PROBATE CORNER
Testamentary Transfers under the UFTA
DAVID M . GARTEN
Creditors seeking to upset an estate plan that has left them without sufficient assets to pay their claims are limited in their potential remedies against the estate . As a general rule , those lawsuits have been unsuccessful . In this article , we will look at the Uniform Fraudulent Transfer Act (§ 726.101 –§ 726.201 ) ( the “ Act ”) to determine whether the Act can be used to set aside the decedent ’ s testamentary transfers to pay the creditor ’ s claim .
The focus of this article is a creditor ’ s right to set aside “ testamentary ” transfers , as opposed to “ inter vivos ” transfers . The authority for this action is contained in § 733.309 , F . S . which provides that “[ t ] his section shall not be construed to prevent a creditor of a decedent from suing anyone in possession of property fraudulently conveyed by the decedent to set aside the fraudulent conveyance .”
What is a fraudulent transfer under the Act ? The Act allows a creditor to unwind a transfer of the debtor ' s property to a third party and thus to use the property to satisfy its claims against the debtor when the Act deems the transfer " fraudulent " as to creditors . The Act identifies three categories of such transfers : ( 1 ) transfers made "[ w ] ith actual intent to hinder , delay , or defraud " creditors , § 726.105 ( 1 ) ( a ); ( 2 ) certain types of transfers for which the debtor does not receive " reasonably equivalent value " in exchange for the asset transferred , §§ 726.105 ( 1 )( b ), 726.106 ( 1 ); and ( 3 ) transfers to an insider of the debtor for an antecedent debt when the debtor is insolvent and the insider has reasonable cause to know that , § 726.106 ( 2 ). When a transfer falls into one of these categories , the Act affords the creditor an array of remedies against the debtor and the thirdparty transferee , including the avoidance of the transfer , attachment against the asset transferred , injunctive relief , appointment of a receiver , and in the case of a judgment creditor , execution upon the transferred properties .
STANDING : A personal representative does not have standing to attempt to set aside a fraudulent conveyance made by the decedent prior to his death . Rather , the right to avoid a conveyance made by the decedent to defraud a creditor lies with the creditor who has been defrauded . See Powell v . Cappetta ( In re Estate of Cappetta ), 315 Ill . App . 3d 414 ; 733 N . E . 2d 426 ( Ill . App . 2000 ) wherein the court reasoned : “ Although the administrator has a fiduciary duty to those individuals interested in the estate , such as the creditors and the heirs ( Wallen , 262 Ill . App . 3d at 72 ), the administrator nonetheless stands in the shoes of the decedent and acquires the same interest in the decedent ' s property that the decedent had , but no more ( In re Estate of Ozier , 225 Ill . App . 3d 33 , 37 , 167 Ill . Dec . 195 , 587 N . E . 2d 77 ( 1992 ). The administrator therefore has no authority to attempt to set aside a fraudulent conveyance made by the decedent prior to his death . Hoyt v . Northup , 256 Ill . 604 , 606 , 100 N . E . 164 ( 1912 ). Rather , the right to avoid a conveyance made by the decedent to defraud a creditor lies with the creditor who has been defrauded . Hoyt , 256 Ill . at 606 . In Majorowicz v . Payson , 153 Ill . 484 , 484-85 , 39 N . E . 127 ( 1894 ), the administrator of a decedent ' s estate filed an action to set aside conveyances of machinery and real estate made by the decedent prior to his death . The administrator alleged that the conveyances were made by the decedent in an attempt to " hinder and delay " his creditors . On appeal , the decedent ' s heirs argued that the administrator had no authority to set aside a fraudulent conveyance made by the decedent . The Illinois Supreme Court agreed and held that the action should have been dismissed .”
CLAIMS AGAINST PROPERTY PASSING OUTSIDE OF PROBATE TERMINATE AT DEATH : The following are examples of assets that pass outside of probate by operation of law and therefore , are exempt from creditor claims : ( 1 ) property registered in “ beneficiary form ” pursuant to Florida ’ s Transfer-on-Death Statute , Chapter 711 ( i . e ., where the words “ transfer on death ,” “ TOD ,” “ pay on death ,” or “ POD ” appear after the name of the owner and before the name of the beneficiary )’ ( 2 ) accounts established under Florida ’ s Pay-on-Death Statute , § 655.82 , F . S .; ( 3 ) accounts established in the names of two or more persons , § 655.79 , F . S .; ( 4 ) accounts established with beneficiary designations , and ( 5 ) real and personal property held jointly or by tenants by the entireties . In Hurlbert v . Shackleton , 560 So . 2d 1276 ( Fla . 1st DCA 1990 ), a physician lost his malpractice coverage , then , limited his practice to less risky activities and began a process of transferring his assets to his wife with the right of survivorship . Later , a malpractice judgment was entered against him . Creditor initiated supplementary proceedings to execute on the judgment against the physician and his wife . The physician died and the wife , as representative of his estate , was joined . The trial court denied any relief . The appellate court reasoned in part : “ The trial court correctly held that appellant could not reach Dr . Shackleton ' s survivorship property now that he is deceased , citing D . A . D ., Inc . v . Moring , 218 So . 2d 451 ( Fla . 4th DCA 1969 ). There the court held that " a mortgage on interest of a joint tenant imposes a lien upon a defeasible interest , and the lien , of necessity , terminates when , by reason of the mortgagor ' s death , his interest in the tenancy terminates ." Id . at 452 . Although appellant could have executed upon Dr . Shackleton ' s interest in the stocks and bonds prior to the doctor ' s death , e . g ., McDowell , supra ., now that Dr . Shackleton has died , the interest in those securities has vested entirely in Mrs . Shackleton and the judgment lien against Dr . Shackleton ' s prior undivided one half interest in them is no longer viable .”
JOINTLY HELD PROPERTY : In SE Prop . Holdings , LLC v . Center , 2017 U . S . Dist . LEXIS 124708 ; 2017 WL 3403793 ( S . D . Ala . 2017 ), Charles and Belinda Trammell acquired a Short Line Residence in 1986 . The Warranty Deed conveying that property to them provided that the Trammells owned it " for and during their joint lives and upon the death of either of them , then to the survivor of them in fee simple ...." The Trammells held the Short Line Residence as joint tenants with rights of survivorship for 27 years . Upon Charles Trammell ' s death , Belinda Trammell owned the Short Line Residence in fee simple . The issue on appeal was whether the Short Line Residence transfer to Belinda Trammell was a fraudulent transfer under the Act . The court held that Charles Trammell ' s death did not effectuate a " transfer " for the Act ’ s purposes of his interest in the Short Line Residence to Belinda Trammell .
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PBCBA BAR BULLETIN 13