.jpg)
Applicability of Exemptions in Bankruptcy to Assets held
I need to talk to someone on Monday via phone who understands various types
of trusts and the homestead exemption. Please post if you can talk to me
about this. I have a hearing on Tuesday and it may come up. I've posted
about this case before. Debtor's prior counsel was a bad actor and now his
acts might end up being imputed to the debtor. I am trying to prevent
that. She is elderly and was taken advantage of. Counsel created a
purportedly irrevocable "business trust" which issues "shares". The
business trust is named the address of the debtor's real property,
example: 123 Smith Lane, a California Business Trust. Debtor is the
trustee and 100% "shareholder" in this trust, having purportedly purchased
all the shares, albeit at a nominal sum considering the value of the real
estate in that trust. Debtor lives at the real property. Can she claim the
homestead exemption? Of course this trust was created 6 months prior to
filing and no, it was not disclosed in the initial petition, though the
trust was disclosed. Yes, these are not good facts, but I am trying to help
an old lady who got screwed by her prior counsel. I don't even know if
this trust is valid, but apparently the house was purchased in its name.
Is there anyone who can take my call tomorrow (Monday) who perhaps
understands trust issues and the homestead exemption very well?
Holly Roark
Certified Bankruptcy Specialist*
holly@roarklawoffices.com **primary email address**
www.roarklawoffices.com
Central District of California
Consumer Bankruptcy Attorney
1875 Century Park East, Suite 600
Los Angeles, CA 90067
T (310) 553-2600
F (310) 553-2601
*By State Bar of California Board of Legal Specialization
**For a quicker response, email me at holly@roarklawoffices.com.
I only use gmail for my listservs, and am likely to miss private emails
directed to my gmail account.**
On Sun, Feb 20, 2011 at 10:55 PM, Mark Jessee wrote:
> **
>
>
> Thanks to Larry & Jeremy for the time and effort in presenting the seminar
> yesterday! It was a great refresher for me! One point raised really caused
> me great concern however. Both Larry & Jeremy recommended any client
> holding assets in a revocable trust reconvey the assets back to themselves
> as individuals rather than continue to hold them as trustees of their
> revocable trust. The rationale being that only individuals (natural
> persons) may assert exemptions under Section 522(b). I am glad the issue
> arose as it is an important one we all face, even when we are not aware of
> it when the clients fail to mention they have a living trust. However, I
> respectfully disagree with Larry & Jeremy's analysis on the applicability
> of exemptions to assets held in a revocable trust.
>
> I do not believe bankruptcy debtors are prohibited from exempting assets
> held in their revocable trusts. As California opted out of the federal
> exemptions for bankruptcy purposes, California exemption law applies.
> California law does not treat assets held in a revocable trust any
> differently than those held in the individuals name. A revocable trust is
> not really substantively a separate legal entity from its settlor (the
> person who created it). Income is reported to the settlor on his/her social
> security number. Trust assets are not protected from the settlor's
> creditors either. "If the settlor retains the power to revoke the trust in
> whole or in part, the trust property is subject to the claims of creditors
> of the settlor to the extent of the power of revocation during the lifetime
> of the settlor." Probate Code 18200. The settlor is entitled to all the
> exemptions an individual would have for his/her assets titled in just their
> name. "Any settlor whose trust property is subject to the claims of
> creditors pursuant to Section 18200 shall be entitled to all exemptions as
> provided in Chapter 4 (commencing with Section 703.-10) of Division 2 of
> Titles 9 of Part 2 of the Code of Civil Procedure." This incorporates both
> the exemptions under C.C.P. 703.140(b) and those starting with C.C.P.
