U.S. Bankruptcy Court <\/p>\n
<\/p>\nWhere the Chapter 7 trustee has asserted claims regarding the KG Family Trust, the trust was a sham, so its assets were property of the debtor as of the commencement of the bankruptcy and became property of the estate as of the filing.\n<\/p>\n\u201cThis matter came before the Court on the First Amended Complaint filed by the Plaintiff, Donald Lassman, as the Chapter 7 Trustee of the within debtor, Kristen M. Spalt. Pursuant to the Amended Complaint, the Chapter 7 Trustee asserted claims regarding the KG Family Trust (\u2018KG Trust\u2019) against the Debtor, individually and as trustee of the KG Trust (\u2018KG Trustee\u2019); her spouse, James G. Spalt; and her children, James E. Spalt, Eric Spalt, Andrew Spalt, George Spalt, Carly Spalt, Edward Spalt, and Caroline Spalt (collectively, \u2018Spalt Children\u2019). The Spalt Children filed a counterclaim against the Chapter 7 Trustee, seeking a declaratory judgment that they are the beneficiaries of the KG Trust.\n<\/p>\n\u201cFor the reasons set forth below, the Court finds that the KG Trust failed since no beneficiaries other than the Debtor were identified when it was formed. In the alternative, the Court finds that the KG Trust was a sham and formed for the illegal purpose of hiding assets from the creditors of James G. Spalt and the Debtor. As more fully set forth below, given the failure of the KG Trust and its illegal purpose, the Court holds that the Debtor was the sole and equitable owner of all property of the KG Trust as of the commencement of the bankruptcy and that all assets of the KG Trust became property of estate as of the filing. The Court further finds that the Spalt Children were not beneficiaries of the KG Trust as of the commencement of the bankruptcy.<\/p>\n\u201cWith respect to the postpetition transfers of assets, the Chapter 7 Trustee has failed to sustain his burden of proof that the Spalt Children aided and abetted the transfers by the Debtor and James G. Spalt. \u2026\n<\/p>\n\u201cAs more fully set forth below, the assets of the KG Trust were property of the Debtor as of the commencement of the bankruptcy and became property of the estate as of the filing. Although the Debtor purported to create the KG Trust, the KG Trust is unenforceable. First, the KG Trust fails since there were no beneficiaries, other than the Debtor, at the time of its formation. In the alternative, the KG Trust is void as a matter of public policy, since it was formed for the purpose of shielding assets of James G. Spalt and the Debtor from their creditors, while allowing them to retain full control and ownership of the assets. Since the KG Trust failed, any assets belonging to the Debtor purportedly transferred to the KG Trust remained her property. In addition, because they participated in the illegal purpose of the KG Trust, the assets of James G. Spalt and G. Spalt that were transferred to the KG Trust were assets of the Debtor as of the filing of the bankruptcy and became property of the estate.\n<\/p>\n\u201cAs to the count against the Spalt Children, the Chapter 7 Trustee has failed to meet his burden of proof that the Spalt Children knowingly participated in the transfers of the funds in the KG Trust. Consequently, he fails to prevail on his claims against the Spalt Children for aiding and abetting the postpetition transfer of assets of the estate. Since the Court has found that the KG Trust was unenforceable, the Court need not address the Chapter 7 Trustee\u2019s alternative theory that the Spalt Children colluded with the Debtor in her breach of duties as KG Trustee. \u2026<\/p>\n\u201cSince either there was no beneficiary, or the Debtor was the only beneficiary, the KG Trust failed under its terms and under Massachusetts law. \u2026\n<\/p>\n\u201cIn the alternative, the KG Trust is void as a matter of public policy. The Chapter 7 Trustee has demonstrated that the purpose of the KG Trust was to hide assets from the creditors of James G. Spalt and the Debtor. Both the Debtor and James G. Spalt admitted that the KG Trust was formed to avoid their assets being reached by creditors. Coupled with their continued exercise of control and ownership over the assets of the KG Trust, the KG Trust is a sham. \u2026\n<\/p>\n\u201cFor the foregoing reasons, the Court finds that the Debtor was the sole and equitable owner of all property of the KG Trust and that all assets of the KG Trust became property of the estate as of the commencement of the bankruptcy. The Court further finds that the Chapter 7 Trustee has failed to sustain his burden of proof that the Spalt Children are liable to the estate for the postpetition transfers from the KG Trust.\u201d\n<\/p>\nIn re: Spalt, Kristen M. (Lawyers Weekly No. 04-003-25) (23 pages) (Bostwick, J.) (Chapter 7 Case No. 16-10131-JEB; Adversary Proceeding No. 18-01032-JEB) (April 3, 2025).<\/i>\n<\/p>\nClick here to read the full text of the opinion.\n<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"U.S. Bankruptcy Court Listen to this article Where the Chapter 7 trustee has asserted claims regarding the KG Family Trust, the trust was a sham, so its assets […]<\/p>\n","protected":false},"author":1,"featured_media":5172,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[116],"tags":[128,5321,5442,244],"class_list":["post-5171","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bankruptcy","tag-bankruptcy","tag-family","tag-sham","tag-trust"],"_links":{"self":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/5171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/comments?post=5171"}],"version-history":[{"count":0,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/5171\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media\/5172"}],"wp:attachment":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media?parent=5171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/categories?post=5171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/tags?post=5171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
