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how do you make yourself judgement proof?
e.g., place all your real assets into a irrevocable living trust?
also, place any cash into a trust account?
Barbara
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In <4u2af1d0r5ql74ta3125fch4r8nuq9bgvv@4ax.com>, beeh2003@yahoo.com writes:
how do you make yourself judgement proof?
Anyone posing this question is well advised to do a little research --
Google will do just fine for starters -- on the terms "fraudulent
conveyance"/"fraudulent transfer," and the consequences of engaging in
one.
--
He spoke. And drank rapidly a glass of water
Mark Eckenwiler eck @ panix dot com
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Barbara,
As Mr. Eckenwiler pointed out actively trying to become "judgment proof"
will almost certainly involve some sort of fraudulent activity. I suppose
you could join a convent, take vows of poverty, and give all of your worldly
goods away. But setting up a trust where you are the beneficiary of the
trust will probably not fool anyone. Assuming that you do not have a
pressing need to become judgment proof you could seek legal advice. I'd
recommend you seek at least 2 legal opinions before you embark on this.
Good luck,
Dave M.
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how do you make yourself judgement proof?
Quit your job, give away all of your money, and make certain the value of
any assets you have are below the exclusions permitted in your state.
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"Scott Hedrick" <dinehnm@yahoo.com> wrote:
"Barbara Harris" <beeh2003@yahoo.com> wrote
how do you make yourself judgement proof?
Quit your job, give away all of your money, and make certain the
value of any assets you have are below the exclusions permitted
in your state.
That won't necessary do it, though. As I recall, under the Uniform
Fraudulent Conveyance Act, if you give away your property for less
than adequate consideration with intent to defraud your creditors
(meaning intent that they not be able to get paid), the creditors can
get back the property you've given away.
Stu
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Andy writes:
I suspect that if one put all their money into a
homestead, and then did a "quit claim" to one's heirs
reserving a LIFE ESTATE, that would make it
judgement proof, since the property has been effectively
"given away" but cannot be used by the grantee until the
death of the grantor. At the death of the grantor, there is
no item to probate.......
Perhaps the laws are different in various states. I would
welcome criticism of this mechanism from the practicing
attornys here.
Andy
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"Andy" <andysharpe@juno.com> wrote:
I suspect that if one put all their money into a
homestead, and then did a "quit claim" to one's heirs
reserving a LIFE ESTATE, that would make it
judgement proof, since the property has been effectively
"given away" but cannot be used by the grantee until the
death of the grantor. At the death of the grantor, there is
no item to probate.......
Having nothing to probate is not the same as being judgment proof.
A life estate has a monetary value that can be executed on. The
person who owns the life estate can be kicked out of the house, and
the property rented until that person dies, with the proceeds going
to the creditor.
In addition, giving property away for less than fair market value,
either if it renders the debtor technically insolvent or is done
for the purpose of evading creditors, is a fraudulent transfer.
That means that any transferred property can be acquired by the
creditors of the person who gave the property away.
Stu
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Andy writes:
I suspect that if one put all their money into a
homestead, and then did a "quit claim" to one's heirs
reserving a LIFE ESTATE, that would make it
judgement proof, since the property has been effectively
"given away" but cannot be used by the grantee until the
death of the grantor. At the death of the grantor, there is
no item to probate.......
There's no free ride. If it looks like a fraudulent conveyance, the court
may very well determine that it is one. Moreover, doing so might invoke a
gift tax, since something of value to the heirs- a future interest, at the
very least- has been given. Even worse, the basis for the property then
becomes zero, smacking those heirs with capital gains.
Also, don't forget, that the life estate still has value, and can be seized.
If the debtor is in relatively good health, I'd consider seizing the
property anyway and, if zoning permitted, renting it out. I'd have to turn
it over upon the death of the person whose life the estate is based on, but
in the meantime I'd get a return from the rent.
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Regarding Scott"s comment:
Moreover, doing so might invoke a
gift tax, since something of value to the heirs- a future interest, at
the
very least- has been given. Even worse, the basis for the property then
becomes zero, smacking those heirs with capital gains.
Andy writes:
I'm not really sure that a quit claim with a retained life estate,
qualifies as
a "gift" until the grantor dies, or the grantor and grantees agree to
sell the
property or use it as income.....
Here is my reasoning:
The grantees have no ability to dispose of the property themselves.
( If the grantee and grantors both agree, the property may be
sold or
rented, andTHEN a gift would have been made .)
The grantees have no right to use, visit, or occupy the property
unless invited
to do so by the grantor. ( Just as before the quit claim was
made0
The grantees have no obligation to pay taxes or insurance on the
property,
and may not do any maintenance without permission of the
grantee.
The grantees have no ability to use the propety in any way, or
realize any
benefit from the property without the permission of the person with
the
life estate...
In other words, a quit claim with retained life estate does not do
one
single thing to increase or decrease the net worth of the grantees
until the grantor
dies...
