Bare Legal Title and Resulting Trusts

Marc P. Barmat
Furr and Cohen, P.A.
One Boca Place, Suite 337 West
2255 Glades RoadBoca Raton, FL 33431
mbarmat@furrcohen.com

Palm Beach County Bar Association Bulletin, June 2007

Bankruptcy attorneys are often faced with clients who “own” real property jointly with a parent. Often times the client contributed no money towards the purchase or upkeep of the real property and the sole reason the client’s name was put on the title to the property was for estate planning purposes for the parent. In this situation, if the client files a Chapter 7 bankruptcy, an issue arises as to whether the client-debtor’s interest in the property will become property of the bankruptcy estate. A further issue arises if before filing bankruptcy the client transfers their interest back to their parent. Is that a fraudulent transfer? The analysis of these issues involves the legal concepts of bare legal title and resulting trusts. A Florida bankruptcy court recently issued an opinion which addresses these legal concepts.

In In re Moodie, 2007 WL 738435 (Bankr.S.D.Fla. 2007), a debtor made a prepetition transfer of her joint interest in a parcel of real property to her mother for no consideration. Prior to that transfer, the debtor’s mother purchased the real property along with the debtor as joint tenants with rights of survivorship. Despite being listed on the deed, the debtor paid no consideration for the property and in fact, the debtor’s mother purchased the property in their joint names solely as an estate planning measure. The Chapter 7 bankruptcy trustee brought an adversary proceeding seeking to avoid as fraudulent the prepetition transfer of the property to the debtor’s mother.

In analyzing these facts, the bankruptcy court determined that there was a resulting trust in favor of the debtor’s mother and that the debtor held a bare legal interest in the property. The bankruptcy court found that a resulting trust arose presumptively when the property was purchased by the mother and then transferred to the debtor under circumstances which raised an inference that the mother did not intend that the debtor should have the beneficial interest in the property. Based upon these facts, the Court found that the transfer of bare legal title without consideration was not for less than reasonably equivalent value because bare legal title is economically valueless to the debtor. Consequently, the transfer of the property to the debtor’s mother for nothing in return did not constitute less than reasonably equivalent value. Accordingly, the Court found that the trustee was not able to prove one of the elements of a fraudulent transfer under 11 U.S.C. §548(a)(1)(B).