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INHERITANCE AND BANKRUPTCY

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

In re Costas, 06-16520, 555 F.3d 790 (2009) (BAP 9th Cir. 2008)  Costas inherited $34,800, but refused to accept it and, on November 7, 2002, executed a disclaimer under Arizona law to relinquish her claims to the Trust property.

December 3, 2002, Costas filed a Chapter 7.  Maureen Gaughan, trustee, sought to avoid Costas’ disclaimer of the Trust property under 11 U.S.C. § 548 as a fraudulent conveyance within a two year pre-petition. The question in this case is whether an Arizona disclaimer qualifies as a “transfer … of an interest of the debtor in property.”   BAP decided “not a transfer”Arizona’s relation-back rule says that a disclaimant neither transfers nor possesses an interest in disclaimed property and thus creditors cannot reach the disclaimed interest.  We hold that a disclaimer, properly executed under Arizona law, is not a “transfer … of an interest of the debtor in property” for purposes of § 548.

In re BrownBrown vs Barclay, BAP No. SC-17-1068-AKuS (5/21/18) BAP for 9th Circuit affirmed summary judgment entered by bankruptcy court (SD Cal.) in favor of plaintiff-chapter 7 trustee avoiding debtor’s postpetition transfer of inheritance proceeds to his brothers. Because of debtor’s bad faith, postpetition receipt of inheritance proceeds while in chapter 13 remained property of chapter 7 estate under 11 USC 348(f)(2). Because debtor’s transfers were not ordinary and necessary expenses, 11 USC 348(f)(1) did not safe harbor transfers of inheritance proceeds from estate. Consequently, postpetition transfers of property of estate were avoidable.

In re Berryhill, 2:19-07421-BKM The Court has reviewed the party’s arguments and the case cited by Mr. Mumme, In re Royal 165 B.R. 802 (Bankr. MD 1994). In analyzing a Maryland exemption statute, the court in Royal determines that it is appropriate to distinguish an inheritance from third party obligations triggered upon a person ‘s death.
“This distinction is significant because the Maryland statute lists out various third party obligations as being covered by the statute. In contrast, ARS 33‐1126(A)(1) lists no such examples and by its wording applies to any and all monies “payable or received… upon the life of a deceased….” The Court agrees with the analysis in In Re Thiem that the Arizona statute contains nothing to suggest the source of the funds received by the beneficiary is limited to insurance pay outs, or to amounts paid from third party sources. The Court, thus, concludes that ARS 33‐1126(A)(1) applies to all monies received by way of inheritance. Accordingly, the Trustee’s objection to Debtor’s exemption is overruled”