The Badges of Fraud and Transfers to Trusts

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When it comes to transfers of assets to a trust that provides protection from creditor claims, there are certain factors that the court will look at to assess whether the transfers were made fraudulently. The San Diego court will seek to determine if the transfer to the trust involved an intent to hinder, delay, or defraud the creditors of the debtor. These factors are called badges of fraud. To succeed in trust litigation, the creditor doesn’t need to prove every factor was present with regard to the transfer.

6 Signs of a Fraudulent Transfer to a Trust, Badges of Fraud

What are the badges of fraud that may indicate the intent to hinder, delay, or defraud creditors? The following are six examples:

  1. The debtor who transferred the property to the trust retained possession or control of the property.
  2. The transfer of the trust was undisclosed or concealed.
  3. Before the transfer was made the debtor had already been sued or threatened with a lawsuit.
  4. The debtor removed or concealed assets.
  5. The transfer of the asset to the trust was made shortly before or after a substantial debt was incurred.
  6. The debtor was insolvent after the transfer was made, or became insolvent shortly after.

It is not always black and white as to whether a trust will successfully shield assets from creditors or be subject to attack. Our article, “Spendthrift Provision May Protect Trust Assets When Under Attack,” provides a helpful overview of how these trusts typically work and whether they will survive a lawsuit.

Any claim involving a creditor attack on a trust requires the guidance of a knowledgeable professional. We are here to help! We encourage you to view the feedback of many of our previous clients on our client testimonials page.

 
Scott Grossman

Scott Grossman

Attorney

The Grossman Law Firm, APC · 525 B Street, Suite 1500, San Diego, CA 92101 · (951) 523-8307
 

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