[CLBS] Transfers into--and back out of-- self-settled trust on the eve of filing bankruptcy

[Tecla Druffel]

Listmates:


I prepared but have not filed a Chapter 7 case for a client in her late
sixties.


We itemized her personal property on Schedule B; there is minimal
non-exempt property in her bankruptcy estate. Yesterday, she spent about 2
hours in my office reviewing all of her schedules and documents for
accuracy and completeness; everything seemed on track to get her case filed
at the end of the conference.


While she was here, I received a call from the client’s estate planning
attorney. (The client has never had a will and thought it was about time.)


During the call, I learned that last Friday, the estate attorney created a
trust, had the client sign it, then filed a Declaration of Trust and also
had the client execute a Bill of Sale purporting to sell all of the
client’s tangible personal property to the trustee of her trust for
consideration of $1. The description of the property sold under the Bill of
the Sale tracks the same categories of personal property that would
otherwise be listed on Schedule B and exempted on Schedule C.


Nothing has been transferred in terms of her real estate.


The estate attorney first suggested that no transfer of the personal
property occurred since the spendthrift provisions in the trust only come
to life after the settlor dies. Then the estate attorney suggested during
the call that the client should simply execute another Bill of Sale to
transfer the personal property out of the trust and back to her as an
individual. The trust document reserves the right of the settlor to amend
or revoke the instrument until her death.


I am not an estate attorney. I don't know much about trusts or when inter
vivos transfers do and do not occur.


The client is deeply confused and upset that she’s “messed up” her
bankruptcy. She told me she thought she was getting a will. So much for my
straightforward Chapter 7 case….


My questions are as follows:




May a debtor assert Idaho bankruptcy exemptions on personal property she
just sold to her own trust?


If the answer  is “no,” does anyone have any ideas to get the personal
property back to the debtor as an individual prior to filing?


Is there a problem under 548(e), or any other Code provision, with the
client executing another Bill of Sale to undo the first Bill of Sale within
days of one another as suggested by the estate attorney?


If the client executes another Bill of Sale, is there any reason not to
disclose both transfers under #10(b) on Statement of Financial Affairs?
(This question may go to all of the estate attorneys out there…. Does
anything in the facts indicate that a “transfer to a self-settled trust or
similar device” and then back out again did not actually occur? Would it
matter if the client, acting as trustee, did not actually pay a $1 to buy
the assets for the trust under the first Bill of Sale?)


Does anyone hear any other red flags or issues that I’m missing???




Thank you!!!

Tecla Druffel