Trusts

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Trusts

In re Rodrigues

If filing for bankruptcy an individual who possess a home may claim the Homestead exemption even if they are not the actual owner of the property.

Homestead Exemption is applicable to an owner whose property is in a revocable trust

In re Schultz

Even thought the spendthrift provision is invalid the entire trust is not invalid—a settlor’s creditors may only reach the settlor’s beneficial interest in the trust

A spendthrift provision is invalid as to the settlor of a trust

In re Tosi

A spendthrift trust is ineffective against creditors if the settlor creates a trust for the settlor's own benefit and retains the power to amend, revoke or invade the principal of the trust, thus, the trust's assets are part of the Debtor's bankruptcy estate.

In re Tougas

Because Debtor was co-settlor and sole trustee and retained sufficient powers to eliminate the beneficiaries and terminate the Trust by ignoring the provisions of the Trust and treating the Trust in res as her own, the Trust and Trust res were in fact part of the Debtor's bankruptcy estate.

Issue: Under what circumstances is a power to revoke or terminate a trust "property" such that the Trust res must be considered property of the estate?

Trust Creation: to create a trust a property owner (Settlor) transfers assets to a trustee. Usually accompanied by a written trust instrument that sets forth the terms of the trust, including dispositive and administrative provisions.

Administrative Provisions: specify powers and duties of the trustee in managing the account.

Dispositive Provisions: intructions for how the trustee is to dispose of the assets within the trust.

Trust: an asset management device that divides the burdens and benefits of ownership of property between a trustee and beneficiaries.

Settlor: the individual who creates the trust. The Settlor may also be a beneficiary OR the trustee of the trust.

Beneficiary: hold the equitable interst in the property. The trust was created and exists for the benefit of the beneficiaries.

A beneficiaries interest may also be transferred involuntarily throught attachment by a judgment creditor of the beneficiary.

General Rule: A beneficiaries interest is freely transferable absent an express limitation in the trust language.

Trustee: holds the legal interest in the property. A fiduciary for the beneficiaries. The trust is not for the benefit of the trustee.

A trustee is liable to the creditor for any amount paid to beneficiary in disregard of the creditor's rights to the assets.

A creditor can only attach what assets the trustee is authorized to distribute pursuant to the trust instrument.

Speedthrift Provision: a provision within the trust instrument that shields the beneficiaries interests against creditors of the beneficiary.

Interests of beneficiary may be reached in even with a speedthrift provision in satisfaction of an enforceable claim for:

2. services or supplies provided for necessities or for the protection of the beneficiary's interest in the trust.

1. support of child, spouse, or former spouse

Speedthrift Provisions for the benefit of the settlor are not effective against a creditor's claim.

Certain types of creditors are exempt from the speedthrift provision limiting their abilility to attach.

Example: Governments seeking collection of unpaid taxes.

Example: Creditors seeking child support