Summary
holding that ambiguities in claim of exemption are resolved against debtor, and that exemption of interest in "trust under will" was not sufficient to exempt lump sum payment resulting from exercise of a power of appointment by the life beneficiary
Summary of this case from In re WatkinsOpinion
Case No. 95-12007-AM
March 12, 1996
James Reynolds, Esquire, Odin, Feldman Pittleman, P.C., Fairfax, VA, for Debtor
William McCarron, Jr., Esquire, Gold Stanley, P.C., Alexandria, VA, for trustee
MEMORANDUM OPINION
This matter is before the court on the chapter 7 trustee's motion to reopen the debtor's case for the purpose of administering an asset that the debtor-who opposes the motion-asserts has already been claimed exempt and abandoned. A hearing was held on February 27, 1996, at which the parties presented oral argument. The issue essentially resolves to whether the debtor's right to receive an immediate distribution of principal from a testamentary trust as a result of the exercise of a power of appointment was scheduled with sufficient specificity so as to put the trustee and creditors on notice of its existence. For the reasons stated in this opinion, the court concludes that the debtor's right to the distribution was not sufficiently scheduled and has not been abandoned or exempted.
Facts
The debtor, Dwight E. Avis, was the subject of an involuntary petition filed against him in this court on May 10, 1995. An order for relief under chapter 7 was entered on August 3, 1995. The meeting of creditors under § 341, Bankruptcy Code, was held on October 6, 1995. On his schedule of personal property, the debtor listed, under the heading "Contingent and non-contingent interests in estate of a decedent, death benefit plan, life insurance policy, or trust," the following:
Trust under the Will of Davis Weir
Trust under the Will of Maureen Weir
The value placed by the debtor on his interest in each trust is "UNKNOWN." On his schedule of property claimed exempt, the debtor claimed his interest in both trusts as exempt under § 55-19, Code of Virginia. With respect to each trust, he listed both the current value of his interest and value of the claimed exemption as "UNKNOWN." There was apparently some discussion of the trusts at the meeting of creditors; however, the trustee was not furnished at that time with a copy of the two wills. In any event, no objections were filed to the debtor's claimed exemptions, and on November 8, 1995, the chapter 7 trustee filed a Report of No Distribution stating that he had "made diligent inquiry into the whereabouts of property belonging to the estate; and that there are no assets in the estate over and above the exemptions claimed by the debtors." The debtor was granted a discharge on December 13, 1995, and an order was entered closing the case on December 15, 1995. Two days later, the trustee filed a praecipe withdrawing the Report of No Distribution and requesting the clerk to give creditors notice of a possible dividend. After learning that the case had been closed, the trustee filed on February 7, 1996, the motion to reopen that is currently before the court.
Under Article V of the Last Will and Testament of Davis Weir dated December 13, 1974, a testamentary trust was created. The trustees were granted complete discretion to distribute the income of the trust, in whole or in part, to the testator's wife, Maurine Sandahl Weir, or to Helen Weir Martin (whose relationship to the testator is not stated). Any income not so distributed in a particular year, however, was to be distributed to 14 named beneficiaries, among them the debtor, in various shares. The debtor's share is fixed at 3%. During Maurine Weir's lifetime, she could, by a signed instrument delivered to the trustees, direct payments of principal out of the trust to the income beneficiaries, any of their spouses or children, or any charitable organization. Upon Maurine Weir's death, and if she had exercised a power of appointment in her last will and testament, the trustees were required to make distributions of principal and any accumulated income in accordance with the power of appointment (which could be exercised only in favor of the income beneficiaries, their spouses or children, or charitable organizations). If Maurine Weir did not exercise the power of appointment, the trust was to continue until the earlier of (1) 21 years after the death of the last income beneficiary or (2) 25 years after the last to die of Davis Weir and Maurine Weir. Upon the ultimate termination of the trust, the entire corpus would be distributed to "those persons who shall then be eligible to receive the income of the Trust." Among the provisions in Davis Weir's will concerning the trust is the following:
ARTICLE XI
The interest of any beneficiary in the income or principal of any Trust created hereunder shall not, during the existence of such Trust, be anticipated, alienated, or in any other manner assigned or pledged or promised by such beneficiary and, during the existence of such Trust, shall not be reached by, or be subject to, any legal, equitable or other process, including any bankruptcy proceedings, or be subject to the interference or control of creditors or others in any way or manner.
