Bankruptcy

Not A Fraudulent Conveyance To Take Your Name Off Title Of Asset Wholly Paid For By Another Person

By Jonathan Alper

I have written occasionally, and recently, about situations where a parent purchases an asset and puts their child?s name on the asset as a joint owner for estate planning purposes. If the child has a creditor problem, or in contemplation of bankruptcy, transfers, or has the parent transfer, the asset to the parents? name alone the issue arises of whether the transfer to the parent is a fraudulent conveyance as to the child?s creditors or the trustee in the child?s bankruptcy. Today, a blog reader referred me a bankruptcy case from the Southern District of Florida which dealt with this issue.

In this case a parent purchased a parcel of real estate and named her child a co-owner for estate planning purposes, that is, to avoid probate of the asset upon the parent?s death. The parent paid all expenses of ownership such as taxes and the mortgage. Prior to filing bankruptcy, the child deeded his interest to the parent. The bankruptcy court found that the deed to the parent was not a fraudulent conveyance by the child.

The court pointed out that whenever person A pays for a property and puts person B on title a "resulting trust" is created in favor of A. In other words, person B, who contributed no money to the property, holds his legal interest on the title in trust for A who is the property?s equitable owner. The bankruptcy court said that property in which debtor holds only bare legal title without any equitable interest becomes part of estate only to extent of debtor's bare legal title; estate acquires no equitable interest in property. The debtor?s transfer pre-bankruptcy of his bare legal title is not a fraudulent conveyance of anything of value to the bankruptcy estate. The bankruptcy case is, In re Moodie, 362 B.R. 554.

This case suggest that whenever a debtor who is on the title to real estate or a financial account funded by a parent or any other third party the debtor can and should remove his name from the legal title in the event that bankruptcy or lawsuits are immanent. As long as the debtor truly has no equitable investment in the asset the transfer can be defended and should not be reversed.

Full post as published by Florida Bankruptcy Law on February 11, 2009 (boomark / email).