Resulting Trust Theory Used To Exclude From Bankruptcy Assets Titled In Debtor's Name

Parents often add their children to the parent’s bank accounts or real estate title so that the child can use the assets for the parent’s benefit in the event of the parent’s disability or to avoid probate upon the parent’s death. Parents sometimes place their names on car titles for their younger child’s automobile so that the child can get better financing or insurance rates. For these, and many other reasons, people sometimes have partial ownership of assets paid for and used by other family members. This joint titling of family assets is a problem when one of the family members in my examples files bankruptcy and has to list all assets in his name. The debtors in my examples would have to list their parents bank accounts and real estate (in the first example) and their child’s car (in the second example) on their bankruptcy petition. The trustee could pursue these assets and seek a forced sale with a division of sale proceeds between the bankruptcy estate and the family co-owner.

Debtors who find themselves defending claims against assets titled in their name for the benefit of a non-debtor family member have defenses against trustee claims. One theory used to protect these assets in bankruptcy is the concept of "resulting trust." A recent opinion of a Florida bankruptcy court stated that real property held in the debtor’s name to help out a non-debtor family member was not part of the debtor’s bankruptcy estate because the debtor owned the asset in a resulting trust for the other family member. The court said that a resulting trust arises by implication of law and is founded on the presumed intention of the parties that the one party who pays for an asset has the beneficial and the party holding title, or joint title, who has not contributed to the purchase financial is holding title for convenience or other collateral purpose. When one person furnishes money to acquire property to be held in the name of another where both parties intend that the legal owner owns the property for the other’s benefit a resulting trust is created. Case is: In re Todd. Adv. No. 07-1149, Case No. 06-16898-BKC-JKO.

The resulting trust concept is useful to explain why a bankruptcy debtor holds legal title to assets funded by a non-debtor family member. A debtor who has full or part legal title to an asset at the request of, or for the benefit of, another person may be able to exclude the asset from the bankruptcy estate by raising resulting trust as a defense to trustee claims.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida