Northern District of Oklahoma Chief Bankruptcy Judge Terrence L. Michael’s introduction to the opinion in In re Harrison (2013 WL 6859303) serves as a good introduction to this post:

Whether for carpentry or estate planning, it is usually a good idea to use the right tool for the job. Unfortunately, when it comes to estate planning and asset transfer, people are often ill-informed about the tools available to them and the perils of choosing the wrong one. If a parent wants to gift an asset to a child only upon the parent’s death or incapacity, state law provides tools to accomplish that end. Unfortunately, use of the wrong tool could unwittingly result in a present transfer and the unintended loss of the asset.

This case highlights issues that can arise when people use deeds conveying real property to others rather than using other estate planning devices. Here, Angela Michelle Edmounds Harrison’s parents executed deeds conveying an interest in several pieces of real estate to her. When Harrison sought bankruptcy protection, her bankruptcy trustee sought to liquidate her interest in the properties. Guess who prevailed.

Harrison held her interest in various properties by virtue of separate quitclaim deeds, which had been recorded. While states may differ on this issue, under Oklahoma law, where a party takes title to property under a quitclaim deed, a bona fide purchaser (under the section of the Bankruptcy Code applicable here, a bankruptcy trustee assumes the rights and powers of a hypothetical bona fide purchaser of real property from the debtor) is under no greater duty to inquire into the circumstances of the grantee’s title than he or she would if the conveyance had been by warranty deed.

Harrison’s parents contended that the conveyance of the properties to Harrison was done for estate planning purposes, that the intention of the parents and Harrison was that Harrison would hold only bare legal title, and that no present equitable interest in the properties would be transferred until the death or incapacity of the parents. Harrison’s father paid all consideration for the properties, all property taxes, all maintenance and upkeep costs, collected all rent payments, and took all beneficial interest in the properties. As a result, Harrison and her parents claimed that Harrison held only bare legal title to the properties and her interest was subject to a resulting trust in favor of her parents. The bankruptcy trustee did not challenge the existence of a resulting trust, because he contended it did not affect his right to sell Harrison’s interest in the properties.

Resulting trusts arise where the legal estate in property is acquired or disposed of, not fraudulently or in violation of any fiduciary duty, but the intent appears or is inferred from the terms of the disposition, or from the accompanying facts and circumstances, that the beneficial interest is not to go to or be enjoyed with the legal title. In these cases, a trust is implied or results in favor of the person for whom the equitable interest is assumed to have been intended and whom equity deems to be the real owner. Under Oklahoma law, however, no unrecorded trust, either express or implied in law, will defeat the title of a bona fide purchaser of real property. Thus, even if Harrison held the properties in a resulting trust in favor of her parents, the outcome of the case is unaffected. As between Harrison and her parents, such an unrecorded trust may have some bearing, but it does not defeat the interest of a bona fide purchaser, such as the bankruptcy trustee.