> 704.010. Probate Code 18201 was enacted in 1998. Judge McManus recognized
> in two Eastern District cases debtor's right to assert exemptions in
> bankruptcy cases for assets held in revocable trusts. See In re Bogetti 349
> B.R. 14, Bkrtcy.E.D.Cal., August 18, 2006 and In Re Barnes 275 B.R. 889,
> Bkrtcy.E.D.Cal., April 12, 2002. Even before then there is case law
> recognizing the right of bankruptcy debtors to asset exemptions in assets
> held in their revocable trusts. A homestead exemption was allowed to the
> debtor who was trustee of his revocable trust by our own Judge March in her
> decision in In Re Moffat 107 BR 255, Bkrtcy C.D., CA, 1989. Her reasoning
> was that "Debtor's interest as a trustor and beneficiary under the Living
> Trust, among other things, all became property of the bankruptcy estate
> pursuant to 11 U.S.C. 541(a) upon the filing of debtor petition. Debtor
> is entitled to claim an exemption in either of these legal interests.
> Pursuant to debtor's interest as trustor in the "revocable" living trust,
> the bankruptcy estate holds a "contingent reversionary interest" in the
> subject dwelling. The bankruptcy trustee-standing in debtor's place as
> trustor of the Living Trust-can, in his discretion, revoke the trust in
> whole or in part, reverting title in the residence back to the bankruptcy
> estate. Debtor claims a homestead in this "contingent reversionary
> interest" and the trustee has failed to produce any legal authority for the
> proposition that a homestead cannot be claimed in such an interest."
>
> If such assets are not exempt, we have exposed an area where our client's
> could face significant financial loss and a major malpractice trap. As an
> Estate planning attorney the concept that my estate planning clients, and
> every other estate planning attorney's clients, might not be able to assert
> exemptions in their assets if their financial condition later declines
> deeply disturbs me. If such assets cannot be exempted in a later bankruptcy
> it means that all CA estate planning attorneys face potential malpractice
> claims if they fail to advise clients of the risk of loss of assets'
> exemption protection if held in trust. Likewise, as a bankruptcy attorney,
> it concerns me that by advising clients to reconvey assets from their names
> as trustees of their revocable trusts to title them in just their own names
> leaves open exposing those assets to probate should the client die before
> the property is reconveyed to the trust after the bankruptcy case is
> closed. This takes effort and usually money to an attorney. Additionally
> the failure to reconvey to the trust is fairly common even when just having
> transferred title back to settlor's/trustor's (person who created trust)
> name to refinance. If there is no pour-over will that names the trustee of
> the revocable trust the beneficiary, then the client's estate plan intent
> expressed in the trust is thwarted. Furthermore, one main reason such
> trusts are created is to avoid the expense and delay of the probate
> process. The probate process is based upon gross value, so even upside down
> homes require formal probate if held in just an individual's name. Even
> with the decline in real estate values, this can lead to $10,000 to $20,000
> of extra fees that would not otherwise have been incurred if the assets
> remained in trust. This could potentially be a malpractice pitfall for the
> bankruptcy attorney if the need to reconvey assets to the trust is not
> fully explained to the debtor clients.
>
> If my analysis is correct that assets held in a revocable trust may be
> exempted in bankruptcy, I submit that advising the debtor clients to
> reconvey out of the trust in the first place is unnecessary, causes the
> client to incur needless expense and potentially exposes the bankruptcy
> attorney so advising to potential malpractice liability if said property is
> not reconveyed back into the trust before the client dies.
>
> Accordingly, I think it is fraught with peril to advise potential debtors
> to reconvey assets out of their revocable trusts to themselves prepetition.
>
> Mark Jessee
>
>
>
I need to talk to someone on Monday via phone who understands various types of trusts and the homestead exemption. Please post if you can talk to me about this. I have a hearing on Tuesday and it m
The post was migrated from Yahoo.
If they are not the sole beneficiaries, then they can't claim it as exempt?
Holly Roark
On Tue, May 17, 2011 at 12:32 PM, Wesley H. Avery wrote:
>
>
> Subject to the limitation of Section 548(e)(1), I concur that the general
> rule is that a homestead may be claimed by debtors through a revocable trust
> in which they are the sole trustors and beneficiaries.
