House owned by trust. How to list on forms?

[avengers]

After my mother was diagnosed with cancer, she transferred her house to a trust with her as sole trustee and sole beneficiary. However, upon her death, I become the sole trustee and one of three equal beneficiaries (with my siblings). The house has no mortgage on it.

I am currently residing in the house now.

How do i list the home in the bankruptcy documents? So technically speaking, I don't own the home. Do I still qualify for the homestead exemption?

The trust has a spendthrift provision, stating that the assets can't be used to be existing debts.

When I did the initial consultation, the attorney was less than helpful. He either didn't know or was just being cagey to avoid giving me free advice and have me file on my own. So he basically said it was either a homestead or exempt property and refused to elaborate.

Looks like it would go under Schedule B, line 20. But I just want to make sure that they can't take the property. How do I list it on Schedule C?

[justbroke]

You don't "own" the home outright, but you do have an ownership interest in the home. if I were you, I would file through an attorney. Property issues can be frustrating and there were several recent issues on BKForum where pro se debtors ran into trouble with the Trustee where there was jointly held property. I would hate for the home to be sold by the Trustee.

The attorney is right; it is either protect by homestead exemptions or it is exempt from the bankruptcy Estate. That's a very sticky "legal" question and I can't personally answer that question. You have a very particular situation that really should be addressed by a seasoned bankruptcy attorney. Specifically, if the spendthrift provision is actually enforceable under Arizona law, then the property of the Trust may not become part of the Bankruptcy Estate. However, an experienced attorney has to read the provisions of that Trust and make sure all the ducks line up and are quacking in unison.

Perhaps our resident Arizona expert, despritfreya, will come along and give you some idea. I still think it's a bad idea to proceed without competent legal representation. But, that's me.

[LadyInTheRed]

I disagree with JB. You have no ownership interest in the home until your mother dies.

I assume this is a revocable trust which means your mom could revoke it or amend it at any time to remove you as a beneficiary. Even if it is not revocable, you have no interest in the assets until you become a beneficiary. I suppose it could be said that you have a contingent interest, but the current value would be zero, so there wouldn't be anything to exempt. You can't claim a homestead exemption for a home you don't own.

If your mother dies within 6 months of your BK filing, then your interest in the trust will become an asset of the BK estate.

You shouldn't have to worry about whether it should be listed on Schedule B or Schedule C. That is your attorney's job. Just make sure your attorney knows about the trust so he can decide how to handle it.

[avengers]

I should have clarified that my mother is dead.

[justbroke]

I read it as if she had already passed.

[LadyInTheRed]

I should have clarified that my mother is dead.

I read it as if she had already passed.

And you read it correctly. I didn't. (I think "become" should have been "became")

In that case, I 100% agree with JB.

[justbroke]

And you read it correctly. I didn't. (I think "become" should have been "became")

In that case, I 100% agree with JB.

My eyes are so bad, I saw "became"...

[LadyInTheRed]

Just brainstorming. I don't know if this will work.

Do you as trustee have the power to distribute the real estate to you and your siblings? Is the home worth less than $450K? If so, maybe you could transfer title to the 3 of you before you file BK and use the homestead exemption to exempt your 1/3.

You definitely should not do anything like this without talking to an attorney. If the spendthrift provision is enforceable, you don't want to give up that protection. But, keep in mind, spendthrift provisions are in many states very vulnerable to attack.

[despritfreya]

Since initial consultations are free, you need to continue looking for the right attny. My guess is that the attny you spoke to advertises on TV and/or is a mill operation. Such firms shy away from anything that may give rise to “litigation” and/or have no ability to think outside the box.

In general, the spendthrift provision protects the corpus of the trust SO LONG AS the trust, by its own terms, remains in tact or is revocable by the settlor (who is not the debtor). However, upon the creator’s death the corpus must be distributed as indicated in the trust. Upon you mom’s death the trust became irrevocable and your right to ownership of the home became solidified. The trust corpus must be distributed pursuant to the terms of the document.

All reported decisions in the 9th Circuit (AZ is in the 9th Cir.) deal with irrevocable trusts. The beneficial interest in an irrevocable trust IS property of the bk estate subject to the provision of 11 USC 541(c)(2) which states “a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankrutpcy law is enforceable in a case under this title”. In such cases a Chapter 7 trustee may be entitled to the corpus or income stream of the trust depending upon the terms of the document and applicable state law. A recent case of interest is

http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/12/Hernandez%20Memo%2012-1537.pdf

Without seeing the trust documents and knowing your mom has passed (my condolences) I can bet dollars to donuts that you need to make all necessary distributions before you file bk. At that point you should be able to declare the home as your homestead. However, without seeing the trust documents I cannot be sure.

If you were to come to my office the first thing we would ask to see is a copy of the trust. If we were not sure about its “meaning” we would have you discuss it with an estate planning attny who also understands bk law.

BEFORE YOU DO ANYTHING, you should speak to several well qualified bk attnys and maybe even an estate planning attny. Bring a copy of the trust document with you!

