Answered on Jan 13th, 2011 at 10:28 AM
Generally, as long as either of your wife's parents lives beyond 180 days of your bankruptcy petition date then none of the assets in the trust are at risk in the bankruptcy. This is because what your wife, as the beneficiary, actually owns is a future interest in the assets of the trust. The bankruptcy rules provide that this interest is only at risk if it vests within 180 days of your bankruptcy petition date. So if both your wife's parents die within 180 days of your bankruptcy filing date then her share of the assets in the trust may be at risk.
Whether they are at risk within that 180 day period depends on the trust. The assets may still be out of reach of the bankruptcy trustee if there is a spendthrift clause in the trust. One purpose of a spendthrift clause is to prevent the creditors of a beneficiary from being able to attach the assets of the trust. Section 541(c)(2) of the bankruptcy code provides that a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy law is enforceable in a case under this title. In other words, when a beneficiary of a trust cannot lose their interest in that trust to a creditor outside of bankruptcy, they are also protected when they file for bankruptcy.