So, in what ways is it a gift? It has no value as long as the life
estate is
maintained by the grantor........
In my opinion, all it does is take the place of a statement in a will,
and removes
the grantors name from the deed automatically at the grantor's death...
I would appreciate some discussion on this. Thanks.
Andy
PS I think we need to know the definition of "gift".......
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"Andy" <andysharpe@juno.com> wrote:
I'm not really sure that a quit claim with a retained life
estate, qualifies as a "gift" until the grantor dies, or the
grantor and grantees agree to sell the property or use it as
income.....
Here is my reasoning:
The grantees have no ability to dispose of the property
themselves.
But the grantee can sell his remainder interest. It can be valued
and it considered to be a property interest rather than a mere
expectency.
The grantees have no right to use, visit, or occupy the
property unless invited to do so by the grantor. ( Just as
before the quit claim was made0
But the grantee does have the right to force the holder of the life
estate to maintain the property and not to commit waste.
In other words, a quit claim with retained life estate does
not do one single thing to increase or decrease the net worth of
the grantees until the grantor dies...
Not technically or realistically. I have a client who just sold
the remainder interest in her home. She got $1,000,000 for it.
That's not nothing.
Stu
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The grantees have no obligation to pay taxes or >insurance on the
property,
*Maybe*. Depends on the specifics.
and may not do any maintenance without >permission of the grantee.
*Maybe*. Depending on the specifics, the grantor may have an obligation to
prevent waste, and if so, the grantees would certainly be able to arrange
for maintenance if the grantee neglected to do so.
So, in what ways is it a gift? It has no value as long as the life
estate is
maintained by the grantor........
In my opinion, all it does is take the place of a statement in a will,
A future estate has value. That's the gift.
and removes
the grantors name from the deed automatically at the grantor's death...
Which likely means they don't get to take advantage of the stepped-up basis,
so they get to pay capital gains on the full value of the sale, likely to be
substantially more than it would if the property were inherited.
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The grantees have no obligation to pay taxes or >insurance on the
property,
*Maybe*. Depends on the specifics.
**** I believe the usual method is a simple "quit claim" reserving
a life estate, placing no requirements on the grantor. There can,
of course , be other ways, but this is the most common.
and may not do any maintenance without >permission of the grantee.
*Maybe*. Depending on the specifics, the grantor may have an obligation
to
prevent waste, and if so, the grantees would certainly be able to
arrange
for maintenance if the grantee neglected to do so.
***** I don't believe they could without the grantor's permission,
since
the grantor has the life estate, and full control over who may enter
or modify the property until his/her death. This is the normal
method (see above). I would welcome being able to study any
example that is contrary to this, if you know of one.
In my opinion, all it does is take the place of a statement in a will,
A future estate has value. That's the gift.
*** By the same reasoning, a house left to someone in a will
would be a gift, since that person has he right to sell the house
immediately, with the sale to be consummated at the death of
the person making the will, if he can buy a willing buyer who
will purchase the house under these conditions. Much like a
"put" on a parcel of stock. . Yet,
property left to someone in a will is not treated as a "gift".
In neither case, will or quit claim, does the grantee have any
personal control over the parcel until the grantor dies.
and removes
the grantors name from the deed automatically at the grantor's death...
Which likely means they don't get to take advantage of the stepped-up
basis,
so they get to pay capital gains on the full value of the sale, likely
to be
substantially more than it would if the property were inherited.
***** The websites dealing with ElderLaw does not agree with this
analysis and specifically reccommends "quit claim with life estate"
as a way to 1) avoid Medicaid eligibililty requiements and 2) pass
the property with a full step up in basis. This issue was discussed
on misc.taxes.moderated at some length a few months ago, with
opinions coming down by tax professionals on both sides. One
post gave the IRS regulations which allowed a full step up in basis
for this type of transaction.
I thank you again for taking the time to discuss this subject.
This is one of those issues where "reasonable men may differ" and
may well end up in front of some judge or other.
I still, however, have not been able to find the accepted IRS
definition of a "gift".
Thank all,
Andy
Start of topic Older Messages 11 - 11 of 11 Newer End of
topic
2005 Google
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"Andy" <andysharpe@juno.com> writes:
*** By the same reasoning, a house left to someone in a will
would be a gift, since that person has he right to sell the house
immediately, with the sale to be consummated at the death of
the person making the will, if he can buy a willing buyer who
will purchase the house under these conditions.
One big difference is that the person named in the will has *nothing*
right now. There is no future interest. He's not on any deed. He
doesn't have the right to anything, now or in the future. For one
thing, there's no guarantee the will won't be re-written, leaving him
out of it.
The remainderman of a life estate is in a quite different situation.
He *right now* possesses definite rights about the future use of
the property.
--
Rich Carreiro rlcarr@animato.arlington.ma.us
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X-No-Archive
Andy wrote:
A future estate has value. That's the gift.
