My colleague, Florida bankruptcy lawyer Jonathan Alper, recently wrote a post on his Florida Bankruptcy Law blog about issues arising in the case of a debtor’s receipt of an inheritance within six (6) months of filing. Under the bankruptcy law, any inheritance received by the debtor within six months of filing becomes property of the estate and can be seized by the trustee and distributed like any other non-exempt asset.
Chapter 7 trustees typically question debtors about any expected inheritance at the 341 hearing. Jonathan posed the question of what might happen if a debtor, knowing that he was the beneficiary of a will, advised his a sick or dying relative about the bankruptcy and the relative thereupon decided to change the beneficiary so that the assets would not be seized.
Jonathan concludes that the debtor has no duty to advise the trustee about the "new" beneficiary’s inheritance. He reasons that the dying relative is not part of the bankruptcy and that the relative has the right under State law to change the beneficiary at any point.
I agree with Jonathan’s analysis….to a point. I think that if the numbers are big enough, an aggressive Chapter 7 trustee would go after the proceeds of the estate and argue that circumstantial evidence suggests fraud. I think it is unlikely that the original beneficiary or the new one would admit that there was a concerted effort to move assets out of the estate. However, just as in the case of a "fraudulent transfer" that would deny discharge under Section 727 of the Code, intent can be inferred from the action of the parties.
I think the bigger issue here may relate to the nature of advice that bankruptcy lawyers can give to their clients. As a zealous advocate, a bankruptcy lawyer can advise his client about the six month rule, and, if asked, about wills and estate rules that permit a testator to change his beneficiaries. I also think that that bankruptcy lawyer should advise his client about the potential risk of a claim by the trustee.
To a certain degree, therefore, the bankruptcy lawyer’s job is to help his client manage risk, while at the same time avoiding being backed into a situation where the lawyer has independent knowledge of a client’s plan to misrepresent statements on bankruptcy schedules. Jonathan Alper concludes that his hypothetical debtor has a "legitimate position." I think this is the right way to analyze this type of ethical dilemma.
As long as the debtor (and his lawyer) have a reasonable argument grounded in statute or case law, is there any reason why the lawyer ought not provide his client with information about a range of choices starting with the most aggressive position?
[tags] Chapter 7 and expected inheritance, inheritance as property of the estate, Jonathan Alper [/tags]