It happened again- a parent puts their home in their child’s name, and then later a judgment against the child exposes the parent’s home to the child’s creditors. In this instance, a caller stated that his elderly parents living in Miami had  transferred their free-and-clear homestead to the names of their three children. The home was transferred because the parents were afraid one of them would go into an nursing home and that the home would be lost to pay nursing home bills. That never happened- the father died and one of the daughters is living in the home taking care of their mother. The land is titled jointly among the surviving mother, the caller(son) and two sisters. The caller is facing a judgment in New York state. He asked me whether the judgment creditor can force the sale of his parents’ home and whether a bankruptcy trustee would assert a claim against the property if he had to file chapter 7 bankruptcy to wipe out the New York judgment.

Courts have held in most cases that when a parent adds his child’s name to the parent’s property or bank accounts for estate planning purposes the asset’s equitable ownership remains with the parent and the child hold bare legal title. In other words, the asset still belongs to the parent. However, this type of over-simplified estate planning creates a legal mess.

In this instance, if the creditor records a judgement in Florida the judgment will attach to the caller’s interest in the property. The family would have to go to court and hope the judge would understand the facts and the law and would free up the property from the caller’s creditors. If the caller files bankruptcy he could resolve the issue more quickly; he does not have to wait until a judgement shows up on the property record, and most favorable decisions protecting the father’s interest have been issued by bankruptcy courts. Or, the caller could deed his interest back to his mother. He would have to defend the transfer if challenged as a fraudulent conveyance.

There is no perfect answer; the best answer is not to have made the conveyance in the first place. My initial opinion would be for the mother to request the caller and the other children to deed back his property interests to the surviving mother. Although there may be fraudulent transfer issues against the current creditor, or in bankruptcy, this solution is consistent with ownership reality and probably could be defended.

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