>
>
>
> *Wesley H. Avery, Esq.*
> *Roquemore, Pringle & Moore, Inc.*
> *6055 E. Washington Blvd., Ste. 500*
> *Los Angeles**, CA 90040-2466*
> *wavery@rpmlaw.com*
> *http://www.rpmlaw.com*
> *(323) 724-3117 (office)*
> *(323) 724-5410 (fax)*
> *(323) 919-9336 (blackberry)*
>
> *The Bankruptcy Law Center
> 28005 Smyth Drive, Ste. 125
> Valencia, CA 91355-4023
> wavery@thebankruptcylawcenter.com
> http://www.thebankruptcylawcenter.com
> (661) 295-4673 (office)
> (661) 430-5467 (fax)
> (661) 618-7376 (cell) *
>
> *Certified Specialist*
> *Bankruptcy Law*
> *State Bar of California*
>
> *Board Certified*
> *Business Bankruptcy Law*
> *American Board of Certification*
>
> CONFIDENTIALITY NOTICE: The information contained in this e-mail
> transmission is intended only for use of the individual or entity named
> above. This e-mail transmission , and any documents, files, previous e-mail
> transmissions or other information attached to it, may contain confidential
> information that is legally privileged. If you are not the intended
> recipient of this e-mail transmission, or the employee or agent responsible
> for delivering it to the intended recipient, you are hereby notified that
> any disclosure, dissemination, copying, or other use of this transmission or
> any of the information contained in or attached to it is strictly
> prohibited. If you have received this e-mail transmission in error, please
> immediately notify us by return e-mail transmission or by telephone at (661)
> 618-7376, and destroy the original e-mail transmission and its attachments
> without reading it or saving it in any manner. Thank you.
> ------------------------------
>
> *From:* cdcbaa@yahoogroups.com [mailto:cdcbaa@yahoogroups.com] *On Behalf
> Of *Holly Roark
> *Sent:* Tuesday, May 17, 2011 12:15 PM
> *To:* cdcbaa@yahoogroups.com; mjessee@jesseelaw.com
> *Subject:* Re: [cdcbaa] Applicability of Exemptions in Bankruptcy to
> Assets held in Revocable Trusts
>
>
>
>
>
> Mark, I have searched the database for other discussion on this topic but
> have not found any. Do most attorneys here agree that assets held in a
> revocable trust can be exempted? Great analysis, by the way, Mark.
>
> Holly Roark
>
> On Sun, Feb 20, 2011 at 10:55 PM, Mark Jessee
> wrote:
>
>
>
> Thanks to Larry & Jeremy for the time and effort in presenting the seminar
> yesterday! It was a great refresher for me! One point raised really caused
> me great concern however. Both Larry & Jeremy recommended any client holding
> assets in a revocable trust reconvey the assets back to themselves as
> individuals rather than continue to hold them as trustees of their revocable
> trust. The rationale being that only individuals (natural persons) may
> assert exemptions under Section 522(b). I am glad the issue arose as it is
> an important one we all face, even when we are not aware of it when the
> clients fail to mention they have a living trust. However, I respectfully
> disagree with Larry & Jeremy's analysis on the applicability of exemptions
> to assets held in a revocable trust.
>
> I do not believe bankruptcy debtors are prohibited from exempting assets
> held in their revocable trusts. As California opted out of the federal
> exemptions for bankruptcy purposes, California exemption law applies.