Maurine Weir died on September 3, 1995 (after the commencement of the debtor's case, but before the meeting of creditors). In her will dated October 25, 1976, she exercised the power of appointment as follows:
ARTICLE XII
I am possessed of a special power of appointment conferred upon me by . . . the Will of my deceased husband, DA VIS WEIR, which will is dated December 13, 1974, and was admitted to probate by the Circuit Court of Broward County, Florida, by Order dated November 25, 1975. I hereby exercise such power of appointment in the following manner: I direct that the Trustees of the Weir Trust . . . shall pay over and distribute all of the principal and accumulated income of said Trust remaining at the time of my death . . . to the following persons in the percentages indicated:
* * *
8. DWIGHT E. AVIS, JR. (Lt. Commander) QIC USNACSUPTACT DET FPO New York, New York 09522. . . . 3%
Separately from the exercise of the power of appointment, Maurine Weir's will created a testamentary trust with respect to her own residuary estate. Under the terms of this trust, the income of the trust is to be paid to 11 named beneficiaries, among them the debtor, in specified amounts. The debtor's share of the income is 3%. Upon termination of the trust, which would occur on the earlier of (1) 25 years after Maurine Weir's death or (2) the death of the last income beneficiary, the corpus of the trust is to be distributed "to those persons who shall then be eligible to receive the income of the Trust."
Conclusions of Law
Under § 350(b), Bankruptcy Code, "A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause" (emphasis added). The trustee seeks to reopen this case to administer, as an asset of the bankruptcy estate, the debtor's entitlement to a 3% distribution of the principal from the Davis Weir trust as a result of Maurine Weir's exercise, in her will, of the power of appointment she was given under her husband's will. The debtor contends, however, that there are no assets for the trustee to administer, because his (the debtor's) interest under both testamentary trusts was listed on his schedules, was properly exempted, and has been irrevocably abandoned. The trustee conceded at oral argument that the debtor has effectively exempted, and the trustee has effectively abandoned, any right to income distributions under either the Davis Weir or Maurine Weir testamentary trusts. He vigorously argues, however, that the debtor's right to receive the 3% distribution of principal by virtue of the exercise of the power of appointment is distinct from his right to income distributions from the trust and was never unambiguously scheduled or claimed exempt.
Under F.R.Bankr.P. 5010, a motion to reopen may be made by "the debtor or other party in interest." The former trustee of a closed case is a "party in interest" with standing to bring a motion under § 350(b). In re Winebrenner, 170 B.R. 878 (Bankr.E.D.Va. 1994) (Shelley, J.)
The court is advised that the principal of the trust exceeds $4,000,000, which would result in the debtor receiving as his share approximately $120,000.
A.
The general statutory framework is clear enough. The commencement of a bankruptcy case creates an "estate" (the bankruptcy estate), which comprises, among other things, "all legal or equitable interests of the debtor in property as of the commencement of the case." § 541(a)(1), Bankruptcy Code. Relevant to the present case, it also includes:
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.
§ 541(a)(5), Bankruptcy Code. The debtor does not dispute that Maurine Weir died within 180 days of the commencement of his case, and that his right to the distribution of principal resulting from the exercise of the power of appointment is part of his bankruptcy estate.
It is the debtor's duty, among others, to file "a schedule of assets." § 521(1), Bankruptcy Code; F.R.Bankr.P. 1007(b). In a chapter 7 case, the trustee has a duty to "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interest of parties in interest." § 704(1), Bankruptcy Code. The trustee is not, however, literally required to liquidate each and every non-exempt asset if doing so would provide no benefit to creditors. In particular, the trustee, after notice and a hearing, "may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." § 554(a), Bankruptcy Code. In addition to explicit abandonment under § 554(a), the Bankruptcy Code provides,
Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for the purposes of section 350 of this title.
§ 554(c), Bankruptcy Code (emphasis added). Conversely,
Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.
§ 554(d), Bankruptcy Code. A leading treatise explains the purpose of § 544(d) as follows:
Abandonment presupposes knowledge. There can, as a rule, therefore, be no abandonment by mere operation of law of property that was not listed in the debtor's schedules or otherwise disclosed to creditors . . . Unless the court orders otherwise, formally unabandoned and unadministered property that was not scheduled thus "remains property of the estate." If the property is valuable, the court may reopen the case. . . .
