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

[Alexandra Caval]

If the trust is now the owner of the property then no, she can't claim an exemption on it. Since we're in the 9th Circuit you may want to take a look at Adeeb (787 F.2d 1339, 9th Cir.) which says that in order to have a fraudulent transfer the item(s) must remain transferred as of the petition date. So, if she gets it back before she files then you don't have a fraudulent transfer. You need to make sure the case law is still good law (I want to say it's still good law in the 9th Circuit but that other courts outside the 9th have gone the other way). You'd want to disclose both transfers on the SOFA and probably disclose the newly created trust too. 


Alexandra O. Caval
Caval Law Office, P.C.
P.O. Box 1716
Twin Falls, ID 83303-01716
T: 208.733.2035
F: 208.733.3919
alex at cavallawoffice.com


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-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Tecla Druffel
Sent: Tuesday, August 11, 2015 12:25 PM
To: CLBS at admws.idaho.gov
Subject: [CLBS] Transfers into--and back out of-- self-settled trust on the eve of filing bankruptcy

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
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