*** By the same reasoning, a house left to someone in a will
would be a gift, since that person has he right to sell the house
immediately, with the sale to be consummated at the death of
the person making the will, if he can buy a willing buyer who
will purchase the house under these conditions. Much like a
"put" on a parcel of stock. . Yet,
property left to someone in a will is not treated as a "gift".
In neither case, will or quit claim, does the grantee have any
personal control over the parcel until the grantor dies.
This is incorrect. Transfer of a future interest via deed occurs upon
delivery of the deed. Transfer of an interest via will does not occur
until the death of the testator.
Future interests are enforceable by the remaindermen during the life of
the grantor; interests "granted" via will, however, are not.
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In article <sjfbh1h20j93bd7lg92am6pifsj4nalbm9@4ax.com>,
Andy <andysharpe@juno.com> wrote:
In my opinion, all it does is take the place of a statement in a will,
A future estate has value. That's the gift.
*** By the same reasoning, a house left to someone in a will
would be a gift, since that person has he right to sell the house
immediately, with the sale to be consummated at the death of
the person making the will, if he can buy a willing buyer who
will purchase the house under these conditions.
What house? If somebody is given the remainder interest, he _owns_
the remainder interest and can sell it. That sale is consummated
_immediately_: the buyer pays cash, now.
If a will is written granting somebody a house upon death of the
owner, the presumed beneficiary owns _nothing_. The current owner can
change his will.
Much like a
"put" on a parcel of stock.
No, that's a _right_ which is owned. An expectation of something in a
will is not anything _owned_.
In neither case, will or quit claim, does the grantee have any
personal control over the parcel until the grantor dies.
But in the case of the quit claim (remainder interest), the grantee
_owns_ something immediately.
Seth
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"Andy" <andysharpe@juno.com> wrote:
The grantees have no obligation to pay taxes or >insurance on
the property,
*Maybe*. Depends on the specifics.
**** I believe the usual method is a simple "quit claim"
reserving a life estate, placing no requirements on the grantor.
There can, of course , be other ways, but this is the most
common.
At least under California law, it doesn't matter how a life estate
is created, a life tenant has the obligation to pay taxes and
insurance unless otherwise specified in the creation document.
*** By the same reasoning, a house left to someone in a will
would be a gift, since that person has he right to sell the
house immediately, with the sale to be consummated at the death
of the person making the will, if he can buy a willing buyer who
will purchase the house under these conditions. Much like a
"put" on a parcel of stock. . Yet,
property left to someone in a will is not treated as a "gift".
In neither case, will or quit claim, does the grantee have any
personal control over the parcel until the grantor dies.
Property in a will is not treated as a gift because it is not a
"present" interest. That is to say that the will can be changed at
any time before the testator's death. Until that time the gift is
not "complete." While incomplete the donee has no rights at all in
the property.
However as noted earlier, the owner of a remainder interest has
substantial rights in the property, though not the right to occupy.
As to the ability to quitclaim, sure, anyone can quitclaim anything
at any time, whether he has a legal interest in it or not. I can
quitclaim the Golden Gate Bridge to you and it's perfectly legal -
as long as I let you know I'm not the "real" owner.
Which likely means they don't get to take advantage of the
stepped-up basis, so they get to pay capital gains on the full
value of the sale, likely to be substantially more than it would
if the property were inherited.
When an owner of property transfers everything but a life estate,
the entire value of the property is required to be included in his
estate, even though he's not the owner of it "all" when he dies.
As a result, it should get a stepped-up basis.
I thank you again for taking the time to discuss this subject.
This is one of those issues where "reasonable men may differ"
and may well end up in front of some judge or other.
The rules are actually quite clear.
I still, however, have not been able to find the accepted IRS
definition of a "gift".
It may be most clearly defined in court cases rather than IRS
regulations.
Stu
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Andy responds to Stuart:
Somebody posted:
Which likely means they don't get to take advantage of the
stepped-up basis, so they get to pay capital gains on the full
value of the sale, likely to be substantially more than it would
if the property were inherited.
Stuart replied:
When an owner of property transfers everything but a life estate,
the entire value of the property is required to be included in his
estate, even though he's not the owner of it "all"
Andy says:
Yes, that is the reasoning that was presented in
misc.taxes.moderated.
I have verified it on every Elder Law website that I have come across.
I believe it is an arbitrary result of an IRS code that limits the
amount that
can be passed on during an entire person's life without being taxed.
In other words, if the tax exemption is 1 million, a person cannot give
away
500 thou today and 1 million at death to avoid tax.
Since it is includeable in the taxable estate REGARDLESS of when the
quit claim was made, it receives the step-up in basis the same as any
other
inheritance at death.
Anyway that's my understanding. I am tending to agree with the
arguments
that have been presented regarding the abilitity of a grantee to
realize
value before grantor's death. That would , of course, mean that the
parcel was
taxable immediately when the grantee gets some money for their interest
in it if the grantor is alive ........ No argument there.....
Thank again to all.....
Andy
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