.jpg)
Applicability of Exemptions in Bankruptcy to=20
charsetF-8;
format="flowed"
Neither the bankruptcy code nor California codes define the term
"self-settled trust". Blacks Law Dictionary defines it as, "A trust in
which the settlor is also the peron who is to receive the benefits from
the trust, usu. set up in an attempt to protect the trust assets from
creditors." I have never interpreted self-settled trusts to be
narrowly limited to only irrevocable trusts and disclose transfers to
revocable trusts in SOFA paragraph 10(b) with cross reference to CA
Probate Code Section 18200. While, I beleive the correct
interpretation of Section 548(e)(1) is that it was designed to thwart
irrevocable, so called asset protection trusts, SOFA 10(b) only asks
about transfers to self-settled trusts. Accordingly, I disclose and
let the trustee evaluate the transfers in terms of Section 548(e)(1).
As was brought up at the CDCBAA seminar in February, at least some
Chapter 7 trustees maintain (be it they are incredibly agressive or are
out of their depth relating to trust law) that transfers to revocable
trusts fall under Section 548(e)(1). I do not want accusations
leveled at my client or me alleging failing to disclose required
information when the trustee discovers the property is held in trust.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868 (805) 497-5864 (Facsimile)
On Tue, 17 May 2011 15:27:24 -0700 (PDT), P L
wrote:
My questions went to the issue of whether a "self settled" trust
isn't defined as an irrevocable trust which attempts to put assets
outside of the reach of creditor and gives meaning to 548(e)(1).
Peter M. Lively, JD, MBA
The Personal Financial Law Center * Culver City & Costa Mesa * 800-307-DEBT
To: cdcbaa@yahoogroups.com
Sent: Tue, May 17, 2011 1:52:01 PM
Subject: Re: [cdcbaa] Applicability of Exemptions in Bankruptcy to
Assets heldin Revocable Trusts
If the debtor was not a beneficiary of at least some portion of the
trust then 548(e)(1) would not apply. Obviously if the debtor lacks
any remaining property interest, be it vested or contingent there is
nothing to exempt.
Exemptions may be asserted to protect assets of a revocable trust if
the settlor has the right to revoke the trust in whole or part during
the settlor's lifetime. The number or relationship to the settlor of
the trust beneficiaries is irrelevant.
The settlor/trustor is the person who initiates the trust's creation.
A self settled trust is a trust created at that person's initiation
and that person is to receive benefits from the trust. Typical
example. H & W establish revocable trust. It is for their benefit
during their lifetimes and provisions are made for distribution of
assets at the first and/or second spouse's death. Kids would typically
be the beneificiaries of the trust after the death of one or both
parents. It is a self settled trust for H & W.
If this same trust were established as an irrevocable trust and had
some sort of spendthrift clause to protect it from creditors it would
also be a self settled trust for H & W becuase they have an interest in
it during their lifetimes. That is exactly the type of trust Section
548(e)(1) is designed to thwart under the social policy that people
should be responsible for their debts.
If Grandma established an irrevocable trust for grandkids naming H &
W trustees of the trust. This would not be a self settled trust for
grandma because she is not a beneficiary presuming there is no
contingency in which she could be a beneficiary of the trust. It is
not a self settled trust for H & W, nor would it be a self settled
trust for the grandkids.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868 (805) 497-5864 (Facsimile)
On Tue, 17 May 2011 13:09:20 -0700, Holly Roark wrote:
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.
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) uponthe 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/hollyholly
__o
_`\
start="7e4g63w80ysk@webmail.mysuperpageshosting.com"
charsetF-8
Neither the bankruptcy code nor California codes define the term
"self-settled trust". Blacks Law Dictionary defines it as, "A trust in
which the settlor is also the peron who is to receive the benefits from the
trust, usu. set up in an attempt to protect the trust assets from
creditors." I have never interpreted self-settled trusts to be narrowly
limited to only irrevocable trusts and disclose transfers to revocable
trusts in SOFA paragraph 10(b) with cross reference to CA Probate Code Section
18200. While, I beleive the correct interpretation of Section 548(e)(1) is
that it was designed to thwart irrevocable, so called asset protection
trusts, SOFA 10(b) only asks about transfers to self-settled
trusts. Accordingly, I disclose and let the trustee
evaluate the transfers in terms of Section 548(e)(1). As
was brought up at the CDCBAA seminar in February, at least some Chapter
7 trustees maintain (be it they are incredibly agressive or are
out of their depth relating to trust law) that transfers to revocable
trusts fall under Section 548(e)(1). I do not want accusations
leveled at my client or me alleging failing to disclose required
information when the trustee discovers the property is held in trust.
Mark T. JesseeLaw Offices of Mark T. Jessee"A Debt Relief
Agency"50 W. Hillcrest Drive, Suite 200Thousand Oaks, CA 91360(805)
497-5868 (805) 497-5864 (Facsimile)
On Tue, 17 May 2011 15:27:24 -0700 (PDT), P L
wrote:
The post was migrated from Yahoo.
charsetF-8;
format="flowed"
If the debtor was not a beneficiary of at least some portion of the
trust then 548(e)(1) would not apply. Obviously if the debtor lacks
any remaining property interest, be it vested or contingent there is
nothing to exempt.
