Avoiding probate with property transfer costly in bankruptcy

11 Mar Avoiding probate with property transfer costly in bankruptcy

Do it yourself transfers of real estate to the younger generation can result in the loss of the family home in bankruptcy. One of the powers granted Chapter 7 trustees is standing as a bona fide purchaser for value (b.f.p.). That’s legalese for an innocent buyer who has no reason to know that title is something other than it seems. A b.f.p. can rely on property ownership being as it is shown on the latest deed.

We usually see this where parents want to smooth the transfer of their real estate at their death. While the property owner thinks it’s a simple thing to add their heir to the title to the house during their lifetimes and save the cost of probate or drafting a will, absent special language, the property is transferred absolutely when the deed is delivered.

The offspring who is added to title may understand that the property is the parent’s until death. However, a bankruptcy trustee can use his standing as a b.f.p. to take the property for the benefit of the offspring’s creditors. The parent may be faced with losing the home, or having to buy it back from the trustee.

This sort of DIY estate planning should be clearly labeled : don’t try this at home. Get legal help to transfer property. If facing bankruptcy, make sure to disclose any such transfers to your attorney.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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