4, Lawrence P. King, Collier on Bankruptcy, ¶ 554.03, p. 554-13 (1995) (emphasis added). Additionally, it appears well-settled that abandonment, if it does occur, "is irrevocable, regardless of any subsequent discovery that the property had greater value than previously believed." 4, Collier on Bankruptcy, supra, ¶ 554.02, p. 554-8. In re Sutton, 10 B.R. 737 Bankr.E.D.Va. 1981) (Bostetter, J.); In re Hood, 92 B.R. 648, 655-6 (Bankr.E.D.Va. 1988) (Tice), aff'd 92 B.R. 656 (E.D.Va. 1988) ("Property abandoned pursuant to Section 554 generally cannot be recovered by the debtor's estate notwithstanding a later determination of value which might have benefitted the estate.") But see, Indian Head Nat'l Bank v. Dominic (In re Dominic), 29 B.R. 482 (Bankr.M.D.Fla. 1983).
In Sutton, the trustee had abandoned the debtor's residence, which had been listed on his schedules, because an appraisal indicated little or no equity for the benefit of the estate. The second deed of trust holder then foreclosed, and, to the surprise of both the debtor and the trustee, the sale resulted in excess proceeds of approximately $6,800. The trustee filed a motion for turnover, and the debtor amended his schedule of exempt property to include the excess proceeds. The trustee then moved the court under Fed.R.Civ.P. 60(b), for relief from the order permitting him to abandon the residence. The court, after an extensive review of authorities under both the predecessor Bankruptcy Act of 1898 and the Bankruptcy Code, concluded, "It is a principal of uniform application that once an asset of the estate has been abandoned by the trustee, it is no longer part of the estate and is effectively beyond the reach and control of the trustee." 10 B.R. at 739. The only exceptions involved situations where property was actually concealed from the trustee, where the trustee's knowledge of the existence of the property "was one of mere suspicion, which engendered only a cursory investigation," and where the property was unscheduled by the debtor, "thus preventing the trustee from having `knowledge, or sufficient means of knowledge, of its existence.'" 10 B.R. at 740. Since the debtor's residence in Sutton had been duly scheduled and the trustee had a reasonable opportunity to consider its value to the bankruptcy estate before abandoning it, the court found that the abandonment was "irrevocable as not falling within any of the . . . exceptions to the general rule." 10 B.R. at 741.
In Dominic, the chapter 7 trustee had "disclaimed" an interest in two parcels of real estate on the mistaken understanding that the property was held as tenants by the entirety. After the case was closed, a foreclosure sale was held that resulted in excess proceeds of $46,033. The trustee moved to reopen the case to assert a claim against the funds, and the bankruptcy court granted the motion. The court, while acknowledging Sutton, distinguished it on the ground that the trustee in the case before it had "disclaimed" rather than "abandoned" the property. The decision does not discuss the effect of § 554(c), Bankruptcy Code.
B.
The trustee, as noted above, does not dispute these general principles. His point is that nothing in the sketchy description of the debtor's interest as "Trust under Will of Davis Weir" and "Trust under Will of Maurine Weir" was sufficient to put him and creditors on notice that the debtor was entitled, as a result of Maurine Weir's death, to a lump sum distribution of more than $120,000.00. Clearly, from a trustee's perspective, there is a significant difference from attempting to administer a stream of income payments that could extend over the next 25 years (even putting aside the issue of the "spendthrift" nature of the trust, which will be discussed below) and administering a lump sum payment. The court does not have before it a transcript of the meeting of creditors, but based on the representations made by counsel at the hearing on the present motion, it appears that the trustee was alerted only to the debtor's right to income payments from the trust.
It was represented by counsel at the hearing, and the court accepts for the purpose of the present motion, that when he signed the schedules and testified at the meeting of creditors, the debtor himself did not realize that he was entitled to the distribution.
This is not to say that a strong argument cannot be made the other way. The right to the lump-sum distribution, which arose within 180 days of the commencement of the case, arose from the very documents-the wills of Davis and Maurine Weir-described in the debtor's schedules. Had the chapter 7 trustee carefully reviewed both wills and made further inquiries prior to filing his report of no distribution, he would have been alerted to the potential for a lump sum distribution. His action in closing this case was at least precipitous and arguably negligent, although the court recognizes that a great deal of pressure is placed on panel trustees by the Office of the United States Trustees to close cases expeditiously.
