Transferring an asset to an ‘insider’ is a badge of fraud (which is defined in §4(b) of the UFTA), which increases the likelihood of a fraudulent transfer ruling. In a nutshell, an insider is someone that the law determines is likely to be very friendly to a client and his or her needs.
Note that a transfer to an entity of which the client is a non-managing member is not a transfer to an insider under the UFTA. This gives us some interesting planning opportunities.
An insider (which includes an affiliate) is defined by the UFTA as follows:
(1) “Affiliate” means:
(i) a person who directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than a person who holds the securities,
(A) as a fiduciary or agent without sole discretionary power to vote the securities; or
(B) solely to secure a debt, if the person has not exercised the power to vote;
(ii) a corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor or a person who directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than a person who holds the securities,
(A) as a fiduciary or agent without sole power to vote the securities; or
(B) solely to secure a debt, if the person has not in fact exercised the power to vote;
(iii) a person whose business is operated by the debtor under a lease or other agreement, or a person substantially all of whose assets are controlled by the debtor; or
(iv) a person who operates the debtor’s business under a lease or other agreement or controls substantially all of the debtor’s assets.
(2) “Insider” includes:
(i) if the debtor is an individual,
(A) a relative of the debtor or of a general partner of the debtor;
(B) a partnership in which the debtor is a general partner;
(C) a general partner in a partnership described in clause (B); or
(D) a corporation of which the debtor is a director, officer, or person in control;
(ii) if the debtor is a corporation,
(A) a director of the debtor;
(B) an officer of the debtor;
(C) a person in control of the debtor;
(D) a partnership in which the debtor is a general partner;
(E) a general partner in a partnership described in clause (D); or
(F) a relative of a general partner, director, officer, or person in control of the debtor;
(iii) if the debtor is a partnership,
(A) a general partner in the debtor;
(B) a relative of a general partner in, or a general partner of, or a person in control of the debtor;
(C) another partnership in which the debtor is a general partner;
(D) a general partner in a partnership described in clause (C); or
(E) a person in control of the debtor;
(iv) an affiliate, or an insider of an affiliate as if the affiliate were the debtor; and
(v) a managing agent of the debtor.