Transfer of Assets

Also found in: Acronyms.

Transfer of Assets

The conveyance of something of value from one person, place, or situation to another.

The law recognizes that persons are generally entitled to transfer their assets to whomever they wish and for whatever reason. The most common means of transfer are wills, trusts, and gifts. Increasingly, however, persons are transferring property and money in order to qualify for government-funded nursing care or to avoid paying creditors or the Internal Revenue Service. State and federal laws prohibit transfers that defraud creditors, however. If a creditor can show that a transfer was made in bad faith and for the purpose of avoiding a lawful debt, the transfer will be voided.

A will is a common way of transferring assets. The testator, the person writing and signing the will, states in writing how the assets of his estate shall be divided and transferred upon his death. The estate of the testator is subject to inheritance taxes, but the remainder is transferred to the heirs and beneficiaries in the will. If a person dies intestate, without writing a will, state statutes direct how the assets shall be divided and transferred among family members.

For persons who have substantial assets, the transfer may be accomplished by using a trust. There are many types of trusts, some of which are part of a will and go into effect upon the death of the testator. Instead of being transferred directly to persons, the assets are transferred to a trustee, who distributes funds based on the terms in the trust documents. The use of a trust generally reduces inheritance taxes. A person may also transfer assets to a trust while living to reduce her Income Tax burden. Income earned by the trust will be taxed to the trust, which usually is in a lower tax bracket than the person transferring the assets. The trust must benefit others, however, not just the person transferring the assets.

Living persons may also make gifts to others. An inter vivos gift, which takes effect during the lifetime of the donor and the donee, is irrevocable when made. Federal tax law permits a person to give up to $10,000 yearly to each recipient without having to pay any gift tax or file a gift tax return. All gifts in excess of the annual exclusions are taxable.

Other types of transfers of assets have also become popular in the United States. Some middle-class older persons, faced with the high cost of nursing home care and wanting to leave their property to their children, transfer all their assets to their children. By doing so, the older person can meet income and net asset guidelines to qualify for government-subsidized nursing home care. State and federal governments have sought to prevent this practice because it takes funds away from those who are truly indigent.

A growing trend is transferring assets to avoid paying court judgments. Companies offer "asset-protection plans" that seek to insulate, for example, a doctor from the possibility of paying a large Malpractice damages award. By transferring assets to a foreign country, the plan makes it difficult to ascertain the amount of the doctor's assets. Also, collecting on a judgment in a foreign court is often impossible.

A more radical device is transferring assets outside the United States to a foreign trust, which manages the assets and distributes funds to the beneficiaries. The foreign trustee controls the assets and is not subject to a lawsuit seeking collection of a judgment against the transferee. Critics charge that besides allowing a person to avoid paying a debt, foreign trusts encourage income Tax Evasion. Defenders of asset protection contend that the purpose of foreign trusts is to avoid lawsuits, not taxes.

References in periodicals archive ?
Under the DRA, however, the penalty period based on a transfer of assets does not begin until the facility resident is "otherwise eligible" for Medicaid benefits but for the asset transfer.
2036(a)(1) applied to the transfer by Albert Strangi of approximately $10 million of assets to an FLP in exchange for a 99 percent limited partnership interest, or whether the transfer of assets to the partnership would be respected for estate tax purposes so that the asset subject to valuation in Strangi's estate would be the limited partnership interest.
Until January 1, 1997, there had been no criminal sanctions for the inappropriate transfer of assets to qualify for Medicaid.
The transfer of assets underscores ABN AMRO's faith in EAB's management as well as its long-term commitment to the bank.
In terms of asset size, the Los Angeles office reached its zenith at year-end 1990, after the transfer of assets was complete.
The settlement also calls for the transfer of assets related to PVD technology from AMS to SFI and the dissolution of AMS as of March 1, 2007.
368(a)(1)) involving the transfer of assets by a corporation to another corporation under Sec.
Also, TEI supports the alignment of the tax treatment on the transfer of assets between corporations with that for the transfer of assets between partnerships.
2036, the District Court considered (1) whether or not there was a bona fide sale in the transfer of assets to the partnership controlled by the son; and (2) whether or not an express or implied agreement existed that the decedent would retain the economic benefit of the property.
Among the topics the SOP covers are the presentation of--and interest in--separate accounts, gains and losses on the transfer of assets from the general account to a separate account and liability valuation.
The IG proposed longer and stronger transfer of assets restrictions on Medicaid eligibility, liens on all property as a condition of eligibility, and mandatory recovery from estates.
Using a constructive trust theory some courts have held that the transfer of assets to a spouse is ineffective since the spouse is merely holding the property for the debtor spouse as a trustee.