Where the Chapter 7 trustee has asserted claims regarding the KG Family Trust, the trust was a sham, so its assets were property of the debtor as of the commencement of the bankruptcy and became property of the estate as of the filing.\n<\/p>\n
\u201cThis matter came before the Court on the First Amended Complaint filed by the Plaintiff, Donald Lassman, as the Chapter 7 Trustee of the within debtor, Kristen M. Spalt. Pursuant to the Amended Complaint, the Chapter 7 Trustee asserted claims regarding the KG Family Trust (\u2018KG Trust\u2019) against the Debtor, individually and as trustee of the KG Trust (\u2018KG Trustee\u2019); her spouse, James G. Spalt; and her children, James E. Spalt, Eric Spalt, Andrew Spalt, George Spalt, Carly Spalt, Edward Spalt, and Caroline Spalt (collectively, \u2018Spalt Children\u2019). The Spalt Children filed a counterclaim against the Chapter 7 Trustee, seeking a declaratory judgment that they are the beneficiaries of the KG Trust.\n<\/p>\n
\u201cFor the reasons set forth below, the Court finds that the KG Trust failed since no beneficiaries other than the Debtor were identified when it was formed. In the alternative, the Court finds that the KG Trust was a sham and formed for the illegal purpose of hiding assets from the creditors of James G. Spalt and the Debtor. As more fully set forth below, given the failure of the KG Trust and its illegal purpose, the Court holds that the Debtor was the sole and equitable owner of all property of the KG Trust as of the commencement of the bankruptcy and that all assets of the KG Trust became property of estate as of the filing. The Court further finds that the Spalt Children were not beneficiaries of the KG Trust as of the commencement of the bankruptcy.<\/p>\n
\u201cWith respect to the postpetition transfers of assets, the Chapter 7 Trustee has failed to sustain his burden of proof that the Spalt Children aided and abetted the transfers by the Debtor and James G. Spalt. \u2026\n<\/p>\n
\u201cAs more fully set forth below, the assets of the KG Trust were property of the Debtor as of the commencement of the bankruptcy and became property of the estate as of the filing. Although the Debtor purported to create the KG Trust, the KG Trust is unenforceable. First, the KG Trust fails since there were no beneficiaries, other than the Debtor, at the time of its formation. In the alternative, the KG Trust is void as a matter of public policy, since it was formed for the purpose of shielding assets of James G. Spalt and the Debtor from their creditors, while allowing them to retain full control and ownership of the assets. Since the KG Trust failed, any assets belonging to the Debtor purportedly transferred to the KG Trust remained her property. In addition, because they participated in the illegal purpose of the KG Trust, the assets of James G. Spalt and G. Spalt that were transferred to the KG Trust were assets of the Debtor as of the filing of the bankruptcy and became property of the estate.\n<\/p>\n
\u201cAs to the count against the Spalt Children, the Chapter 7 Trustee has failed to meet his burden of proof that the Spalt Children knowingly participated in the transfers of the funds in the KG Trust. Consequently, he fails to prevail on his claims against the Spalt Children for aiding and abetting the postpetition transfer of assets of the estate. Since the Court has found that the KG Trust was unenforceable, the Court need not address the Chapter 7 Trustee\u2019s alternative theory that the Spalt Children colluded with the Debtor in her breach of duties as KG Trustee. \u2026<\/p>\n
\u201cSince either there was no beneficiary, or the Debtor was the only beneficiary, the KG Trust failed under its terms and under Massachusetts law. \u2026\n<\/p>\n
\u201cIn the alternative, the KG Trust is void as a matter of public policy. The Chapter 7 Trustee has demonstrated that the purpose of the KG Trust was to hide assets from the creditors of James G. Spalt and the Debtor. Both the Debtor and James G. Spalt admitted that the KG Trust was formed to avoid their assets being reached by creditors. Coupled with their continued exercise of control and ownership over the assets of the KG Trust, the KG Trust is a sham. \u2026\n<\/p>\n
\u201cFor the foregoing reasons, the Court finds that the Debtor was the sole and equitable owner of all property of the KG Trust and that all assets of the KG Trust became property of the estate as of the commencement of the bankruptcy. The Court further finds that the Chapter 7 Trustee has failed to sustain his burden of proof that the Spalt Children are liable to the estate for the postpetition transfers from the KG Trust.\u201d\n<\/p>\n
In re: Spalt, Kristen M. (Lawyers Weekly No. 04-003-25) (23 pages) (Bostwick, J.) (Chapter 7 Case No. 16-10131-JEB; Adversary Proceeding No. 18-01032-JEB) (April 3, 2025).<\/i>\n<\/p>\n
Click here to read the full text of the opinion.\n<\/p>\n
<\/div>\n","protected":false},"excerpt":{"rendered":"
U.S. Bankruptcy Court Listen to this article Where the Chapter 7 trustee has asserted claims regarding the KG Family Trust, the trust was a sham, so its assets […]<\/p>\n","protected":false},"author":1,"featured_media":5172,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[116],"tags":[128,5321,5442,244],"class_list":["post-5171","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bankruptcy","tag-bankruptcy","tag-family","tag-sham","tag-trust"],"_links":{"self":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/5171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/comments?post=5171"}],"version-history":[{"count":0,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/5171\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media\/5172"}],"wp:attachment":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media?parent=5171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/categories?post=5171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/tags?post=5171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}