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

[William J. O'Connor]

I am not an estate attorney either, but I recall a few things that I have concerns over:

> 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.


If the spendthrift provision does not become effective until death and it applies to the assets transferred, then how can a transfer have taken place (obviously your client is alive)?  Such a statement makes is seem as though the client’s estate lawyer drafted a trust that would not be effective in her lifetime.

OR  

Is it possible that he drafted more than one trust, one during life and another after dying?  I’ve never heard of such a thing (but like I said, I’m not an estate lawyer), so I then wonder if it is an inter vivos trust with a spendthrift provision is in place, but he either didn’t explain it clearly or there was a communication break down somewhere.  Perhaps you should review the trust document for your own CYA?

Finally, did the Trustee act within his fiduciary responsibilities as your client’s beneficiary?  If he really had her sell all of her tangible personal property for $1.00, is that in the client’s best interest?  Would his actions be voidable if not?

> William J. O'Connor
> O'Connor Law, PLLC
> 355 West Myrtle Street 
> Suite 100
> Boise, ID 83702
> 
> Office:  208-344-5095
> Fax: 208-424-3100





On Aug 11, 2015, at 12:24 PM, Tecla Druffel <tecla.druffel at gmail.com> wrote:

> 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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