Des.

[tobee43]

des, your post is so right on. dealing with trust issues are certainly something NO ONE should tackle alone.

i would first speak with the actual trust/estate atty that drew up the trust to clearly define the trust so there are absolutely no misunderstandings with respect to safeguarding the trusts assets. once you are very clear on your responsibilities and options, then i would believe the next step would be the bk atty, that really knows their stuff. if it were me, i would go back, if you could ,to the firm who drew up the trust.

as des points out the trust is an irrevocable trust, as most likely it was drawn prior to your mom's death (i am sorry for your loss), would have be drawn up as revocable. that's the key here, i also don't know if this is a settlor trust or a grant trust. additionally, if there is a clause, and now many estate attys are putting them in, as requested by their clients, in the bodies of their trust that provide that the sole trustee can not if they chose to; distribute any assets from the trust until the youngest of the grandchildren reach the age of 25. so as des points out; get that trust and make certain what is says, hopefully, there are protection clauses in the instrument.

best of luck!

[avengers]

Thanks for the info. That case really isn't pertinent, though. That case involved an irrevocable trust with an annual gift to the beneficiaries, with the mother still alive. The trustee was trying to get the annual gift as part of the bk estate. Most importantly, it deals with California law, which specifically states that spendthrift provisions only protect 75% of the trust.

In my case, the only asset of the trust is the house (the rest of her estate has already been distributed). The only beneficiaries are me and my siblings.
Logically speaking, there is no difference between the house being owned by a trust with me and my siblings as beneficiaries and the three of us owning the house as joint tenants. The law would be illogical if it would exempt the house if owned as joint tenancy, but not exempt the house if owned by the trust. Of course, logic and the law aren't necessarily the same thing.

[despritfreya]

Thanks for the info. That case really isn't pertinent, though.

Such may be true but it is on point when dealing with a FULLY VESTED right under an irrevocable trust.

In my case, the only asset of the trust is the house. The only beneficiaries are me and my siblings. Logically speaking, there is no difference between the house being owned by a trust with me and my siblings as beneficiaries and the three of us owning the house as joint tenants. The law would be illogical if it would exempt the house if owned as joint tenancy, but not exempt the house if owned by the trust. Of course, logic and the law aren't necessarily the same thing.

And there is the rub. Under Arizona law what is exempt is. . .

The person's interest in real property in one compact body upon which exists a dwelling house in which the person resides.

Since "interest" is not defined you could argue that the beneficial interest is exempt however, I presume you no longer have a "beneficial" interest since the trust most likely required final distribution upon your mom's death.

And I do not mean to be flippant here but if you file bk without the assistance of a well qualified bk attny you may very well end up at my office for damage control purposes. You will be paying BIG BUCKS to argue the above points and you could lose - or, at least will pay blood money to the Trustee to settle the dispute because paying extortion will be cheaper than paying my firm's legal fees if you were to litigate - even if you win.

So, continue to search for the right attny and make sure you bring the trust documents with you.

Des.

[justbroke]

avengers, I would listen closely to what Despritfreya writes. Des is very versed in this subject and may have actually had several cases of this type. As i worte earlier, I would hate for you to file Pro Se and make a mistake where the terms of the Trust aren't as "impenetrable" as you thought. I'm especially concerned where you respond to Des and say that the case is not on point.

You do need to find the right attorney (BK or Estate Planning) that can guide you correctly.

[avengers]

Sorry if I was unclear. I am very appreciative of everyone's comments in this thread and will definitely be searching for another BK attorney.

I did not want to do that at first, because we don't have any money. Some people file bankruptcy because, while they have an income, it's overwhelmed by their debt. Others file BK because they have no income. My wife and I are in the latter category unfortunately. I've been unemployed since November and, with each passing day, it's becoming more and more likely that I will not find a job in the only field I've ever had any training in. We have a little money saved up and my wife had a temp job that's bringing in money. Unfortunately, that job just ended. What little money we do have, we were going to use to buy a used car (because we haven't made any payments on our current car since November). Having to spend $2k+ on a BK attorney is going to make the car we have to buy really old.

[tobee43]

des: Since "interest" is not defined you could argue that the beneficial interest is exempt however, I presume you no longer have a "beneficial" interest since the trust most likely required final distribution upon your mom's death.

one would really not think so if the house was divided between the siblings and at this point not sold and the asset resulting from the sale was divided equally? since the OP still lives in the house. that part of the estate was never equally divided, i so agree with you, this is the time if NO other in one's life to use an excellent atty. i can't see how a trustee would not force the sale and do the correct distribution equally amongst the siblings first and take OPs amount in to consideration.

des, the other option may be to have the other siblings buy out the OP share prior to filing or stop and not file until this resolved? They should or do have first right options, i'm certain any estate atty would advise them well on this matter. Op would have to list it on their petition, i know in this state any type of such transaction had to be listed within a 2 year period of filing with an explanation. there maybe no escaping without full disclosure here.