BANKRUPTCY CORNER
JASON S . RIGOLI
Not Every Interest in Property Acquired by a Debtor as a Death-Beneficiary is Property of the Estate
Just because debtor acquires an interest in property post-petition that was triggered by the death of another does not necessarily mean the property is property of the estate . What property comes into the estate ? Well , that depends .
Section 541 ( a )( 5 ) of the Bankruptcy Code is generally the section of the Code that governs , and reads in pertinent part :
( a ) The commencement of a case under section 301 , 302 , or 303 of this title creates an estate . Such estate is comprised of all the following property , wherever located and by whomever held : *** ( 5 ) 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 ; *** ( C ) as a beneficiary of a life insurance policy or of a death benefit plan .
11 U . S . C . § 541 ( a )( 5 )( A ) and ( C ).
Some may read this and think any property interest acquired by the debtor as a result of the death of third-party within the 180- days is property of the estate . However , “ bequest ,” “ devise ,” and “ inheritance ” are undefined terms of the Bankruptcy Code . In the absence of controlling federal law , property interests are created and defined by state law . Butner v . United States , 440 U . S . 48 , 55 ( 1979 ). Several courts have had the opportunity to address this issue in different contexts and dealing with different assets . Recently , the Bankruptcy Court for the Eastern District of Michigan , addressed whether an IRA beneficiary ’ s distribution , which is triggered by the death of the IRA owner , becomes property of the estate under 541 ( a )( 5 )( A ) or ( C ). In re Angela M . Neubert , Case No . 20-30771-jda , 2020 Bankr . LEXIS 3303 , 2020 WL 6950396 ( Bankr . E . D . Mich . Nov . 25 , 2020 ) ( applying
Michigan law ).
Using the same analysis used in Neubert , but applying Florida law , probably gets to the same decision as the Neubert court . The first part of the analysis is defining the terms “ bequest ,” “ devise ,” and “ inheritance ” under Florida law . The Honorable Erik P . Kimball provides guidance on this issue in In re Rogove , 443 B . R . 182 ( Bankr . S . D . Fla . 2010 ), where he stated :
In Florida , the terms " bequest " and " devise ," when used as nouns , are synonyms meaning " a testamentary disposition of real or personal property ." Fla . Stat . § 731.201 ( 10 ); see Mosgrove v . Mach , 133 Fla . 459 , 182 So . 786 , 791 ( Fla . 1938 ). A testamentary disposition is the transfer of property under a will .
While the term " inheritance " is not defined by statute in Florida , Florida courts have used the term " inherit " to mean the transfer of property of a decedent without a will under the relevant laws of intestacy . See , e . g ., Snyder v . Davis , 699 So . 2d 999 , 1002 ( Fla . 1997 ) (" Under the common law , an heir was a person designated to inherit in the event of intestacy at the [** 11 ] death of the decedent ."). The primary definition of " inheritance " in Black ' s Law
Dictionary is "[ p ] roperty received from an ancestor under the laws of intestacy ." Black ' s Law Dictionary 853 ( 9th ed . 2009 ). The Court finds no reason why Florida courts would not adopt this definition of " inheritance ." Cf . Roth , 289 B . R . at 166 ( applying the traditional meaning of " inheritance " from Black ' s Law Dictionary because Kansas law does not directly define the term ).
Id . at 187 ( applying Florida law ). Accordingly , for an interest to become property of the estate under § 541 ( a )( 5 )( A ), the property must be acquired through a will or intestacy laws of the state . Ibid . Florida , like Michigan , has a statute that declares that a “ transfer on death resulting from a registration in
PBCBA BAR BULLETIN 8 beneficiary form is effective by reason of the contract … and is not testamentary [,]” Fla . Stat . § 711.509 ( 1 ), which would exclude such an interest from property of the estate under § 541 ( a )( 5 )( A ).
The second prong is to define “ death benefit plan ,” which the Neubert Court found to be a “ survivor-income benefit plan ,” which is an “ ‘ agreement between an employer and an employee whereby the employer agrees that if the employee dies before retirement , the employer will pay a specified or determinable amount to the employee ’ s spouse or other designated beneficiary .’ ” Neubert , 2020 Bankr . LEXIS 3303 at * 8 ( internal citations omitted ). As the Neubert Court found and IRA would mot likely be found not to qualify as a death benefit plan . Id . at * 9 .
Conclusion
Accordingly , it would appear that distributions from IRAs , and similar accounts , on which a debtor-beneficiary is designated by “ registration in beneficiary form ” would not be property of the estate under § 541 ( a )( 5 )( A ) or ( C ), notwithstanding the triggering event being the death of third person .
This article submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 301E , Boca Raton , FL 33431 , jrigoli @ furrcohen . com