Can a chapter 7 Bankruptcy trustee enforce a beneficial interest of a debtor to a trust the debtor is entitled to?

Question

A trust has recently been created for my benefit and I am the sole beneficiary. I am in Atlanta, GA if this helps for reasons of practice or procedure. The trust is irrevocable and has provisions that require the trustee to generally make disbursements on my behalf for things such as “debt obligations and general forms of indebtedness” to creditors that I may have or will have during the life of the trust.

The trustee in control of the fund has not rendered their account to me as to what the remaining extent of the trust estate is that is in his possession (principal minus his prescribed compensation, management expenses, taxes, etc). I have a copy of the original trust indenture with schedules showing what was originally granted to the trustee (I even have proof that a transfer of funds to the trustee took place and on what exact date it was received by him).

Long story short I am contemplating filing chapter 7 bankruptcy and know that I must list individual assets (i.e. my beneficial interest in the trust). I have done research and know that my personal estate becomes the estate of the bankruptcy trustee and that it will obviously get divvied up amongst creditors with claims.

My primary concern is the fact that, as beneficiary, I have a non-compliant trustee who for all intents and purposes is in breach of trust. I have yet to get access to the trust funds.

What I would like to know is if the bankruptcy trustee, once he/she succeeds to my beneficial claim after I file chapter 7, will legally take it upon themselves to enforce the trust and then liquidate it for the benefit of my creditors?

Yes, in a perfect world I could hire a trust and estate attorney to assist me with enforcing the trust and getting a substitute trustee appointed. I would then have to compensate said attorney out of the trust fund and then, after doing so, satisfy my creditors with what remains in the trust fund (a double hit to the fund). Not to mention the potentially lengthy state level civil court process involved. Whereas, by filing bankruptcy it seems I could kill two birds with one stone (have bankruptcy trustee liquidate the trust as well as satisfy existing creditors’ claims).

Will the bankruptcy trustee enforce the trust for my benefit in order to satisfy existing claims of my creditors or will I have to enforce it separately on my own?

Side Note: I am not concerned with the hit my credit report/score will take as a result of bankruptcy.

Answer 1

The trust is irrevocable and has provisions that require the trustee to generally make disbursements on my behalf for things such as “debt obligations and general forms of indebtedness” to creditors that I may have or will have during the life of the trust.

A bankruptcy trustee has the same rights that you would to access the trust. The bankruptcy trustee can also seek to have the trust dissolved if you funded it, or it is the result of a series of transfers without substantially equivalent consideration traceable to you, which are called fraudulent transfers.

The terms you describe for the trust would be very unusual terms for a trust, so I am skeptical that is says what you claim that it does. You may be misunderstanding what the exact language of the trust means.

If a trust is created by a third party with their own money, and distributions are to be made only in the sole discretion of the trustee, it is much harder for a bankruptcy trustee to access those funds.

The existence of the trust, and the pattern of distributions made or to be expected to be distributed from the trust could, in some circumstances, also be a ground for objecting to any discharge of debts you own in the Chapter 7, although the circumstances would have to be fairly extreme for that provision to apply.