> California law does not treat assets held in a revocable trust any
> differently than those held in the individuals name. A revocable trust is
> not really substantively a separate legal entity from its settlor (the
> person who created it). Income is reported to the settlor on his/her social
> security number. Trust assets are not protected from the settlor's creditors
> either. "If the settlor retains the power to revoke the trust in whole or in
> part, the trust property is subject to the claims of creditors of the
> settlor to the extent of the power of revocation during the lifetime of the
> settlor." Probate Code 18200. The settlor is entitled to all the exemptions
> an individual would have for his/her assets titled in just their name. "Any
> settlor whose trust property is subject to the claims of creditors pursuant
> to Section 18200 shall be entitled to all exemptions as provided in Chapter
> 4 (commencing with Section 703.-10) of Division 2 of Titles 9 of Part 2 of
> the Code of Civil Procedure." This incorporates both the exemptions under
> C.C.P. 703.140(b) and those starting with C.C.P. 704.010. Probate Code
> 18201 was enacted in 1998. Judge McManus recognized in two Eastern District
> cases debtor's right to assert exemptions in bankruptcy cases for assets
> held in revocable trusts. See In re Bogetti 349 B.R. 14, Bkrtcy.E.D.Cal.,
> August 18, 2006 and In Re Barnes 275 B.R. 889, Bkrtcy.E.D.Cal., April 12,
> 2002. Even before then there is case law recognizing the right of bankruptcy
> debtors to asset exemptions in assets held in their revocable trusts. A
> homestead exemption was allowed to the debtor who was trustee of his
> revocable trust by our own Judge March in her decision in In Re Moffat 107
> BR 255, Bkrtcy C.D., CA, 1989. Her reasoning was that "Debtor's interest as
> a trustor and beneficiary under the Living Trust, among other things, all
> became property of the bankruptcy estate pursuant to 11 U.S.C. 541(a) upon
> the filing of debtor petition. Debtor is entitled to claim an exemption in
> either of these legal interests.
>
> Pursuant to debtor's interest as trustor in the "revocable" living
> trust, the bankruptcy estate holds a "contingent reversionary interest" in
> the subject dwelling. The bankruptcy trustee-standing in debtor's place as
> trustor of the Living Trust-can, in his discretion, revoke the trust in
> whole or in part, reverting title in the residence back to the bankruptcy
> estate. Debtor claims a homestead in this "contingent reversionary interest"
> and the trustee has failed to produce any legal authority for the
> proposition that a homestead cannot be claimed in such an interest."
>
> If such assets are not exempt, we have exposed an area where our client's
> could face significant financial loss and a major malpractice trap. As an
> Estate planning attorney the concept that my estate planning clients, and
> every other estate planning attorney's clients, might not be able to assert
> exemptions in their assets if their financial condition later declines
> deeply disturbs me. If such assets cannot be exempted in a later bankruptcy
> it means that all CA estate planning attorneys face potential malpractice
> claims if they fail to advise clients of the risk of loss of assets'
> exemption protection if held in trust. Likewise, as a bankruptcy attorney,
> it concerns me that by advising clients to reconvey assets from their names
> as trustees of their revocable trusts to title them in just their own names
> leaves open exposing those assets to probate should the client die before
> the property is reconveyed to the trust after the bankruptcy case is closed.
> This takes effort and usually money to an attorney. Additionally the failure
> to reconvey to the trust is fairly common even when just having transferred
> title back to settlor's/trustor's (person who created trust) name to
> refinance. If there is no pour-over will that names the trustee of the
> revocable trust the beneficiary, then the client's estate plan intent
> expressed in the trust is thwarted. Furthermore, one main reason such trusts
> are created is to avoid the expense and delay of the probate process. The
> probate process is based upon gross value, so even upside down homes require
> formal probate if held in just an individual's name. Even with the decline
> in real estate values, this can lead to $10,000 to $20,000 of extra fees
> that would not otherwise have been incurred if the assets remained in trust.
> This could potentially be a malpractice pitfall for the bankruptcy attorney
> if the need to reconvey assets to the trust is not fully explained to the
> debtor clients.
>
> If my analysis is correct that assets held in a revocable trust may be
> exempted in bankruptcy, I submit that advising the debtor clients to
> reconvey out of the trust in the first place is unnecessary, causes the
> client to incur needless expense and potentially exposes the bankruptcy
> attorney so advising to potential malpractice liability if said property is
> not reconveyed back into the trust before the client dies.
>
> Accordingly, I think it is fraught with peril to advise potential debtors
> to reconvey assets out of their revocable trusts to themselves prepetition.
