top Ad Widget

Collapse

Announcement

Collapse
No announcement yet.

Update and a question

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Update and a question

    Good morning! This is an "interesting" situation... I'd like to ask everybody's opinion about it.

    First an update. The divorce is over, I kept the rentals. As part of the settlement I have to refi two of the rental houses (her name was on the mortgage with me.) She has to refi the primary residence so she can keep it, but she's too deep in debt and can't refi. The debt she stuck me with was simply too much and I had to file a C-13. So for now, neither one of us can refi.

    The joint debt was never paid late, mortgages always on time, etc. So I've included the joint debt as 100% payback to protect her as a co-debtor. No impact to her credit. The C-13 plan is a 100% payback, I keep my tax refunds, etc. And as part of the C-13 plan, the trustee has already given me permission to sell off any or all of the rental houses as a normal part of doing business, provided that the debt is paid in full... no short sales. And in fact I did sell one of the houses to the tenant, to everybody's satisfaction.

    So, everything is coasting along fine. Now here's my new situation and questions: my mother is in her advanced years. Some time back, she moved her major assets into an irrevocable trust with spendthrift provision. She still lives in her home, no financial pressure. But her health is failing and she may need to move into a nursing home in the moderate future. At that point she'll sell her house and invest the proceeds.

    She is the trustee of her irrevocable trust, and I am the backup trustee. Her elder law attorney assures us that should she pass away, the trust is shielded from the bankruptcy trustee. And the fact that I'm in a 100% payback helps .

    My mother is talking about using the proceeds from selling her home to either:
    • Let the trust refinance the two rental homes that still have the ex on the mortgage. This gives the trust interest income and satisfies the family court ruling.
    • Use the trust to purchase these two homes outright. I would continue to manage them, but the income would go into her trust. And selling the homes would shake loose the Schedule E losses that have built up, giving me a small tax refund windfall.


    This is based upon my mother taking action while she's still alive. I'm fairly sure my trustee will not object... but does anybody see any bankruptcy law that we might be stepping on?

    Thanks everybody!

    #2
    You already have permission to sell the homes. So, as long as you sell them to the trust for fair market value, there shouldn't be an issue. If you borrow from the trust to refi the homes, then you probably need trustee permission. Shouldn't be an issue. Make sure the loan is properly documented, the old liens removed and new liens recorded in favor of the trust.

    Whether or not the spend thrift provision of the trust is fully enforceable depends on state law. As the attorney says, since you are already paying 100% of unsecured claims, if your mother dies while you are still in Chap 13 and you become entitled, as beneficiary, to the balance of the trust, it shouldn't make any difference. The worst that would happen is that any distribution from the trust would be used to pay off your plan early. Becoming trustee would be irrelevant as it doesn't change your beneficial interest in the trust.

    Just check with your attorney before entering into any transactions and everything will be fine.
    Last edited by LadyInTheRed; 07-13-2014, 09:51 AM.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


      #3
      Thanks, LITR!

      Of course, I am hoping my mother's health holds out for years to come, but she's passing 80. And with the divorce situation she wanted to make sure her assets didn't go to an ex-daughter-in-law or to the bankruptcy court. My understanding is that the trust does not dissolve at her death; as beneficiary I am entitled to the income, but not the principal.

      But in any case, it looks like her trust plans will work. Thanks again!

      Comment

      bottom Ad Widget

      Collapse
      Working...