In re McQuaid
492 B.R. 514
Bankr. N.D. Ill.2013Background
- Trustee Grochocinski objects to the Debtors’ exemption in the Alice M. Wood Special Needs Trust funded by a disability settlement.
- Trust funds originated from Ms. Wood’s settlement with a disability insurer in 2009; Debtors created the Trust in 2012, two months before petition.
- Ms. Wood is the Trust beneficiary; Mr. McQuaid is the Trustee.
- Debtors claim exemption under Illinois 735 ILCS 5/12-1001(g)(3) for the right to receive a disability benefit.
- Trustee argues the statute protects the right to receive, not the benefit or funds traceable to it, and the timing/funding undermines exemption.
- Petition filed as joint Chapter 7 on August 29, 2012; Court has jurisdiction as a core proceeding.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 12-1001(g)(3) exempt the Debtors’ right to receive disability benefits, not the funds in the Trust? | Grochocinski: exemption is for the right to receive benefits. | Wood/McQuaid: funds in the Trust qualify as the benefit’s proceeds. | Exemption denied; cannot exempt funds under § 12-1001(g)(3). |
| Are funds traceable to disability benefits already received exempt under § 12-1001(g)(3)? | Grochocinski relies on the plain language focusing on the right to receive, not traceability. | Wood/McQuaid contend traceable funds should qualify. | Not exempt; statute protects only the right to receive, not traceable funds. |
| Does the 'traceable to' framework of § 12-1001(h) affect the outcome for § 12-1001(g)(3)? | Grochocinski notes h) language shows a different treatment for traceable funds. | Wood/McQuaid argue similar treatment should apply. | § 12-1001(g)(3) lacks 'traceable to' language; separate treatment confirms non-exemption here. |
| Does the Trust’s formation timing and discretionary distributions affect exemption under the Illinois statute? | Grochocinski contends the Trust structure should not override the statute. | Wood/McQuaid assert the Trust arrangement aligns with exempt purposes. | Trust funds do not fall within § 12-1001(g)(3) due to timing and discretionary scope. |
Key Cases Cited
- In re Pope-Clifton, 355 Ill.App.3d 478 (2005) (emphasizes focus on the right to receive disability benefits, not the funds)
- Fayette County Hosp. v. Reavis, 169 Ill.App.3d 246 (1988) (funds traceable to Social Security benefits are not exempt when only the right to receive is protected)