>
> Mark Jessee
>
>
>
>
> --
>
> Holly Roark
>
> holly@roarklawoffices.com
>
> www.roarklawoffices.com
>
> Central District of California
>
> Consumer Bankruptcy Attorney
>
> 1875 Century Park East, Suite 600
>
> Los Angeles, CA 90067
>
> T (310) 553-2600
>
> F (310) 553-2601
>
> I'm riding in AIDS/LifeCycle 10, a 545-mile bike ride from San Francisco to
> Los Angeles,
>
> June 5-11, 2011, to raise money for the Jeffrey Goodman Clinic and other
> services for
>
> people with AIDS.
>
> You can make a donation online (or obtain a pledge form) at
>
> http://www.tofighthiv.org/goto/
> holly
>
> __o
>
> _`\
> (_)/ (_)
>
> SF * * * * * * * * * * * * * * * * * * * * * * 545 miles * * * * * * * * *
> * * * * * * * * ** * * * LA
>
>
>
> >
>
>
>
>
>
>
Holly Roark
holly@roarklawoffices.com
www.roarklawoffices.com
Central District of California
Consumer Bankruptcy Attorney
1875 Century Park East, Suite 600
Los Angeles, CA 90067
T (310) 553-2600
F (310) 553-2601
I'm riding in AIDS/LifeCycle 10, a 545-mile bike ride from San Francisco to
Los Angeles,
June 5-11, 2011, to raise money for the Jeffrey Goodman Clinic and other
services for
people with AIDS.
You can make a donation online (or obtain a pledge form) at
http://www.tofighthiv.org/goto/ holly
__o
_`\
The post was migrated from Yahoo.
Mark, I have searched the database for other discussion on this topic but
have not found any. Do most attorneys here agree that assets held in a
revocable trust can be exempted? Great analysis, by the way, Mark.
Holly Roark
On Sun, Feb 20, 2011 at 10:55 PM, Mark Jessee wrote:
>
>
> Thanks to Larry & Jeremy for the time and effort in presenting the seminar
> yesterday! It was a great refresher for me! One point raised really caused
> me great concern however. Both Larry & Jeremy recommended any client holding
> assets in a revocable trust reconvey the assets back to themselves as
> individuals rather than continue to hold them as trustees of their revocable
> trust. The rationale being that only individuals (natural persons) may
> assert exemptions under Section 522(b). I am glad the issue arose as it is
> an important one we all face, even when we are not aware of it when the
> clients fail to mention they have a living trust. However, I respectfully
> disagree with Larry & Jeremy's analysis on the applicability of exemptions
> to assets held in a revocable trust.
>
> I do not believe bankruptcy debtors are prohibited from exempting assets
> held in their revocable trusts. As California opted out of the federal
> exemptions for bankruptcy purposes, California exemption law applies.
> California law does not treat assets held in a revocable trust any
> differently than those held in the individuals name. A revocable trust is
> not really substantively a separate legal entity from its settlor (the
> person who created it). Income is reported to the settlor on his/her social
> security number. Trust assets are not protected from the settlor's creditors
> either. "If the settlor retains the power to revoke the trust in whole or in
> part, the trust property is subject to the claims of creditors of the
> settlor to the extent of the power of revocation during the lifetime of the
> settlor." Probate Code 18200. The settlor is entitled to all the exemptions
> an individual would have for his/her assets titled in just their name. "Any
> settlor whose trust property is subject to the claims of creditors pursuant
> to Section 18200 shall be entitled to all exemptions as provided in Chapter
> 4 (commencing with Section 703.-10) of Division 2 of Titles 9 of Part 2 of
> the Code of Civil Procedure." This incorporates both the exemptions under
> C.C.P. 703.140(b) and those starting with C.C.P. 704.010. Probate Code
> 18201 was enacted in 1998. Judge McManus recognized in two Eastern District
> cases debtor's right to assert exemptions in bankruptcy cases for assets
> held in revocable trusts. See In re Bogetti 349 B.R. 14, Bkrtcy.E.D.Cal.,
> August 18, 2006 and In Re Barnes 275 B.R. 889, Bkrtcy.E.D.Cal., April 12,
> 2002. Even before then there is case law recognizing the right of bankruptcy
> debtors to asset exemptions in assets held in their revocable trusts. A
> homestead exemption was allowed to the debtor who was trustee of his
> revocable trust by our own Judge March in her decision in In Re Moffat 107
> BR 255, Bkrtcy C.D., CA, 1989. Her reasoning was that "Debtor's interest as
> a trustor and beneficiary under the Living Trust, among other things, all
> became property of the bankruptcy estate pursuant to 11 U.S.C. 541(a) upon
> the filing of debtor petition. Debtor is entitled to claim an exemption in
> either of these legal interests.
