Arkansas Supreme Court Allows Estate Creditor to Directly Pursue Alleged Fraudulent Transferee

The Arkansas Supreme Court granted an Arkansas estate creditor of a deceased person standing to directly pursue the alleged transferee of a fraudulent transfer, defined as a transfer of assets to another for the purpose of defeating the claim of a creditor. The transfer in question was a pay-on-death account.

In Heritage Props. v. Walt & Lee Keenihan Foundation, the decedent created a brokerage account at Ameriprise with $500,000, designating the transfer-on-death recipient as the Walt & Lee Keenihan Foundation. By the time of her death 18 months later, the account had grown to $1.1 million, which was transferred to the Foundation outside of probate. However, due to the $850,000 worth of claims against it by Heritage, the estate was found insolvent and the transfer allegedly fraudulent.

Heritage filed against the Foundation in a circuit court, not in probate court. The circuit court dismissed the estate creditor’s claim based on jurisdiction, standing, and the lack of sufficient evidence to establish its claim. However, the Arkansas Supreme Court rejected the lack of jurisdiction determination by the circuit court, explaining that circuit courts are courts of general jurisdiction. Because transfer-on-death accounts do not enter the probate process, the circuit court would indeed have jurisdiction over the action, and the third party creditor would have standing to directly pursue a fraudulent transferee for return of a fraudulent transfer.

The court also clarified that the creditor does not have to show that the decedent had actual intent to defraud the creditor. Instead, they may prove that the decedent made the transfer and “intended to incur, or believed or reasonably should have believed that she would incur, debts beyond her ability to pay as they became due.”

See Arkansas Supreme Court Allows Estate Creditor to Directly Pursue Alleged Fraudulent Transferee, Probate Stars, January 23, 2020.