Section 7 Bankruptcy Cases

• Library: Trust and Estate Legislation 2012

Two interesting bankruptcy cases specifically address the issue of whether tenancy by the entirety property transferred to a trust retains its character for bankruptcy purposes. In In re Stanke, 234 B.R. 439 (Bankr. W.D. Mo. 1999), a husband and wife had owned property as tenants by the entirety. The Stankes thereafter engaged in a series of transactions for estate planning purposes, “apparently for the primary purpose of minimizing future tax liability.” Id. at 440. These transactions included the creation of two trusts, the execution of a “tenancy agreement,” and the transfer of 50% of the tenancy by the entirety property to each trust. The tenancy agreement purported to convert all the Stankes’ property held as tenants by the entirety to tenancy in common before the transfer of the property into the two separate trusts. Mr. Stanke (but not Mrs. Stanke) filed bankruptcy. The issue before the court was whether the property transferred to the trusts was tenancy by the entirety property and thus exempt under federal statutes from inclusion in Mr. Stanke’s bankruptcy estate.

After analyzing Missouri cases on tenancy by the entirety, the court looked at all the relevant circumstances surrounding the Stankes’ disposition of the real estate in question. One would have thought it sufficient for the...