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E.D.N.C.: In re Broughton- Modification of Trust by Bankruptcy Trustee

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By Ed Boltz, 5 February, 2019

Summary:

Ms.  Broughton,  a persistent and likely pernicious debtor and appellant,  filed a Chapter 13 bankruptcy proposing to sell for the benefit of her secured creditors the real property she claimed to own in “fee simple absolute; and as trustee for trust for the benefit of her heirs.”  When this plan was rejected, her case was converted to Chapter 7.  The Trustee subsequently obtained an order to sell the property free and clear of liens, but by then Ms.  Broughton opposed such sale, arguing that her sole interest is as a fiduciary for the trust in benefit of her adult children and, as such, the real property was not an asset of the bankruptcy estate.

The bankruptcy court, as well as, in a separate, prior proceeding, the Wake County Superior Court, both rejected this argument, with the district court affirming.  The plain language of the Trust makes the Debtor its sole beneficiary during her lifetime and as “the Debtor is both the Trustee and sole beneficiary of the Trust, all legal and equitable title remained with her” and merged into absolute ownership.  Accordingly, the real property was an asset of the estate.

As the Trust included both the real property and additional personal property, which the Bankruptcy Trustee was apparently uninterested in liquidating, he sought to modify the Trust to remove the real property.  Pursuant to N.C.G.S. § 36C-4-412(b), modification of the Trust was permitted as “continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust’s administration.”  The district court held that the Trust would no longer serve any purpose and would cloud title to the sale of the real property, removing it accordingly and allowing the administration and liquidation.

For a copy of the opinion, please see:

Broughton- Modification of Trust by Bankruptcy TrusteeDownload

Please see the companion opinion requiring the Debtor to vacate the real property, entered the same day here:

Broughton- Order to Vacate PropertyDownload

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