor Hirsch claims a disclaimer is not a transfer, a key prerequisite for UFTA coverage. This leaves open the following planning scenario: Debtor establishes a joint account with terminally ill accomplice (doesn’t sound good but that’s what he is) who lives in a state that has adopted the Uniform Disclaimer of Property Interests Act (UDPIA). Debtor puts in all the assets. Accomplice dies and under the UDPIA Debtor can disclaim up to 50% of the account. Accomplice’s will provides for the property in the joint account to pass to Debtor’s suggested heirs. Result: 50% of assets deposited into the joint account avoid being reached by Debtor’s creditors. While there are only 14 jurisdictions that have adopted UDPIA, Michigan not being one of them, if you find a willing partner in one of the available jurisdictions the scheme may work.

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