In re Burton, Case No. 06-70017. Adv. No. 07-7035 (Bankr.E.D.Ky. 4/10/2008), Case No. 06-70017. Adv. No. 07-7035.

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IN RE: LARRY G. BURTON AND WANDA L. BURTON DEBTORS PHAEDRA SPRADLIN, TRUSTEE PLAINTIFF v. JUSTIN WADE BURTON DEFENDANT

Case No. 06-70017. Adv. No. 07-7035.

United States Bankruptcy Court, E.D. Kentucky, Pikeville Division.

April 10, 2008.

MEMORANDUM OPINION AND ORDER

This matter having come before the court upon Plaintiff's Motion for Summary Judgment(DOC 11), and upon Defendant's Motion for Summary Judgment (DOC 14),and the matter having been heard by the court on February 7, 2008, the court issues this memorandum opinion and order.

This matter is submitted to the court on two issues. The first is whether the trustee can avoid a transfer of real property to a minor because that conveyance was directly to the minor instead of a custodian as contemplated by the Kentucky Transfers to Minors Act, K.R.S. Chapter 385 et. seq. The second issue is whether the trustee can avoid that transfer because it failed to comply with Kentucky's elements of an inter vivos gift. The trustee is seeking to avoid the transfer under 11 U.S.C. § 550 by using her strong arm powers pursuant to 11 U.S.C. § 544.

The jurisdiction of this case is based upon 28 U.S.C. § 1334 in that it arises under Title 11 U.S.C. This is a core proceeding under 28 U.S.C. § 157. Venue for this complaint is proper pursuant to 28 U.S.C. § 1409.

FACTS

On January 3, 1996, the debtors transferred by gift to their minor son, either age six or age seven, the defendant, two tracts of real property. The deed transferring the property did not comply with the Kentucky Uniform Transfers to Minors Act. The trustee alleges that the debtors continued to reside on the property after the transfer, a fact that has not been disputed by the defendant. On January 15, 2007, the debtors filed bankruptcy. On October 9, 2007, this adversary proceeding was filed. At the time of the filing of the adversary proceeding, the defendant was no longer a minor.

LAW AND ANALYSIS

The first issue is whether the trustee can avoid a transfer of real property to a minor because that conveyance was directly to the minor instead of a custodian as contemplated by the Kentucky Transfers to Minors Act, K.R.S. Chapter 385 et. seq. The parties have provided no determinative case law, and the court has been unable to find determinative case law in Kentucky. However, the court has found case law from other states that have adopted the Uniform Transfers to Minors Act which was determinative in those states.

"Trustee asserts Debtor's creation of the annuity with Erika as beneficiary fails as a gift based on Debtor's failure to follow the requirements of Iowa's Uniform Transfers to Minors Act. The UTMA, however, does not state that failure to comply with the Act negates a gift. . . Case law indicates `[t]he Act was passed in order to facilitate the easy inter-vivos transfers of assets to minors.' . . . Compliance with the Act constitutes prima facie evidence that a gift has been made and intended. . . The Act, however, is not the only method by which to effectuate a gift. Compliance is merely evidence that a gift has occurred." In re Perpmeyer, 275 B.R. 539, 544 (Bankr. N.D. Iowa 2002).

"The Act is not an attempt to provide an exclusive means of making gifts to minors, but is an optional method provided by the legislature." Liberty National Life Insurance Co. v. First National Bank of Birmingham, 275 Ala. 659, 662 (S.Ct. Ala. 1963).

The court agrees with the above reasoning. The Kentucky Uniform Transfers to Minors Act does not state that failure to comply with the Act negates a gift. There is no reason to believe that compliance with the Kentucky Uniform Transfers to Minors Act is the only means to effectuate such a gift. Thus, the court finds that the trustee cannot avoid a transfer of real property to a minor because that conveyance was directly to the minor instead of a custodian as contemplated by the Kentucky...