If I just filed a Chapter 7 and am the beneficiary of a trust, can thecourttake my inheritance even if the trust has a “spendthrift” clause in it?

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If I just filed a Chapter 7 and am the beneficiary of a trust, can thecourttake my inheritance even if the trust has a “spendthrift” clause in it?

My grandfather recently died and I am named in his trust. Can the money be taken to pay creditors? I was told that the state of KS doesn’t honor this clause.

Asked on July 22, 2011 Kansas

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

I am so sorry for your loss. Federal law is pretty straight forward when it comes to filing for bankruptcy and inheritances.  If you inherit money from a person who dies within 180 days of the date you filed for bankruptcy, you must tell the courts about the inheritance. The money becomes part of your bankruptcy estate and is distributed among your creditors. So then you must tell your trustee.  Here you have not stated how long ago you filed for bankruptcy protection and if it was within the 180 days.  I would consult with your bankruptcy attorney in this matter as how the trust is written and how it relates to federal law is important.  Good luck to you.


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