Be that as it may, the real question is whether the debtor's interest in the trust was scheduled in such a way as to fairly make the trustee aware of the potential lump sum distribution. As decisions in this District have previously held, ambiguities in a debtor's schedules must be resolved against the debtor. Addison v. Reavis, 158 B.R. 53, 59 (E.D.Va. 1993) (Doumar, J.), affdsub nom. Ainslie v. Grablowsky (In re Grablowsky), 32 F.3d 562, 1994 WL 410995 (4th Cir. 1994) (unpublished disposition) (debtors' assignment of only nominal amounts-in one case $1.00 and in the other case $10.00 — to partnership interests on schedules resulted in exemption only of the precise amount claimed and not the entire asset); Payne v. Wood (In re Payne), 775 F.2d 202 (7th Cir. 1985) ("[U]nless the claim of exemption contains sufficient detail to put the trustee on notice of questionable assertions, it will not be possible to administer the statutory scheme. . . . The debtor must furnish enough information to put the trustee on notice of the wisdom of further inquiry. . . . [I]t is the debtor's burden to make out the claim of exemption with adequate specificity.") What is true of exemptions, is equally true with respect to abandonment: if the debtor seeks the benefit of statutory abandonment under § 554(c) with respect to scheduled property, as opposed to application of § 554(d) under which unscheduled property remains property of the estate, he or she must describe it in reasonable detail. This is not intended as a criticism of the debtor in this case-if his counsel is correct, he himself was not aware, at the time he filed his schedules and testified at the meeting of creditors, that he was entitled to the 3% distribution of principal. If he was unaware of it himself, it follows that he could not have scheduled it with sufficient detail to put the trustee and creditors fairly on notice as to its existence, and the fact that he did not do so should not entitle him to a windfall at the expense of his creditors.
C.
As an additional basis for opposing the trustee's motion to reopen, the debtor asserts that by listing the two trusts on his schedule of exempt property, the property irrevocably passed out of the bankruptcy estate when no timely objection was filed to the allowance of the exemption. Again, the law is straight-forward. As discussed above, the effect of § 541(a), Bankruptcy Code, is to bring into the estate all of the debtor's interest in property, equitable or legal. There are two ways that property, once having become part of the estate, can leave the estate: it can be abandoned, or it can be exempted. The issue of abandonment has already been discussed. Under § 522(b), Bankruptcy Code, an individual debtor may exempt from the claims of his creditors in bankruptcy either the property described in § 522(d), Bankruptcy Code (the "Federal exemptions") or the property that would be exempt under state law or non-bankruptcy Federal law, unless the state where the debtor resides has "opted out" of the Federal exemptions. Virginia has elected to "opt out" of the Federal exemption scheme. § 34-3.1, Code of Virginia. Section 522(1), Bankruptcy Code and F.R.Bankr.P. 4003(a) require that a debtor file a list of the property he or she claims exempt. Under § 522(1), "Unless a party in interest objects, the property claimed as exempt on such list is exempt." Federal Rule of Bankruptcy Procedure 4003(b) ("Objections to Claim of Exemptions") provides,
The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors . . . or the filing of any amendment to the list or supplemental schedules unless, within such period, further time is granted by the court.
In Taylor v. Freeland Kronz, — U.S. —, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the Supreme Court held that the statute and rule mean precisely what they say, and that where a chapter 7 trustee had failed to file a timely objection to the debtor's claimed exemption in the proceeds of a pending lawsuit, the trustee lost any claim to such proceeds "whether or not [the debtor] had a colorable statutory basis for claiming it." 112 S.Ct. at 1648.
The debtor in this case listed his interest in the two trusts on his schedules, assigning to them a value of "unknown" (as did the debtor in Taylor v. Freeland Kronz) and citing as the basis of exemption § 55-19, Code of Virginia. That statute expressly recognizes the limited enforceability of so-called "spendthrift" trusts in Virginia. It first establishes a general rule that "all trust estates shall be subject to the debts and charges of the persons who are beneficiaries of such trusts as if those persons owned a similar interest in the trust estate." It then goes on, however, to create an important exception:
In his brief and at oral argument, the debtor asserts that he also listed his interest in the two trusts on a timely-filed homestead deed. Although no evidence was presented, for the purpose of this opinion, the court assumes such an instrument was filed. However, it adds nothing to the debtor's case. In Virginia, a "homestead deed" is the method of perfecting the exemption provided by § 34-4, Code of Virginia. Under this provision, a "householder" is allowed to hold exempt from the claims of creditors up to $5,000.00 worth of real or personal property selected by him or her. Id. The amount is increased slightly if the debtor supports dependents or is a disabled veteran. §§ 34-4 and 34-4.1, Code of Virginia. In order to claim the exemption, the debtor must record with the clerk of the circuit court of the city or county where he or she lives (and, if the property claimed exempt is real estate, in the city or county where the property is located) a writing known as a homestead deed. §§ 34-6 and 34-14, Code of Virginia. The problem here is that on his schedule C, the debtor did not claim his interest in the trusts exempt under the homestead exemption but only under the spendthrift trust exclusion of § 55-19, Code of Virginia. In any event, the filing of a homestead deed adds nothing to the strength of the claimed exemption. Since no objections were filed, the property listed on the debtor's schedule C is exempt whether claimed under § 34-4 or § 55-19 and whether or not a homestead deed was filed. The issue is whether the specific asset the trustee seeks to administer was in fact listed.
