Although Debtor Received a Distribution from Spendthrift Trust Within 180 Days of Filing Bankruptcy, it did Not Qualify as a “Bequest, Devise, or Inheritance” under § 541(a)(5)(A)

Although Debtor Received a Distribution from Spendthrift Trust Within 180 Days of Filing Bankruptcy, it did Not Qualify as a “Bequest, Devise, or Inheritance” under § 541(a)(5)(A)

Debtor, William,  received a distribution from an inter vivos spendthrift trust after the settlor died within 180 days after the petition date. Chapter 7 Trustee contends the distribution constitutes property of William’s bankruptcy estate, arguing that it qualifies as a “bequest, devise, or inheritance” within the meaning of § 541(a)(5)(A), and seeks an order compelling William to turn over the distribution. William disagrees, arguing that he did not acquire his interest in the distribution by “bequest, devise, or inheritance” because he received the distribution by operation of an inter vivos spendthrift trust, rather than by will or intestacy. The parties briefed the issue, stipulated to certain relevant facts, and presented evidence and arguments to the court during a hearing on October 26, 2017.

 

Debtors filed a joint Chapter 7 petition on February 16, 2016. Less than 180 days later, William’s distant relative Ms. Ault passed away in Colorado. William then received a letter from a Colorado attorney more than a year after the petition date notifying him that Ms. Ault made William a beneficiary of her trust and that he would soon be receiving a distribution. William’s counsel notified Trustee  of the distribution. Trustee  then filed the motion to compel William to turn the funds over as property of the estate. The parties agree that the trust is an inter vivos trust with an enforceable spendthrift provision. We know nothing more about the trust, apparently because Ms. Ault included confidentiality instructions in the trust and the parties were unsuccessful in their attempts to obtain a copy of the trust or any other information about it.

 

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