Bankruptcy

Resulting Trust Theory Can Protect Asset Titled With Parent For Estate Planning Purposes

By Jonathan Alper

In the past week I received similar questions from three prospective bankruptcy debtors about assets owned jointly with their parents. In each instance, the parent had added the debtor/ child to the parent?s deed, bank account, or CD for estate planning purposes so that the child would immediately have access to the asset upon the parent?s death. I have written previous posts that discussed the problems with joint ownership between parent and child. My guess is that most bankruptcy attorneys tell their clients that when a parent adds a child?s name to the parent?s asset for estate planning the child will lose at least part of the asset if the child files Chapter 7 bankruptcy because the child will be deemed to own part of the land or financial asset. This is not always the case. One of my clients had me research the issue where the parent purchased a house, paid off the mortgage, and then added her child to the title for estate planning purposes.

There are several Florida bankruptcy cases which hold that when a debtor?s name is own the legal title to an asset, which asset was purchased by a parent for the parent?s exclusive use, the debtor is considered to hold their share of legal title in "resulting trust" for the parent. The asset is not part of the debtor?s bankruptcy estate even if the debtor?s name is on the title. The analysis is based on the facts of each case. A result trust is implied under Florida law when the parties intend for one person to have exclusive equitable ownership and control of an asset and the other party claims nothing more than bare legal title. Courts have found a resulting trust when the parent paid exclusively to purchase the asset, exclusively used the asset, and exclusively paid expenses of ownership such as taxes, maintenance and repairs. In such circumstances, courts have said that it would be inequitable for the child debtor?s creditors to attack the parent?s property just because the parent inadvertently added the debtor?s name to the title for estate planning. Many bankruptcy debtors have this issue, and these people should make sure their bankruptcy attorney is familiar with the concept of resulting trust.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Full post as published by Florida Bankruptcy Law on June 19, 2009 (boomark / email).