Bankruptcy and Trusts Decision

21 Mar Bankruptcy and Trusts Decision

In the recent Massachusetts case of In re Grassa,— B.R. —-, 2007 WL
756321 (Bkrtcy.D.Mass. 2007) Judge Somma held that the true owner of a
house held in trust (and then transfered) was the bankruptcy debtor and
trustee of the trust.  The result of this will be that the house (which
was transfered to the debtor’s husband) will be recovered and sold by
the trustee.  This type of result can be avoided with the aid of legal counsel
and careful planning.  Real estate trusts and bankruptcy are often a
toxic mix.  The key in this case was that the debtor as trustee held
the right to terminate the trust and transfer the trust asset (the
house) to anyone she wanted — including herself.  This is what is
known as a general power of appointment.  Such a power makes the trust property subject to claims of the trustee’s creditors because the trustee is considered the true owner under Massachusetts law.

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