Bankruptcy and Inherited Trust

[trust]

We filed bankrupcty on Jan 2 as a 7 - No Asset case. Our discharge is expected on 3/24. However, a relative has become deceased in the last several days and we are now entitled to a portion of the revocable trust that does contain a anti-alienation/spendthrift clause. Neither of us are trustee. Our 180 days expires on July 2. What, if any, rights/interests does the bankruptcy court have to these assets? The trust specifies distribution to a number of beneficiaries but does not specifically state what percentage, value, etc? Would this then constitute a completely discretionary trust on the part of the Trustee? Does this give him the right to say our interest is only $1?

TIA

[HHM]

That sounds like a good question for your attorney.

Given the technical nature of trusts, I am not confident anyone on this forum can give you a solid answer.

As I understand, so long as the property remains in the trust in cannot be reached. But, the purpose of the trust is really to avoid estate taxes on some of the estate that gets passed on, so the trust probably has to distribute the assets at some point and since your right to the distribution arose during the 180 day clause, I am not sure there is any way to get around not giving your distribution to the trustee (short of an asset exemption). It is the right to the distribution that is an asset of the BK estate.

In any event, your question is a rather hyper-technical question at the intersection of tax law, estate planning, and BK and needs to be addressed to a lawyer in your area.

[Bandit]

At some point doesn't the trustee ask if you are expecting any near future money or inheritance?

I know that after six month past her BK, my grandmother was sent a letter from someone in the courts
asking if my grandma had recieved any
additional money or had an increase in income.

They sent it back saying, no.

Does this trust ask to disclaim it? I wonder if you can pass it on to someone else, for the time being?

definately an attorney question for the legal complexities.

[FreshLikeADaisy]

Yep, you have to declare any inheritance income received within 180 days of filing. What's interesting is what HHM pointed out: that the money is in a trust may be irrelevant because the OP *inherited* it with 180 days of filing Ch7, and even if the actual distribution is, say, two years from now, the trustee may very well be entitled to all or part of it because it was acquired within that 180 days.

I've read of similar situations with lawsuits, where someone (for example) gets run over by a bus, has medical expenses out the wazoo, ends up declaring bk, but later decides to sue the bus company. Even ten years later, because that claim pre-existed the bk, the trustee can claim all or part of the money.

I think the question itself is on the list of trustee questions for 341s (it's on a sticky around here somewhere) and could easily be asked then or even later, as in your grandmother's case.