Spendthrift Trusts May not be Protected from Bankruptcy Estates
A Federal District Court upheld a Bankruptcy Court injunction prohibiting the Petitioner from transferring, disposing, or encumbering any money from a bank account deposited at Frost National Bank or preventing added assets to a trust from being included in the Bankruptcy estate. Stephen Boyd v. Akard, 2012 WL 123980 (W.D.Tex., Jan. 17, 2012).
In 1998 Boyd’s mother set up two trusts – the Stephen W. Boyd Heritage Trust and the Blake M. Boyd Heritage Trust. Boyd was the trustee of both trusts and the designated beneficiary of the trust bearing his name. After Boyd filed for bankruptcy, the appointed bankruptcy trustee included the assets from both trusts in Boyd’s bankruptcy estate concluding that though the Stephen W. Boyd Trust was a spendthrift trust under Texas law, the assets Boyd added to the trust were not protected and, thus, excludable from the bankruptcy estate. The Trustee also asked that Boyd be prohibited from spending monies from a Frost Bank account received by Boyd as a distribution from his deceased mother’s estate. The Bankruptcy Court agreed with the Trustee on both. Boyd filed a writ of mandamus with the District Court.
The District Court found that to grant Boyd’s writ of mandamus, Boyd must not have had any “other adequate means” to obtain the relief he required. Boyd did not show filing a writ of mandamus was the only way he could appeal the Bankruptcy order. Therefore, the District Court could not overturn the Bankruptcy decision, even though there may have been questions of fact regarding whether Boyd’s additions to the trust invalidated the trust’s protection of its assets.
If you need advice regarding or wish to set up a spendthrift trust to protect your assets, please call Givner & Kaye at (310) 207-8008.
The portion of the Bankruptcy Code which deals with Preferences is a7 547. You may want to rievew a7 547 (b) and (c). The only thing you can hang your hat on now is the following:(c) The trustee may not avoid under this section a transfer—(1) to the extent that such transfer was—(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and(B) in fact a substantially contemporaneous exchange;(2) to the extent that such transfer was—(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and(C) made according to ordinary business terms;(3) that creates a security interest in property acquired by the debtor—(A) to the extent such security interest secures new value that was—(i) given at or after the signing of a security agreement that contains a description of such property as collateral;(ii) given by or on behalf of the secured party under such agreement;(iii) given to enable the debtor to acquire such property; and(iv) in fact used by the debtor to acquire such property; and(B) that is perfected on or before 20 days after the debtor receives possession of such property;(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor—(A) not secured by an otherwise unavoidable security interest; and(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor;(5) that creates a perfected security interest in inventory or a receivable or the proceeds of either, except to the extent that the aggregate of all such transfers to the transferee caused a reduction, as of the date of the filing of the petition and to the prejudice of other creditors holding unsecured claims, of any amount by which the debt secured by such security interest exceeded the value of all security interests for such debt on the later of—(A)(i) with respect to a transfer to which subsection (b)(4)(A) of this section applies, 90 days before the date of the filing of the petition; or(ii) with respect to a transfer to which subsection (b)(4)(B) of this section applies, one year before the date of the filing of the petition; or(B) the date on which new value was first given under the security agreement creating such security interest;(6) that is the fixing of a statutory lien that is not avoidable under section 545 of this title;(7) to the extent such transfer was a bona fide payment of a debt to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that such debt—(A) is assigned to another entity, voluntarily, by operation of law, or otherwise; or(B) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support; or(8) if, in a case filed by an individual debtor whose debts are primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $600.DISCUSS WITH YOUR ATTORNEY
Great comment.