>
Pursuant to debtor's interest as trustor in the "revocable" living trust,
> the bankruptcy estate holds a "contingent reversionary interest" in the
> subject dwelling. The bankruptcy trustee-standing in debtor's place as
> trustor of the Living Trust-can, in his discretion, revoke the trust in
> whole or in part, reverting title in the residence back to the bankruptcy
> estate. Debtor claims a homestead in this "contingent reversionary interest"
> and the trustee has failed to produce any legal authority for the
> proposition that a homestead cannot be claimed in such an interest."
>
> If such assets are not exempt, we have exposed an area where our client's
> could face significant financial loss and a major malpractice trap. As an
> Estate planning attorney the concept that my estate planning clients, and
> every other estate planning attorney's clients, might not be able to assert
> exemptions in their assets if their financial condition later declines
> deeply disturbs me. If such assets cannot be exempted in a later bankruptcy
> it means that all CA estate planning attorneys face potential malpractice
> claims if they fail to advise clients of the risk of loss of assets'
> exemption protection if held in trust. Likewise, as a bankruptcy attorney,
> it concerns me that by advising clients to reconvey assets from their names
> as trustees of their revocable trusts to title them in just their own names
> leaves open exposing those assets to probate should the client die before
> the property is reconveyed to the trust after the bankruptcy case is closed.
> This takes effort and usually money to an attorney. Additionally the failure
> to reconvey to the trust is fairly common even when just having transferred
> title back to settlor's/trustor's (person who created trust) name to
> refinance. If there is no pour-over will that names the trustee of the
> revocable trust the beneficiary, then the client's estate plan intent
> expressed in the trust is thwarted. Furthermore, one main reason such trusts
> are created is to avoid the expense and delay of the probate process. The
> probate process is based upon gross value, so even upside down homes require
> formal probate if held in just an individual's name. Even with the decline
> in real estate values, this can lead to $10,000 to $20,000 of extra fees
> that would not otherwise have been incurred if the assets remained in trust.
> This could potentially be a malpractice pitfall for the bankruptcy attorney
> if the need to reconvey assets to the trust is not fully explained to the
> debtor clients.
>
> If my analysis is correct that assets held in a revocable trust may be
> exempted in bankruptcy, I submit that advising the debtor clients to
> reconvey out of the trust in the first place is unnecessary, causes the
> client to incur needless expense and potentially exposes the bankruptcy
> attorney so advising to potential malpractice liability if said property is
> not reconveyed back into the trust before the client dies.
>
> Accordingly, I think it is fraught with peril to advise potential debtors
> to reconvey assets out of their revocable trusts to themselves prepetition.
>
> Mark Jessee
>
>
>
Holly Roark
holly@roarklawoffices.com
www.roarklawoffices.com
Central District of California
Consumer Bankruptcy Attorney
1875 Century Park East, Suite 600
Los Angeles, CA 90067
T (310) 553-2600
F (310) 553-2601
I'm riding in AIDS/LifeCycle 10, a 545-mile bike ride from San Francisco to
Los Angeles,
June 5-11, 2011, to raise money for the Jeffrey Goodman Clinic and other
services for
people with AIDS.
You can make a donation online (or obtain a pledge form) at
http://www.tofighthiv.org/goto/ holly
__o
_`\
The post was migrated from Yahoo.