Exemptions may be asserted to protect assets of a revocable trust if
the settlor has the right to revoke the trust in whole or part during
the settlor's lifetime. The number or relationship to the settlor of
the trust beneficiaries is irrelevant.
The settlor/trustor is the person who initiates the trust's creation.
A self settled trust is a trust created at that person's initiation
and that person is to receive benefits from the trust. Typical
example. H & W establish revocable trust. It is for their benefit
during their lifetimes and provisions are made for distribution of
assets at the first and/or second spouse's death. Kids would typically
be the beneificiaries of the trust after the death of one or both
parents. It is a self settled trust for H & W.
If this same trust were established as an irrevocable trust and had
some sort of spendthrift clause to protect it from creditors it would
also be a self settled trust for H & W becuase they have an interest in
it during their lifetimes. That is exactly the type of trust Section
548(e)(1) is designed to thwart under the social policy that people
should be responsible for their debts.
If Grandma established an irrevocable trust for grandkids naming H &
W trustees of the trust. This would not be a self settled trust for
grandma because she is not a beneficiary presuming there is no
contingency in which she could be a beneficiary of the trust. It is
not a self settled trust for H & W, nor would it be a self settled
trust for the grandkids.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868 (805) 497-5864 (Facsimile)
On Tue, 17 May 2011 13:09:20 -0700, Holly Roark wrote:
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.
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) uponthe 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
_`\
start="49kizhietjwg@webmail.mysuperpageshosting.com"
charsetF-8
If the debtor was not a beneficiary of at least some portion of the
trust then 548(e)(1) would not apply. Obviously if the
debtor lacks any remaining property interest, be it vested or
contingent there is nothing to exempt.
Exemptions may be asserted to protect assets of a revocable trust if the
settlor has the right to revoke the trust in whole or part during the settlor's
lifetime. The number or relationship to the
settlor of the trust beneficiaries is irrelevant.
The settlor/trustor is the person who initiates the trust's
creation. A self settled trust is a trust created at that person's
initiation and that person is to receive benefits from the
trust. Typical example. H & W establish revocable
trust. It is for their benefit during their lifetimes and provisions
are made for distribution of assets at the first and/or second spouse's
death. Kids would typically be the beneificiaries of the trust after
the death of one or both parents. It is a self settled trust for H
& W.
If this same trust were established as an irrevocable trust and had some sort
of spendthrift clause to protect it from creditors it would also be a self
settled trust for H & W becuase they have an interest in it during their
lifetimes. That is exactly the type of trust Section 548(e)(1)
is designed to thwart under the social policy that people should be responsible
for their debts.
If Grandma established an irrevocable trust for grandkids naming H &
W trustees of the trust. This would not be a self settled trust for
grandma because she is not a beneficiary presuming there is no contingency in
which she could be a beneficiary of the trust. It is not a self
settled trust for H & W, nor would it be a self settled trust for the
grandkids.
Mark T. JesseeLaw Offices of Mark T. Jessee"A Debt Relief
Agency"50 W. Hillcrest Drive, Suite 200Thousand Oaks, CA 91360(805)
497-5868 (805) 497-5864 (Facsimile) On Tue, 17 May 2011
13:09:20 -0700, Holly Roark wrote:
The post was migrated from Yahoo.
charsetF-8;
format="flowed"
Probate Code Section 18201 makes clear that all exemptions commencing
with CCP Section 703.010 are avaiable to the settlors for assets titled
in a revocable trust.
I have difficulty seeing how Secition 548(e)(1) will apply to an
intervivos revocable trust as Probate Code Section 18200 makes clear
that the establishment of a revocable trust does not hinder creditors
right to collect from assets titled in the revocable trust during the
settlors lifetime. I suppose if there was a woefully ignorant
individual that believed transferring assets to a revocable trust
provided protection from creditors and evidence existed to establish
that a bankruptcy debtor conveyed assets to a revocable trust within
the prior ten years with the intent to hinder, delay or defaud
creditors 548(e)(1) could apply. I do not see that happening often.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868 (805) 497-5864 (Facsimile)
On Tue, 17 May 2011 12:32:50 -0700, "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
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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) uponthe 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
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Probate Code Section 18201 makes clear that all exemptions commencing with
CCP Section 703.010 are avaiable to the settlors for assets titled in
a revocable trust.
I have difficulty seeing how Secition 548(e)(1) will apply to an
intervivos revocable trust as Probate Code Section 18200 makes clear that
the establishment of a revocable trust does not hinder creditors right to
collect from assets titled in the revocable trust during the settlors
lifetime. I suppose if there was a woefully ignorant individual that
believed transferring assets to a revocable trust provided protection from
creditors and evidence existed to establish that a bankruptcy debtor conveyed
assets to a revocable trust within the prior ten years with the intent to
hinder, delay or defaud creditors 548(e)(1) could apply. I do not see
that happening often.
Mark T. JesseeLaw Offices of Mark T. Jessee"A Debt Relief
Agency"50 W. Hillcrest Drive, Suite 200Thousand Oaks, CA 91360(805)
497-5868 (805) 497-5864 (Facsimile)
On Tue, 17 May 2011 12:32:50 -0700, "Wesley H. Avery"
wrote:
The post was migrated from Yahoo.