In Re Roth
MEMORANDUM AND ORDER
This mаtter is before the Court on Trustee’s Motion for Turnover (Doc. 22). The parties have fully briefed the issue and submitted Stipulations of Fact (Doc. 49). The Court has reviewed the arguments presented by the parties, the stipulated facts and the relevant law concerning this motion and is now prepared to rule. The Court has jurisdiction under
I.STATEMENT OF FACTS
The parties have submitted Stipulations of Fact (Doc. 49). The Court adopts the stipulations set forth by the parties and, based on the stipulations, makes the following findings of fact:
1. Neal Lee Roth, Sr. (hereinafter referred to as “Neal” or “Debtor”), is one of the debtors in this case and is one of the several children of Edmund and Martina Roth (hereinafter referred to as “Edmund” and “Martina”).
2. On or about January 29, 1992, Edmund and Martina сreated a revocable inter vivos trust, known as the Edmund Roth and Martina Roth Revocable Living Trust (hereinafter referred to as the “Trust”).
3. Thereafter, Edmund and Martina amended the Trust twice prior to Martina’s death.
4. Martina died some time prior to January 20, 2000.
5. On January 20, 2000, Edmund amended the Trust for the third and final time.
6. At all times since its creation, Neal has held a beneficial interest in the Trust. The Trust, the contents of which were stipulated to by the parties, provided that upon Edmund’s death, Neal was to receive, if the property was still in the Trust on Edmund’s death, and if the Trust had not been revoked in full or in part, the following:
a. A 1/5 interest in items of personal property not specifically designated for others;
b. A half section of land in Ellis County, Kansas;
c. An interest in two joint ventures;
d. Oil and gas production on any real estate in the Trust;
e. And a 1/5 interest in all remaining property in the Trust.
See page FIFTH provision, pages 5-8.
7. The parties have stipulated that the property Nеal will receive from the Trust has a total value in excess of $150,000.00.
8. The Trust contained provisions to pay Edmund’s debts, including expenses of his last illness, funeral and burial, as well as to pay any “inheritance, estate, transfer or succession taxes.” Id. at page 5, paragraph 2.
9. Paragraph “M” of the Sixth Article of the Trust specifically provides
“Neither the principal nor the income from this trust shall be liable for the debts of any beneficiary hereunder. Nor shall any part thereof be subject to seizure by any creditor of any beneficiary under any return or proceeding in law or in equity or otherwise, and no disposition, charge, encumbrance, sale or assignment of the income or of the principal of this trust or any parthereof by any beneficiary hereunder shall be of any validity or legal effect or in any way recognized by said TRUSTEE.”
10. The Trust did not provide for the corpus of the Trust to be retained, with subsequent distributions to the beneficiaries over time. Instead, the Trust provided that the property Neal was to receive would be payable upon Edmund’s death. Id.
11. On July 12, 2001, Neal and his wife filed a voluntary petition seeking bankruptcy relief under Chapter 7 of the Bankruptcy Code, thereby commencing the above captioned case.
12. In August, 2001, within 180 days of Neal filing of the bankruptcy, Edmund died.
13. Steven L. Speth is the duly appointed and acting Trustee in the above captioned case.
14. No will, probate proceedings, or intestacy proceedings of any kind have or will be filed with regard to Edmund’s death.
15. In Dеcember, 2001, a Partial Distribution of Assets was made to the Trust beneficiaries. As the result of a demand made by Steven L. Speth upon the trustees of the Trust, the $10,000.00 distribution that would have been distributed to Neal under the Trust was instead paid over to Steven L. Speth as the Trustee herein. That money is being held by Mr. Speth subject to further order of the Court.
16. Some or all of the assets described and referred to in Paragraphs 7 and 13, above, may have generated income since Edmund’s death.
The Court will address any additional facts below, if necessary.
II. ANALYSIS
The Trustee seeks to bring into the Debtor’s Chapter 7 bankruptcy estate the estimated $150,000 in Trust property that Neal became entitled to receive within 180 days of his filing bankruptcy upon the post-petition deаth of his father. According to the Trustee, Neal’s portion of the Trust property should be included in the bankruptcy estate pursuant to
A. The spendthrift provision of the Trust precludes the Debtor’s interest in the Trust from being included in the bankruptcy estate under
The commencement of a voluntary petition for relief under Chapter 7 of the Bankruptcy Code automatically creates an estate.
(1) ... all legal or equitable interests of the Debtor in property as of the commencement of this case.”
An examination of the legislative history of
Whether an asset is estate property is determined by examining the nature of the asset on the date the bankruptcy petition was filed.
In this case, Neal’s interest in the Trust prior to the death of his father was contingent upon his fаther actually dying before having revoked that part of the Trust that set over property to Neal. Further, Neal’s interest in the Trust was subject to the conditions attached by the settlor of the Trust, his father. The donor had attached the condition, set forth in Paragraph “M” of the Sixth Article of the Trust, that
“Neither the principal nor the income from this trust shall be liable for the debts оf any beneficiary hereunder. Nor shall any part thereof be subject to seizure by any creditor of any beneficiary under any return or proceeding in law or in equity or otherwise, and no disposition, charge, encumbrance, sale or assignment of the income or of the principal of this trust or any part hereof by any beneficiary hereunder shall be of any validity or legal effect or in any way recognized by said TRUSTEE.”
Because of the provisions of this classic spendthrift clause, neither Neal’s creditors nor transferees had any right to rely upon the Trust for the satisfaction of their claims.
Johnson v. Morawitz,
B. The Debtor’s interest in the trust did not pass to him by way of bequest, devise, or inheritance, thus rendering
The Court now turns to the trustee’s claim that the Debtor’s interest in the inter vivos Trust is part of the bankruptcy estate pursuant to
Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date- — •
(A) by bequest, devise, or inheritance. ..
