This might answer some questions regarding if its legal, its a paper from an attorney who is a specialist in this area, but remember it pertains to Texas law and each state is different, I don't believe it addresses the IRS, I am sorry if its a long post but I am not aware of an attachment link-
TRANSFERS OF PROPERTY
Many asset protection techniques involve an evaluation of the ownership of property
available to satisfy claims. In many circumstances, a debtor's assets available to creditors
will include not only assets owned by the debtor at the date of the claim, but also assets
that have been previously owned by the debtor. The law prohibits transfers in
fraud of creditors. Examples of these laws include the following:
A. Bankruptcy.
If a party declares (or is forced into) bankruptcy, the bankruptcy court may
set aside certain preferential transfers made within 90 days of the filing of
the bankruptcy (or within 1 year of the filing of the bankruptcy for transfers
made to related parties), and "fraudulent" transfers (i.e.. those without
adequate consideration) made within 1 year of filing. Thus, a party
contemplating a transfer of assets must determine whether bankruptcy is likely
in the near future and whether the transfers contemplated might be set aside
by a bankruptcy court. In addition to the preferential and fraudulent transfer rules of
the Bankruptcy Code, a trustee in bankruptcy has all the rights and powers of a
hypothetical state law creditor under the fraudulent transfer laws of the state. Texas
has adopted the Uniform Fraudulent Transfer Act, found at Chapter 24 of the Texas
Business and Commerce Code ("TBCC"). Under this statute, as explained below, a
bankruptcy trustee could look back 4 years (and even further if the transfer is
concealed) in an attempt to avoid fraudulent transfers.
B. "Fraudulent" Transfers.
1. Transfers Resulting in Insolvency.
Under Texas law, transfers made (or obligations incurred) by a debtor
can be set aside by a court, for creditors claims arising prior to the
transfer, if the debtor was insolvent at the time of or as a result of the
transaction. See TBCC § 24.006. "Insolvent" means that the sum of
the debtor's debts exceeds the fair market value of the debtor's
nonexempt assets. See TBCC § 24.003(a). A debtor who is generally
unable to pay his debts as they come due is presumed to be insolvent.
See TBCC § 24.003(b). In order to set aside such a transfer, a
creditor must show either:
a.
The debtor failed to receive a "reasonably equivalent value" for
The debtor failed to receive a "reasonably equivalent value" for the transfer; or
b. The transfer was to an "insider" of the debtor, made to pay off a pre-existing debt. See TBCC § 24.006.
2. Intent to Defraud Creditors.
The law also provides that a court can avoid any transfer made (or
obligation incurred) by a debtor with "the actual intent to hinder,
delay or defraud" any creditor whose claim arose within a reasonable
time before or after the transfer. See TBCC § 24.005(a). Thus, even a transfer that does not render a debtor insolvent can be set aside by a
creditor whose claim arises a reasonable time before or after the transfer, if the creditor can establish "intent" to defraud. Since a
transferor's "intent" is difficult to prove, Texas law has established eleven
factors (sometimes called "badges of fraud") which courts may consider
in establishing the actual intent of a debtor,
a. The eleven factors set forth by statute [See TBCC § 24.005(b)] are:
(1) Whether the transfer is to an "insider" (family member,
partner or affiliated business);
(2) Whether the debtor retains possession or control of the
transferred property;
(3) Whether the transfer is concealed;
(4) Whether the debtor has been sued or threatened with suit
prior to the transfer;
(5) Whether the transfer is of substantially all of the debtor's
assets;
(6) Whether the debtor leaves the jurisdiction of the court;
(7) Whether the debtor conceals assets or removes them
from the jurisdiction of the court;
(8) Whether the value received by the debtor in exchange for
transferred assets is reasonably equivalent to the value of
the transferred assets;
(9) Whether the debtor is insolvent as a result of, or shortly
after, the transfer;
(10) Whether the transfer occurs shortly before or shortly after
a substantial debt is incurred; and
(11) Whether the debtor transfers essential business assets
to a creditor, who then re-transfers the assets to an
insider of the debtor.
b. The above factors are not exclusive. On the other hand, the existence of one or more factors does not create a
presumption that a transfer is fraudulent. Rather, the court must
determine the existence of intent based upon all facts and
circumstances of a particular case, with the listed factors to be
used as guidance.
3. Constructive Fraud.
Texas law further provides that a transfer of property for which the
debtor does not receive "reasonably equivalent value" is deemed to be
constructive fraud. See TBCC § 24.006. In such a circumstance, a
creditor whose claim arises a reasonable time before or after the transfer need not show an actual intent to defraud, if the creditor can
establish that:
a. The debtor intended to incur, or believed he would incur, more debts than he would be able to pay after giving effect to the
transfer; or
b. The debtor was left with an unreasonably small amount of assets with respect to the risks associated with the transactions or
business activities in which the debtor is engaged, or about
to become engaged. "Reasonably equivalent value" is
defined in TBCC § 24.004(d) as being a value "within the
range of values" of an arm's-length transaction.
**as stated by:
ESTATE PLANNING TO PRESERVE ASSETS
FIZERBECK
Fizer, Beck, Webster, Bentley & Scroggins,