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Does Transfer-on-Death Become Fraudulent Transfer?

new case out of the Court of Appeals of Ohio analyzes whether the beneficiary of a transfer-on-death (TOD) account was liable for an unpaid nursing home bill, based on a fraudulent transfer claim. Here, Marian was admitted to a nursing home facility and died about a month later. She left an unpaid balance to the home of roughly $16,000. The nursing home sued Marian’s son, Fredric, alleging fraudulent transfer due to a TOD beneficiary designation that Marian had executed before her death on an investment account, naming Fredric as beneficiary. The nursing home wanted compensation from the investment account funds that Fredric received.

The trial court ruled in favor of Fredric and the nursing home appealed. The Court of Appeals of Ohio reversed the trial court’s judgment and remanded for further action. The parties litigated further and the trial court once again ruled in favor of Fredric. The appeals court once again took on the case and now we have the instant ruling.

The pertinent statutes are:

R.C. 1336.05(A): “A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”

R.C. 1336.02(A)(1): “A debtor is insolvent if the sum of the debts of the debtor is greater than all of the assets of the debtor at a fair valuation. (2) A debtor who generally is not paying his debts as they become due is presumed to be insolvent.”

R.C. 1336.02(C)(1): “‘[a]ssets’ do not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors, or that has been transferred in a manner making the transfer fraudulent under section 1336.04 or 1336.05 of the Revised Code.”

Fredric, who happens to be a gem appraiser, testified that Marian had about $27,000 worth of jewelry at the time of her death. In addition, Marian owned furniture, household goods, and a car. The only listed asset of the estate was the vehicle; the only claim presented in probate was the nursing home claim.

The trial court ruled that Marian’s estate was not insolvent due to the TOD account being transferred to Fredric. On appeal, the nursing home argued that the inventory of the estate was around $10,000 and so there were not enough funds to pay their creditor claim, thus the estate was insolvent. However, the appeals court pointed to the fact that the estate inventory was not certified and to the evidence that suggested there was other property not listed in the estate inventory, such as the value of the jewelry. Thus, the estate was not insolvent and the nursing home loses the case once again.

Read more related articles at:

The Dreaded Transfer on Death Deed

Transfer on Death (TOD) Accounts for Estate Planning

Also, read one of our previous Blogs at:

Is Transferring House to Children a Good Idea?

Click here to check out our On Demand Video about Estate Planning.

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