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Inheritance from living trust before Meeting of the Creditors

Glendale, CA |

Hello. Basically, a Great Uncle died 2 months before we filed for Chapter 7. Because it was in a living trust, we have received nothing as it it dependent on the sale of a house. At the meeting of the creditors the Trustee asked us if we expect an inheritance and we said yes. He got seemed agitated that nothing was reported in our filing, HOWEVER, we have NO amount to disclose as WE DON'T KNOW. It could be $1 or $20,000. Because its a living trust dependent on the sale of assets, and we have not received anything, we have no number amount to disclose. What do we tell the trustee? What amount do we put in the schedules to see if we can adjust it out or exempt it????? Thanks in advance!

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Attorney answers 6


While your interest as a beneficiary of a living trust of another is not property of the bankruptcy estate, upon the death of the trustor (your uncle) the trust becomes "nonrevocable" and your interest is property of the estate. Even if you don't know what your interest is worth you should have listed your interest on Schedule B of your petition and stated the value as "unknown". This is true regardless of whether your uncle was living or deceased at the time of the filing.


He wasn't agitated about the lack of a number being reported - he was agitated about no disclosure of the inheritance at all. You would list the value of the asset as "unknown," and your bankruptcy will remain unresolved until that asset is finally distributed. But, failing to report it is fraud, and the trustee has every right to be upset about it. Your attorney should have known better than that.

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Thanks Mr. Corbin. Unfortunately(of course without naming names), I was under council that "if they don't bring it up, you shouldn't bring it up". This guy was recommended to me by 2 other attorney's that do not do Bankruptcy. I feel that I may have been ill-advised, and I did not want to suffer the punishment of perjury or worse from the courts. I believe he is now amending the schedule and attempting to exempt it, and I pray that this mishap has not "blown" the whole filing and ruined my chances of discharging my debt. I was being honest and we brought up the inheritance several times to the attorney while filing.

Paula Brown Sinclair

Paula Brown Sinclair


You have a potential claim against your attorney, which may also be an asset of your bankruptcy estate and must be disclosed on your schedules. Your discharge is at risk, and now you know that you cannot trust your present attorney to accurately advise or protect you. S/he counseled you to commit bankruptcy fraud. Retain new experienced, effective counsel without further delay. Ask your new attorney to make demand on your original attorney to disgorge the fee you paid and consider pursuing your first attorney for damages if the Trustee abandons that claim.


Here is what you tell your Trustee: we are retaining counsel, and our attorney will be in touch as soon as possible. Then-- find the most adept and experienced bankruptcy attorney in southern California, and do it today. You have already figured out that you risk having to surrender the entire inheritance. What you may not realize is that your discharge is also at stake. You have apparently been foolish enough to file this bankruptcy without counsel, or with inept counsel. You have already committed a major error in the preparation of your petition. Your situation is dangerously precarious. There is no hope for you, even with Avvo, to determine the least costly and damaging solution to your mess. If you do not know a capable and effective bankruptcy lawyer, use the attorney-finder at I am a longtime proud member of NACBA and trust my CA colleagues to advise accurately and represent debtors aggressively.

Did I mention you need immediate and effective legal representation?

Best wishes for a favorable outcome, and please remember to designate a best answer.

This answer is offered as a public service for general information only and may not be relied upon as legal advice.


Amend your Schedule B to list the inheritance and list the value as "unknown". Depending on what exemption you have already taken, take whatever you have available of the "wildcard" exemption on the inheritance. The Trustee has a right to then file a motion with the court to have the exemption disregarded, because you did not list it in your original filing. You should get an experienced attorney that could then potentially oppose such a motion and hopefully get the exemption to apply despite your prior mistake.


I would contact the Trustee of the Living Trust and ask them to provide you with an estimated value of what you might inherit and then amend your Schedule B to include the trust interest and then exempt as much as possible using exemptions available to you. You could either list the value as unknown or the estimated value, but I would expect the Ch. 7 Trustee to contact the Trustee of the Living Trust about what the expected interest is worth.

The important thing is to disclose the issue to the trustee so he can make an informed decision about what action he may need to take.

Contact a BK attorney if you do not have representation.



You absolutely need to disclose the living trust on Schedule B. Also, immediately contact the trustee of the living trust and get a copy or the document for review by a lawyer or lawyers who are familiar with bankruptcy and living trusts. The trust very well may have a provision that allows a beneficiary to keep his or her trust share in trust and the trust may also have spendthrift clause to keep creditors at bay. In California, a spendthrift clause will prevent a creditor(or bankruptcy trustee) from seizing more than 25% of the trust share. The 25% at risk may fall within your exemptions. In other states, a spendthrift clause is an absolute protection for the beneficiary. Your trust may have been drafted in one of those states and its law would apply. I had a case just like that once (California beneficiary, Texas trust) and was able to protect my client's inheritance.

Bruce Allan Wilson

Bruce Allan Wilson


Just curious. What is your authority for the 25% of a spendthrift trust being available to the Ch. 7 Trustee? I had a case recently where there was a spendthrift and I provided a copy of the trust to the Ch. 7 Trustee and they did not attempt to get 25% of the trust assets.

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