On four different times in the last few months, I have come across the following situation. Fortunately, only one of these was originally my own client; another person’s lawyer was no longer practicing, so I helped that person out, although could not protect all of the value in question; two other cases are being handled by different lawyers, and I am waiting to see how those cases are handled.
The situation is this: Mom “adds” her children’s names to her house. She does this by signing and recording a deed, listing herself as a “life tenant” and her children’s names as “remaindermen”. What this means is that Mom can use the house as long as she is alive. When she dies, her interest ends, and the children own the house.
There is a state law problem with this, which is that since 2003, if Mom was getting Medical Assistance, the State of Minnesota will pretend that Mom did not die, and assess a recovery amount against the home, up to the amount that the State paid on Mom’s behalf. The recovery amount is based off a chart published by the Minnesota Department of Human Services, found in Section 0015.58 of the Combined Manual. The chart says, for example, that if Mom is age 75 when she passes way, that her interest in the house is about 52%. That’s bad enough, of course.
But, the bankruptcy problem is this: If Mom put your name “on the house” before you filed bankruptcy, you had an ownership interest in that house when you filed bankruptcy. Filing bankruptcy requires you to list all of your assets, not just the ones you feel like listing. When Mom passes away and the family goes to sell the house, the title company will likely do a bankruptcy search against each owner of the house. When the title company finds a bankruptcy against one of the owners of the house (one of Mom’s children), the title company for bankruptcy clearance — basically, proof that you listed the property in your bankruptcy papers and that you claimed it exempt or that the case trustee released the property back to you (“abandoned it”). But if you do not list an asset in your bankruptcy papers, it is never “abandoned” by your bankruptcy trustee and it is never exempted.
So, now, when this comes to light years after your bankruptcy, you must reopen the case. There is a fee for that paid to the Clerk of Court. Then there are likely attorneys fees to be paid. Then you must try to claim your interest in the house as exempt. But the value now may be much more than it was worth back when your filed bankruptcy. So you may not be able to claim all of your interest in the house as exempt. Which may mean that the trustee gets cut in for a piece of the action now, even though you could have protected the entire interest if you had listed it when you filed!
So the moral of the story is: Ask Mom if she has done any estate planning and if she has put any assets into your name. If you know before you filed bankruptcy, you can have a plan. If you don’t know, you may be caught by surprise and may lose part (or all) of an asset that you could have protected if you had known about it.
It may be embarrassing to ask Mom now, but a little embarrassment now can protect thousands of dollars of equity in the future.