A legal interest is a legal interest, regardless of the intent when it was created. Often the parents retain a life estate which reduces the value, depending on the age of the parents. With any luck the parents are young and healthy and your client is one of five siblings which have an interest, and hope for a big mortgage. Caselaw and 541 draws a distinction from bare legal title and an equitable interest. I have dealt with this for years. With good facts, Trustees won’t go after the asset. I have generally had the kids immediately deed the property back to the parents, disclose the transfer, and state that the kids’ names were on the property only for parents’ estate planning purposes, that the kids had never put money into the property (assuming that’s true), and that the parents retained complete possession. In the cases I have read, the facts make all the difference. If there was an informal attempt at “estate planning” coupled with objectively quantifiable evidence that all parties understood that the parents were to continue to own the property during their lifetimes, the court can find that the debtor holds nothing more than bare legal title. This can be demonstrated by showing that only the parents continued to live in the property and continued to pay all of the bills and costs associated with the property.However the quantum of evidence needed may rise to the level of “clear and convincing”. Also, some chapter 7 trustees will inquire as to how the tax aspects of the home were treated by the parties on their respective tax returns as an indication of how the parties treated the ownership of the property – so don’t fail to look into that aspect as well. The best you can do is let the clients know about the risk of filing the 7 with the facts presented and let them make the choice to proceed or not.
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