A debtor avoided losing her home in a recent case
illustrating the perils of do it yourself legal forms. Lowe v. Vazquez,
No. SA-12-CV-00399-DAE (W.D. Tex. 3/28/13) [an enhanced version of this opinion is available to lexis.com
The Debtor paid $10 to download a living trust form while
she was living in Nevada. When she moved to Texas, she conveyed her homestead
to the trust. Her stated reason for setting up the trust was:
The one and only reason I created the Living Trust
after my divorce was to be sure my son could have access to any assets I owned
at the time I die and to avoid probate, so I named my son as Successor Trustee.
Probate proceedings in Nevada are lengthy and costly and I only wanted to make
things easier for him when I die.
When she filed bankruptcy in Texas, the trustee objected
to her exemption on the basis that title to the home was vested in the trust. The
Bankruptcy Court denied the objection. In re Vazquez, 2012 Bankr. LEXIS 642
(Bankr. W.D. Tex. 2012).
On appeal, the Court found that notwithstanding some
confusing language in the pre-printed form, that the Debtor was the sole
beneficiary of the trust. As the sole trustee and sole beneficiary, a valid
trust had not formed as of the petition date and the property remained vested
in the Debtor.
U.S. District Judge David Ezra had some insightful words
for individuals who might want to save money by creating their own legal
This case is a poster child for the proposition that one
should not rely on prepaid legal forms with boilerplate language for important
legal matters. Had Debtor passed away, it is clear to the Court that the
document would not have accomplished what she hoped; indeed, all of the tax
consequences she hoped to avoid would have been visited upon her son. It is
also clear that a properly drafted trust prepared by a competent lawyer would
have accomplished the goal she sought in the first instance.
Opinion, p.8, n.2.
I cannot say it any better than Judge Ezra. If you own a
Texas homestead, do not EVER convey it to a trust. You may place your homestead
exemption at risk for no good reason. The Debtor in this case did not lose her
homestead. However, she had to defend an objection to exemption and an appeal
at her own expense.
Disclosure: My firm represented Karen Vazquez
in the appeal.
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