TRANSFERRING TITLE TO A TRUST CAN PROTECT IT FROM CREDITORSMay 6, 2020
Earl Benard Blasingame owed $4 million to Third National Bank of Nashville (TNB), a debt that was secured by (among other assets) a residence at 337 South Maple, Adamsville, TN. TNB declared its intention to foreclose on the home, but stated it would release its lien on the home in return for a payment of $490,000.
Earl didn’t have the money, but Earl’s mother did. The very next day she wired $490,000 to TNB and then executed a warranty deed transferring title to the property back to Earl and his wife through a trust called “The Blasingame Family Residence Trust.” Earl and his wife became co-trustees and their children became beneficiaries and contingent beneficiaries of the trust.
Specifically, the trust stated that the home was to be the residence of Earl and his wife during their lifetimes. It also named four other individuals who could live in the home upon Earl and his wife’s death.
Earl Goes Bankrupt
Fast forward two decades. Earl and his wife file for Chapter 7 bankruptcy. A creditor of theirs sues. Though both debtor and creditor agree that title to the property is held by the trust, the creditor asks the court to turn the home over to the trustee, the argument being that their interest in the home was a transferable legal life estate.
The bankruptcy court decided that the debtors, Earl and his wife, had no more than the right to live in the home, according to the equitable life estate. The language of the trust made clear that Earl and his wife and their children could not lose the right to live in the home.
Further, the court found that the presence of a spendthrift provision, which protects a beneficiary from assigning away his or her inheritance and also protects against creditors, was further evidence that Earl’s mother intended to prevent Earl and his wife from transferring title to the home to the detriment of themselves or their children.
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