Ted Baer, heir to the J.L. Brandeis & Sons department store fortune, may inherit millions of dollars in five years according to an article published by reporter Joe Ruff in the Omaha World-Herald .
Ted Baer stands to inherit about $16 million dollars. However, the Chapter 7 Trustee, Thomas Stalnaker, has indicated that he will claim Baer’s interest in the trust and distribute the money to his creditors. Baer listed $14.7 million of debt on his bankruptcy papers filed with the court.
Nebraska College of Law professor William Lyons has speculated that Baer may have elected to file bankruptcy now to protect his future inheritance. Ted Baer’s attorney believes the trust funds are not part of the bankruptcy estate and therefore cannot be claimed by the creditors or the Trustee.
Courts have disagreed as to whether funds in a trust account become property of the bankruptcy estate at the termination of the spendthrift trust. In the case of William W. Britton, the Connecticut bankruptcy court ruled that the Chapter 7 Trustee could seize the assets of a trust when the spendthrift trust terminated. O’Neil v. Fleet Natl Bank (In re Britton), 2003 Bankr. LEXIS 1354. See also In re Crandall, 173 B.R. 836 (Bankr. D. Conn 1994). These cases indicate that the bankruptcy estate is comprised of all property interests, although some may be contingent and not subject to possession until sometime in the future. Other courts have taken the opposite view. In the case of Joseph Newman, the 10th Circuit Court of Appeals ruled that the future right to spendthrift trust assets was not property of the bankruptcy estate. Magill vs. Newman, 903 F.2d 1150 (10th Cir. 1990).
It is not clear at this time how the Nebraska bankruptcy court will rule on this matter, but given the attention this case has generated in the press, there will be a lot of pressure on the court to allow creditors access to the trust fund. Whatever decision reached by the court will certainly be appealed and the final answer may not be known for several years.
One question that has not been answered is why Baer’s attorneys chose to file under Chapter 7 where Trustees are paid on commission to seek out and sell assets to pay creditors instead of electing to file under Chapter 11 where a debtor is not forced to liquidate their assets. Perhaps they felt that money in a Spendthrift trust was absolutely beyond the reach of creditors, but that seems like a fairly huge gamble involving a winner-take-all result. Dangling assets before a Chapter 7 Trustee is never wise, as this case fully demonstrates.