District Court reverses bankruptcy court’s trust ruling

by | Jun 4, 2015 | Trusts |

A U.S. District Court recently made a very big ruling that could impact future cases, but some background is needed to see how things got to this point. The case involves a living trust and a bankruptcy filing.

It all began back in 1997, when a woman decided to set up a living trust for her heirs. She had four children, and she eventually passed away a decade later, in 2007. Just four years after that, one of those children — along with her husband — declared bankruptcy.

The issue that cropped up regarded what to do with the living trust. Did those assets need to go into the bankruptcy estate, or should the woman keep them even though she had declared bankruptcy?

Initially, the bankruptcy court found that those assets should be included, along with her other assets. The transfers would therefore have to go to the creditors.

The woman did not agree, naturally, and took the case to the U.S. District Court. It was here that the higher court decided that the bankruptcy court had been wrong, and they reversed the ruling. The living trust no longer has to be counted in the woman’s bankruptcy estate, and therefore, the assets in it do not need to go to her creditors.

Rulings like this can be very important when setting up trusts for your loved ones in New York, as you need to make sure your assets are going to be properly distributed. For those receiving the trusts, these rulings are equally as big since they set a legal precedent for any future cases that run into similar issues.

Source: Forbes, “Estate Planning Bar Breathes Sigh Of Relief As Castellano Gets Turned Around,” Jay Adkisson, May 25, 2015