Illinois Estate Planning: Protecting Clients' Assets from Bankruptcy Without Running Afoul of the Uniform Fraudulent Transfer Act

 One primary goal of estate planners is protecting clients' assets from the claims of creditors before a potential claim arises, without running afoul of the Uniform Fraudulent Transfer Act. The following EIA explores the role of Illinois estate planners in protecting client assets, while adhering to the terms of the Uniform Fraudulent Transfer Act, and focusing on those assets that qualify for exemption from the bankruptcy provisions.

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For estate planners, one of the primary goals has been the protection of their clients' assets from the claims of creditors before a potential claim arises, without running afoul of the Uniform Fraudulent Transfer Act. The Uniform Fraudulent Transfer Act has been adopted in several states, including Illinois, 740 ILCS 160/1 et. seq. There are a few ways available to an estate planner by which to protect assets. One such way is to relinquish all dominion and control over the asset by gifting the asset to another person. Another method is to transfer title in a form that is protected by law from creditors. Generally, a transfer of property is considered to be fraudulent if the transfer is made with an actual intent to hinder, delay or defraud a creditor or a transfer that would leave the transferor's remaining assets unreasonably diminished or beyond the transferor's ability to pay his debts. 740 ILCS 160/5 and 160/6.

One means of transfer to beneficiaries is the establishment of a spendthrift trust. If a grantor establishes spendthrift trusts for spouses and descendants, the grantor is giving his beneficiaries something that they cannot create for themselves. Under common law, a grantor could not establish a spendthrift for his or her own benefit. New asset protection trust statutes now allow this type of asset protection for grantors in certain states, but whether a resident of another state can take advantage of such statutes, absent fraudulent transfers to the trust, remains to be explored.

Uniform Fraudulent Transfer Act. Section 10 of the Uniform Fraudulent Transfer Act says a transfer of assets will not be considered fraudulent unless a cause of action is brought within 4 years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant; or within 4 years after the transfer was made or the obligation was incurred; or within one year after the transfer was made or the obligation was incurred, depending on the circumstances. 740 ILCS 160/10. Therefore, if it is found that a person has fraudulently transferred assets to defeat a judgment creditor's lien, those assets will not be protected from seizure by the creditor through the court.

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