Phoenix, AZ estate planning attorney Mark A. Bregman talks about a specific case he handled about a pre-bankruptcy disclaimer. He references the Edward Dittloft case, more commonly known as In re Costas. In that matter, the decedent placed residential real estate into a trust and named one of his daughters as trustee, with the trust benefiting her and her two siblings. When the daughter serving as trustee needed to file for bankruptcy, a disclaimer was executed to renounce her interest as a beneficiary in the trust before the filing.

The bankruptcy trustee sought to bring the disclaimed interest back into the bankruptcy estate for distribution to creditors, raising a legal question that produced a split of authority among the states. The decision was highly state-specific, but the majority rule established that if a disclaimer is made prior to filing bankruptcy, it relates back to the settlor’s death and does not become part of the bankruptcy estate. He emphasized that the outcome required several legal elements to align in order for the position to prevail.