There is no dispute among the parties that the Debtоr’s interest in the trust was acquired within 180 days after the filing of the petition. The issue the parties have brought before the Court is whether the Debtor acquired the property by way of “bequest, devise, or inheritance.”
As noted above, in the absence of controlling federal law, “property” and “interests in property” are questions of state law.
In re Doughman,
Although Kansas has not directly defined the terms “bequest,” “devise” or “inheritance,” the Court believes it only reasonable that Kansas would follow the traditional meaning of these terms, as set forth in Black’s Law Dictionary. Black’s Law Dictionary рrovides the following definitions of “bequest,” “devise” and “inheritance”:
Bequest - a gift by will of personal property;
Devise - a testamentary disposition of land or realty; a gift of real property by the last will and testament of the donor; and
Inheritance - property which descends to heir on the intestate death of another.
Black’s Law Dictionary (5th Ed. West Pub. Co.1979).
The Trustee relies extensively on
In re Crandall,
The court is constrained to givе a narrow construction to the words “bequest, devise, and inheritance” and to conclude such words in their plain meaning do not encompass revocable inter vivos trusts. This conclusion is buttressed by the holding of the Second Circuit in Klebanoff v. Mutual Life Ins. Co.,362 F.2d 975 (2nd Cir.1966). Klebanojf dealt with a bankruptcy trustee’s claim to the proceeds of life insurance to which the debt- or became entitled within six months of the petition date. The trustee had argued that the “technical property terms in § 70(a) should be interpreted broadly to encompass insurance proceeds.” Id. at 979. The court rejected that argument as “spurious for, in this case, we are construing a bankruptcy statute and not embellishing principles of common law.” Id. The court recognized that “it would have beеn reasonable and appropriate for Congress to have included insurance proceeds within this section ifit so desired. But, it failed to do so and in these circumstances, we cannot and should not step into the breach.” Id. The debtor’s interest in the Trust is not property of the estate under § 541(a)(5)(A) .
Id. at 839. 4
The
Crandall
Court specifically noted that its Circuit, the Second Circuit, as well as thе Supreme Court, mandated a rigid application of the “plain meaning” doctrine in interpreting the words of the Bankruptcy Code. This Court is similarly constrained to presume that a legislature, here the United States Congress, “says in a statute what it means and means in a statute what it says there.”
Connecticut Nat’l Bank v., Germain,
When interpreting a statute, a Court must first examine its language.
Dalton v. I.R.S.,
Further buttressing this Court’s conclusion that Congress did not intend to include property acquired by an inter vivos trust within the reaches of
No person who is not an Osage Indian may, on or after October 21, 1978, receive any interest in any headright, other than a life estate in accordance with subsection (b), whether such interest would be received by such person (but for this subsection) under a will, a testamentary or inter vivos trust, or the Oklahoma laws of intestate succession.
Accordingly, this Court cannot simply assume that Congress intended to include every vehicle for transferring property upon death in
Congress listed the specific interests to be included as property of the estate. Those interests do not include a category into which an inter vivos spendthrift trust may fit. The decision of Congress to enumerate specific exclusions creates a presumption that cases not included in that list of еxclusions are subject to the statute. See Matter of Cash Currency Exchange, Inc.,762 F.2d 542 , 552 (7th Cir.1985) (applying maxim expressio un-ius est exclusio alterius to provision of Bankruptcy Code), certiorari denied sub nom. Fryzel v. Cash Currency,474 U.S. 904 ,106 S.Ct. 233 ,88 L.Ed.2d 232 . Similarly, the decision of Congress to list certain interests without introducing them with the words “includes” or “including” creates a presumption that those are the sole interests covered. See11 U.S.C. § 102(3) .
Although it seems unfair that the fortuity of the estate planning method a debtor’s benefactor chose should determine whether a debtor shоuld be allowed to keep significant property, this Court cannot substitute its judgment for that of Congress. As the Tenth Circuit noted in
In re Meridith Hoffman Partners,
The apparent unfairness of the result reached by Congress’ chosen language may motivate Congress to amend the statute, but it does not permit Courts to disregard the clear language of a statute. See Union Bank v. Wolas,502 U.S. 151 , 158,112 S.Ct. 527 , 531,116 L.Ed.2d 514 (1991) (“The fact that Congress may not have fоreseen all of the consequences of a statutory enactment is not a sufficient reason for refusing to give effect to its plain meaning.”); [In re] C-L Cartage, 899 F.2d [1490] at 1494 [(6th Cir.1990)].
The Court finds that
III. CONCLUSION
The Court finds that the Debtor’s interest in the inter vivos Trust created by his father did not vest a property interest under Kansas law in Debtor, and thus his interest in the Trust at the point of his bankruptcy filing was not property of the estate under
IT IS FURTHER ORDERED that the Trustee is required to return to the Debtors the $10,000.00 distribution the Trustee earlier received from the Trust.
Notes
. All statutory references are to the Bankruptcy Code,
. The Trustee does cite to a provision contained in the Social Security Act concerning '‘inheritance.” According to that dеfinition, "An inheritance is cash, a right, or a non-cash items received as the result of someone’s death.” However, the Debtor did not receive his interest in the Trust, as a matter of law, “as a result of someone’s death.” The Debt- or’s interest in the Trust was acquired by way of an inter vivos gift from his father.
See Matter of Estate of Sanders,
. The Trastee also relies on
In re Hecht,
.
The Court in
Crandall
did find that the interest in the inter vivos trust was property of the estate pursuant to