Legal Gurus: Legal use of Spendthrift clause in pre - BK 7 plan for poss. medical BK.

[slvnomore]

1) So if a Bk spendthrift trust is not airtight. And it will always be fought or try to be pierced by Bk trustees that also may also be estate attorneys, what is the use of it?

2) What about disinheritance as an alternate strategy, with being reinstated after the 6 months?

3) any other out of the box thinking solutions?

[LadyInTheRed]

1) So if a Bk spendthrift trust is not airtight. And it will always be fought or try to be pierced by Bk trustees that also may also be estate attorneys, what is the use of it?

First of all, I don't think there is any such thing as something as specific as a BK spendthrift trust. A spendthrift trust is to protect assets from a beneficiary's creditors and that protection may or may not extend to bankruptcy. I don't think anybody said it will always be fought by the trustee. There is just no way for us to know whether it will be fought and how successful the trustee will be if he/she does fight. "Airtight" is not a realistic expectation, at least not based on what I have read about the enforceability of such clauses. But, I am not an attorney and am not at all faimiliar with IL law. So, nobody should take my word for it. I am just trying to warn you not to get your hopes too high. But, there is also no reason to give up on the idea entirely, especially if your parents have significant wealth and can afford the advice of a qualified attorney.

2) What about disinheritance as an alternate strategy, with being reinstated after the 6 months? ?

Your parents can change their estate plan at any time. They could disinherit anybody they want and then put them back in any time they want. But, if they die while the person is disinherited, that person is out of luck. My mom was concered about what would happen if she dies during my Chap 13. Since my husband did not file BK, all of my debt was incurred before marriage, and an inheritance is separate property, my mom amended her trust to name my husband as a beneficiary instead of me. She will amended it again after I am discharged. Whether or not this is an "airtight" option I don't know. The trustee could conceivably try to get at my husband's inheritance even though I am pretty sure that under state law, she would have no right to it. But, there is only so much that you can do about "what ifs". I'm hoping it will never be an issue anyway.

3) any other out of the box thinking solutions?

Keep in mind that out of the box solutions by their nature will not usually be airtight solutions.

[slvnomore]

I want to thank you for taking the time to explain all that to me, Being new to all this I now see that i had an unrealistic idea of the law. That is was either this or that. and if you did the right this, you would always get that. Now I am beginning to see it is more like probability in physics, where there is a high probability of an outcome, if you do your due dilegence and hire competent legal champions. But only a probability.

I hope it turns out alright for you, you have been most generous.

I especially appreciated: I am just trying to warn you not to get your hopes too high. But, there is also no reason to give up on the idea entirely,

and Your parents can change their estate plan at any time. They could disinherit anybody they want and then put them back in any time they want. But, if they die while the person is disinherited, that person is out of luck.

and But, there is only so much that you can do about "what ifs". I'm hoping it will never be an issue anyway

Very human, rock solid, rightsized, compassionate advice. You are appreciated! ; )

[btbeme]

The bedrock answer to all of this is pretty straightforward: as my grandfather advised me, many years ago, "there isn't anyone in this country more powerful than a Bankruptcy Trustee...except maybe a Bankruptcy Judge."

After reading these forums for several years and riding out my own tangled Ch 7 (as well as witnessing many, many others), I can verify the truth in his statement.

All I can say is, if a BK Trustee sees an opening, they will absolutely pursue it. The only other factor is whether it is worth the Trustee's time, effort, and treasure to pursue an Asset in the name of the creditors. If they think it is, they can make your life miserable. The only defenses against such an "attack" (which is actually the a Trustee's sworn obligation) is the same as any battle - make the cost of "winning" too high to make it a valued target. Unfortunately, Trustees hold the metaphoric high ground on a very steep hill to climb should there be an adversarial proceeding. Trustees are generally given broad oversight to pursue targets of value, and they hold almost all the cards in a legal argument. In estate planning (or any law practice) there are no absolutes, but perhaps it can be made much less attractive as a target for a hungry and aggressive Trustee, should that scenario come to pass.

In other words, you need a damn good estate attorney, and should hope for a measure of good luck.