Since the situs of the two trusts appears to be Florida rather than Virginia, it would appear that the "applicable nonbankruptcy law" would be Florida rather than Virginia law. Florida case law recognizes the enforceability of spendthrift trusts. Waterbury v. Munn, 159 Fla. 754, 32 So.2d 603, 174 A.L.R. 620 (1947). In Waterbury v. Munn, the Florida Supreme Court held that a beneficiary's attempted assignment of his interest in a testamentary trust was unenforceable where the will creating the trust specifically stated that no beneficiary "shall have any power to anticipate, or in any manner encumber" his or her interest and that the income "shall not be subject to any legal process for the payment of his or her debts." 159 Fla. at 756, 32 So.2d at 604. In reaching this result, the court explained the purpose of a spendthrift trust as follows:
A spendthrift trust is one that is created with the view of providing a fund for the maintenance of another, and at the same time securing it against his own improvidence or incapacity for self protection. The typical spendthrift trust is one in which the life cestui's right to recover income is inalienable, either by his own act or that of his creditors, during all or a part of the life of the beneficiary.
159 Fla. at 757, 32 So.2d at 605 (internal citations omitted). Apparently the only exception recognized by Florida law to the enforceability of spendthrift trusts is in the case of a claim for alimony or child support. Bacardi v. White, 463 So.2d 218 (Fla. 1985). Even then, the claimant may reach (by garnishment) only "disbursements that are due to be made or which are actually made from the trust," 463 So.2d at 222, and garnishment may be only be authorized as "a `last resort' remedy . . . when the traditional methods of enforcing alimony arrearages are not effective." 463 So.2d at 232.
B. Any trust estate not exceeding $500,000 in actual value may be held in trust upon condition that the trust corpus and income, or either of them, shall in the case of a simple trust or, in the case of a complex trust, may in the discretion of the fiduciary be paid to or applied by the trustee for the benefit of the beneficiaries without being subject to their liabilities or to alienation by them. However, no such trust shall operate to the prejudice of any existing creditor of the creator of such trust.
The statutory recognition of "spendthrift" trusts, however, is not strictly speaking an exemption, and its enforceability in bankruptcy comes not through § 522(b)(2), dealing with allowance of exemptions, but rather through § 541(c)(2), Bankruptcy Code, dealing with what constitutes property of the estate. Section 541(c) establishes a general rule that contractual or state law restrictions on alienability are not effective against a trustee in bankruptcy. As an important exception, however, the statute provides,
(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
Thus, the trustee in bankruptcy acquires no greater right in a spendthrift trust than the debtor had, meaning that a chapter 7 trustee has no right to anticipation or assignment if the debtor himself could not do so. The effective result is to insulate the trust from the reach of a bankruptcy trustee. Rountree v. Lane, 155 F.2d 471 (4th Cir. 1946); Allen v. Wilson, 3 B.R. 439, 441 (Bankr.W.D.Va. 1980) ("Spendthrift trusts are valid in Virginia and exempt from the reach of the trustee in bankruptcy.") See, In re Hersch, 57 B.R. 667 (Bankr.E.D.Va. 1986) (Bostetter, J.) (recognizing that a debtor's interest in a spendthrift trust does not become property of the bankruptcy estate, but finding that testamentary trust for benefit of debtor failed to qualify as a spendthrift trust because there was no language restricting alienation or anticipation.); In re Hanes, 162 B.R. 733, 738 (Bankr.E.D.Va. 1994) (Bostetter, C.J.) ("a beneficial interest in a spendthrift trust is not estate property when the non-alienation provision is enforceable under governing state law."); Smith v. Baydush, 111 B.R. 953 (E.D.Va. 1994) (spendthrift provision protects contingent remainder interest as well as income).
