Beneficiary of Revocable Trust: Property of the Estate?

The Broward County Bar Association will be conducting a seminar on Bankruptcy for Estate Planners/Estate Planning for Bankruptcy Attorneys, on March 7, 2012, so I thought it would be appropriate now to make a comment about revocable trusts. Individuals often set up an inter vivos revocable trust in which their assets are transfered into a trust. The individual grantor is the trustee and maintains full control of the trust. The homestead is also placed in the trust by deed. Title to the home is now with the individual as trustee. The individual retains the beneficial interest in the trust including the homestead.

An older bankruptcy case did find that the homestead exemption was only for individuals, and since the title was held by a trustee, the property was not exempt from the claim of the bankruptcy trustee. In re Bosonetto, 271 BR 403 (Bank. M. D. FL 2001)(J. Proctor). However, this isolated case was rejected in In re Alexander, 346 BR 546(Bankr M. D. FL 2006) and In re Edwards, 356 BR 807 Bankr. M.D. FL 2006). Also see Judge Hyman’s decision in Leto v Cutro, 2007 Bankr. Lexis 3926(Bankr S . D. FL 2007)(fn 2) Judge Williamson in Alexander reviewed several state cases in Florida to reach his conclusion.

An interesting twist of this issue was faced in In re Stiffen, 405 BR 486 (D. Ct M.D. FL 2009)(Debtor was the wife of Paul Bilzerian who spawned maybe 20 cases). Here, the debtor was the beneficiary of a revocable trust, which was the 99% owner of a limited partnership, which held title to the residence. The district court distinquished the cases in which the title was held by the trustee of a revocable trust and held against the debtor.

Though this is no guarantee, the better view which seems to be accepted is that a debtor whose home has been placed in a revocable trust can still assert the homestead exemption. The fact that there has been one case to the contrary must still give some pause to a decision to file bankruptcy.



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