How can I avoid having assets seized to reconcile an insolvent estate?
Question Details: My girlfriend's dad passed away a few weeks ago. He was underwater on his mortgage, owed about 175k and the home is worth about 130k. She and her sister are concerned about losing the only 2 assets in the estate a free and clear car and motorcycle that have sentimental value. What is the best option to avoid these assets being seized by the bank?
There is no way to protect them if the bank elects to go after them. The bank is owed money (since the home is underwater); it has the right to seek that money from the estate; since you and the sisters are aware that money is owed, any transactions or transfers made of the car or motorcycle, other than the estate selling them for their fair market value (in which case, the estate then has the cash value of the vehicles to apply to its debts) will be a fraudulent transfer, or a transaction made to hide assets from creditors. Such transfers may be voided or undone, so the creditor can get the asset.
Example: the sisters try to give or title the vehicles to a friend, a significant other, a business they or a friend owns, etc. Unless the person getting the vehicles pays what they are worth, this will be a fraudulent transfer and may be set aside.
As a general rule, if you already know money is owed, it's too late to protect assets.
Of course, if the vehicles have sentimental value, the sisters can buy them from the estate for their actual, fair market value; that is not fraudulent, and the lender will have recourse to the money the estate was paid.