The transfer was a "fraudulent transfer" under Colorado law, Section 38-8-101 et seq., Colorado Revised Statutes, which is the state enactment of the Uniform Fraudulent Transfer Act which is the law in about 42 U.S. states, if:
- The decedent was insolvent (i.e. had debts in excess of assets at fair market value) at the time that the transfer was made, or became insolvent as a result of the transfer, and the transferee did not receive "substantially equivalent value" in exchange for the value, or was not acting in "good faith". The fact that the debt is not being paid as due gives rise to a presumption that the decedent was insolvent, but that could be overcome by showing that the decedent was illiquid or willful or careless and didn't pay for those reasons as opposed to having assets worth less than the debt. (This does not require a showing a wrongful intent by the decedent and if there is not substantially equivalent value does not require a showing of wrongful intent by the recipient of the asset.)
- The decedent has an intent to defraud his creditors when the transfer was made and there is some equitable remedy that is available, and Person B who received the car either did not receive "substantially equivalent value", or acted in bad faith in the transaction (i.e. with any intent to harm creditors or with suspected wrongdoing), or both.
"Substantially equivalent value" is not necessarily equal to fair market value, but is basically the lowest amount that an asset could conceivably been sold for by two parties acting in good faith and dealing at arm's length. Gifts are never substantially equivalent value.
If there was a fraudulent transfer, than the debtor sues Person B who received the car either to undo the transfer, or to get money damages equal to the difference between the amount paid and the amount that would have been substantially equivalent value (but in no case more than the amount of the debt), (and arguably with a deduction for the amount that could have been obtained with a timely filed claim in the probate estate, determined as set forth below).
Undoing the transfer would be less optimal. Ideally, Person B would pay cash pursuant to a judgment or to settle the case, and that would be applied against the debt owed.
In Colorado, the usual statute of limitations is four years, running from the date of the transfer of the asset in situation (1) and the date of discovery of the transfer of the asset in situation (2).
Another form of fraudulent transfer would be a transfer to an "insider" (a technical definition but basically family and business associates) in exchange for a preexisting not substantially contemporaneous debt, while leaving debts to outsiders unpaid, when the debtor is insolvent. The statute of limitations to undo these transfers is one year from the date of transfer.
The analysis is similar, but not quite identical, in all other U.S. states which have adopted an earlier act called the Uniform Fraudulent Conveyance Act, and in bankruptcy cases (not applicable here, because probate estates are not allowed to file for bankruptcy in the U.S.).
This analysis would hold true in Nevada although the statutory citations would differ.
To make the claim in the probate estate, in Colorado (and other states that have adopted the Uniform Probate Code), the creditor on the debt would have to file a written request for payment of a sum certain dollar amount with the clerk of the court in the county where the decedent was domiciled at death, or with the personal representative of the estate (a.k.a. executor) addressed to the personal representative or to the estate (not just addressed to the decedent), which is called a "claim" within the deadline for doing so. The deadline is the first of (1) within four months after receiving written notice of a deadline to file claims, (2) within four months of the deadline in a published notice of a deadline to file claims (subject to an exception for creditors known to the personal representative if there is not actual notice of the publication), (3) within one year after the date of death, or (4) within the statute of limitations for bringing a lawsuit to enforce the debt if the decedent had not died. In Colorado, this is primarily codified at Section 15-12-801 et seq., Colorado Revised Statutes. Some of the fine details are a little different in Nevada, but the overall process is similar.
The estate must then marshal its assets and liquidate them if necessary only only pays general creditors if and only if there is money left over after ignoring property exempt from creditor's claims, and paying other priority creditors (e.g. funeral expenses, costs of administration, expenses of a final illness, Medicaid liens, loans secured by collateral to the extent of the collateral, certain tax debts).
If the remaining assets of the estate are sufficient to pay all general creditor's claims actually timely filed, those claims are paid in full. If the remaining assets of the estate are insufficient, each general creditor gets the cents on the dollar of the timely filed (and not disallowed on the merits) claim pro-rata based upon the assets available for general creditors left in the estate (if any).