Sympathetic Couple Dodges Bankruptcy Court Bullet

The exception oftentimes proves the rule. This can be especially true in a court of law or to any prudent planner protecting their assets. Certainly, this is the lesson to learn from the recent bankruptcy case of In re Thomas, 2012 WL 2792348 (Bkrtcy.D.Idaho, Slip Copy, July 9, 2012).

As Forbes recently reported in an article titled “Thomas: Pre-Bankruptcy Exemption Planning Survives And An IRA Is A Self-Settled Trust Or Similar Device,” any kind of asset transfer or protective measure taken leading up to a bankruptcy claim is suspect. Unlike the final shot in a basketball game, the shot (i.e., transfer) doesn’t count just because it left someone’s hand before the buzzer sounds. However, that is what happened in case of In re Thomas.

In that case, a married couple discovered that the total sum of a life insurance policy wouldn’t fall below the low exemption set by their state ($5,000). As a result, they transferred enough cash value from the policies to reduce the value below the state exemption. Then, the couple transferred the cash withdrawn into separate IRA accounts before filing for bankruptcy.

Not surprisingly, the trustee caught on. Eventually, however, the court took pity on the unemployed couple, one of which had been diagnosed with cancer, and no reprimand was made over the relatively small amount (less than $20,000 in all). Nevertheless, this end result is not guaranteed on future cases with similar facts.

As a rule of thumb, proper asset protection requires engaging competent legal counsel before rearranging your assets. If you fail to do so, then you run the risk of creditors successfully challenging your activities as improper at best and fraudulent at worst.

Reference: Forbes (July 17, 2012) “Thomas: Pre-Bankruptcy Exemption Planning Survives And An IRA Is A Self-Settled Trust Or Similar Device


Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment


We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.