Hersch also contains an extensive discussion of the requirement that, in order to qualify as a valid spendthrift trust under Virginia law, the trust had to be restricted to the "maintenance and support" of the beneficiary. This was true under § 55-19, Code of Virginia, as it then read (and under the predecessor statute, § 5157, Code of Virginia, 1919, construed in Rountree v. Lane, supra), which specifically validated trust restrictions requiring that the principal and income of the trust be "applied by the trustee to the support and maintenance of the beneficiary." (emphasis added) The language of the statute was amended in 1989, however, and, as noted above, the statute now refers to conditions in the trust instrument requiring that principal and income be "paid to or applied by the trustee for the benefit of the beneficiaries." (emphasis added) The replacement of the restrictive "support and maintenance" language by the broader "benefit" language effectively eliminates any requirement that the trust distributions be restricted to those reasonably necessary for the beneficiary's support and maintenance.
Since the debtor's interest in a spendthrift trust is excluded from "property of the estate," it is not, in a technical sense, an asset that can be exempted, since exempt property is property of the estate that the debtor is allowed to retain as part of his "fresh start." Hence, it is questionable whether § 522(1), Bankruptcy Code, and F.R.Bankr.P. 4003(b) apply at all. Nevertheless, the debtor listed his interest under the two testamentary trusts on his schedule of property claimed exempt, and since the Supreme Court's holding in Taylor v. Freeland Kronz is explicit that property so listed is exempt "whether or not [the debtor] had a colorable statutory basis for claiming it," it does not matter whether § 55-19 is technically an exemption statute or not. If the debtor expressly, or by fair implication, listed as exempt his right to the 3% distribution of principal from the trust established by Davis Weir's will, it is now exempt, since no objection was filed within 30 days of the meeting of creditors.
This leads to the puzzling question of just how such an interest should be listed on the debtor's schedules. Since the instructions to schedule B require a listing of all "property of the debtor" (without regard to whether such property would be property of the estate), it should be listed there. The official forms, however, do not provide a specific schedule or list for property of the debtor which the debtor contends is not property of the estate, such as spendthrift trusts or ERISA-qualified retirement plans. Perhaps because of this, debtors commonly claim the § 541(c)(2) exclusion on schedule C, the schedule of property claimed exempt, since there is no other obvious place to claim it.
As with the issue of abandonment, however, and for the same reasons, the court finds that the skeletal description, "Trust under Will of Davis Weir," with its equally unilluminating valuation of "unknown," simply was not sufficiently descriptive to put the trustee or creditors on fair notice that the debtor was seeking to exempt a lump-sum payment of $120,000 resulting from the early termination of the trust pursuant to a testamentary power of appointment. The principles enunciated in Addis on v. Reaves and Payne v. Wood, supra, govern, and the court concludes that any ambiguity as to the scope of the property interest to be exempted should be resolved against the debtor, and that all that was exempted was the right to the income from the trust and any contingent remainder interest not maturing within the 180 day period after the commencement of the case.
See, Smith v. Baydush, supra. In that case, the debtor had a one-eighteenth income interest in each of two testamentary trusts. Each trust had "spendthrift" language essentially tracking that of § 55-19, Code of Virginia. At the time the debtor filed his petition, three of the persons who would have to die before the trusts terminated were still alive. When they died, however, the trust would terminate, and the debtor would be entitled to a one-sixth share of the trust principal. The bankruptcy court had ruled that the contingent remainder interests were property of the estate, since under Virginia law a contingent remainder interest can be assigned. The District Court, reversing, held that § 55-19, Code of Virginia, and the spendthrift language in the trust, extended to the debtor's contingent right to a share of the trust principal on termination of the trust, and that since the contingency that would terminate the trust had not occurred within 180 days of the commencement of the case, the funds remained subject to the trust and its protective provisions.
Ruling
Since the debtor's description of his interest in the Davis Weir and Maurine Weir testamentary trusts did not fairly place the trustee and creditors on notice of the debtor's immediate right to a 3% lump sum distribution of principal arising from Maurine Weir's exercise of her power of appointment, such right was effectively unscheduled and was therefore not abandoned under § 554(c), Bankruptcy Code, on the closing of the debtor's case but under § 554(d) remains property of the estate. For the same reason, the right to the distribution was not effectively claimed exempt and has not passed out of the bankruptcy estate. The court concludes that the case should be reopened to afford the trustee an opportunity to administer the asset for the benefit of creditors.
Nothing in this opinion should be construed as precluding the debtor from amending his schedule of exempt property and claiming any applicable exemption. That is, this opinion is not intended as a final ruling that the property is not exempt, only that it has not at this point effectively been claimed as exempt.
A separate order will be entered granting the trustee's motion to reopen the case.