In re Stoner

487 B.R. 410

In re Robert STONER, Debtor.

No. 11–10864 (MBK).

United States Bankruptcy Court, D. New Jersey.

March 6, 2013.

Thomas J. Orr, Esq., Law Office of Thomas J. Orr, Esq., Burlington, NJ, for Trustee, Thomas Orr, Esq.

William H. Oliver, Jr., Esq., Law Offices of William H. Oliver, Jr., Esq., Neptune, NJ, for Debtor, Robert Stoner.

MEMORANDUM DECISION

MICHAEL B. KAPLAN, Bankruptcy Judge.

I. INTRODUCTION

This matter is before the Court by way of a Motion Objecting to Exemptions (“Motion”) filed on behalf of the Trustee, Thomas J. Orr (“Trustee”). Through the Motion, the Trustee seeks to prohibit the Debtor, Robert Stoner, (“Debtor”) from claiming a homestead exemption under 11 U.S.C. § 522(d)(1) in real estate previously owned by his father. The Debtor opposes the Trustee's Motion and contends that he is entitled to take the exemption because the real estate passed directly to him at his father's death and because he is permitted to amend his bankruptcy petition and schedules at any time prior to the close of his case. A hearing on the Motion was held on January 28, 2013. For the reasons set forth below, the Trustee's Motion is GRANTED and the Debtor is not permitted to take a homestead exemption pursuant to 11 U.S.C. § 522(d)(1) against the Debtor's interest in the real estate.

The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The following constitutes the Court's finding of fact and conclusions of law as required by Fed. R. Bankr.P. 7052. ¹

II. FACTS/PROCEDURAL HISTORY

The Debtor's bankruptcy petition (“Petition”) was prepared on November 4, 2010. The Debtor signed the Petition on January 7, 2011 and it was filed with the Court on January 12, 2011. The Debtor's father passed away on January 10, 2011. Counsel for the Debtor certifies that the Petition was filed without knowledge that the Debtor's father had passed away previously.

On November 28, 2012, the Debtor filed Amended Schedules and claimed an exemption pursuant to 11 U.S.C. § 522(d)(1) for his deceased father's property located at 2609 Moore Avenue in Point Pleasant, New Jersey (“Property”). The Amended Schedules also changed the Debtor's residence from 2350 Massachusetts Avenue in Toms River, New Jersey to the Property. The Amended Schedules show that the Debtor was either a one-third or one-quarter contingent beneficiary under his father's Last Will and Testament (“Will”). The Trustee has brought this Motion seeking to bar the Debtor from claiming a homestead exemption for the Property.

The Trustee argues that the Will did not distribute the Property to the Debtor or his siblings. Rather, the Trustee asserts that the Will simply provided for the equal division of the estate among the decedent's surviving children. Thus, the Trustee contends that the Debtor did not own the Property and that, at the time of the bankruptcy filing, the Debtor held, at most, a contingent expectation of a distribution from the probate estate. Further, the Trustee points out that the Will names the Debtor as a fiduciary to distribute the property of the estate, and the Property, in fact, was sold at some point prior to filing the Amended Schedules. The proceeds were then distributed according to the Will. Therefore, the Trustee concludes that the Debtor never acquired an ownership interest in the Property which would entitle him to an exemption under 11 U.S.C. § 522(d)(1).

The Debtor contends that he had been living with his father in order to care for him for over a year prior to the date he filed the Petition. The Debtor also asserts that the Property passed directly to him immediately upon his father's death. The Debtor cites to N.J.S.A. 3B:1–3 and Egner v. Egner, 183 N.J.Super. 326, 328, 443 A.2d 1104,aff'd.185 N.J.Super. 1, 447 A.2d 182 (App.Div.1982) in support of his position. In response to the Trustee's argument that the Property passed to the fiduciary at the time of the decedent's death, the Debtor submits that as the executor, he held an interest in the Property on the date of the bankruptcy filing, entitling him to an exemption.

After a careful review of the submissions of the parties and extensive independent research, the Court determines that the Debtor's mere occupancy of the Property at the time of filing, even when coupled with his expectancy under the Will, does not entitle him to claim a homestead exemption. For the reasons set forth below, the Trustee's Motion is GRANTED.

III. DISCUSSION

The question presently before the Court is whether, at the time the Petition was filed, the Debtor held an interest in the decedent's Property, such that the interest entitled him to a residential exemption under 11 U.S.C. § 522(d)(1). As a preliminary matter, the Court notes that upon the filing of a bankruptcy petition, an estate is created comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Included in this estate is “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 by bequest, devise, or inheritance.” 11 U.S.C. § 541(a)(5)(A).

In order to identify the nature of the Debtor's property interest, this Court is obliged to apply the substantive law of New Jersey. As the United States Supreme Court stated in Butner v. United States, “[p]roperty interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

A. Debtor's Interest

There is no question that upon filing his bankruptcy, the Debtor possessed an interest in the decedent's estate which is included as part of the Debtor's bankruptcy estate. N.J.S.A. 3B:1–3 provides that,

[u]pon the death of an individual, his real and personal property devolves to the persons to whom it is devised by his will or to those indicated as substitutes for them in cases involving lapse, renunciation, or other circumstances affecting the devolution of testate estates, or in the absence of testamentary disposition, to his heirs, or to those indicated as substitutes for them in cases involving renunciation or other circumstances affecting devolution of intestate estates, subject to rights of creditors and to administration.

N.J.S.A. 3B:1–3 (emphasis added). Whatever the nature of the Debtor's interest in his father's real property, which will be discussed below, the Debtor's status as devisee in the Will, combined with the timing of the decedent's death and the filing of the Petition, render the Debtor's interest in the decedent's estate part of his own bankruptcy estate. 11 U.S.C. § 541(a)(1). However, as the statute reflects, the interest remains subject to the rights of the probate creditors and administration.

B. Title to the Real Estate

The Trustee posits that title to the real estate did not pass to the Debtor; therefore, the Debtor never acquired an interest in the Property which he could exempt under 11 U.S.C. § 522(d)(1). In opposition, the Debtor cites to Egner and contends that the transfer of the title occurs immediately upon the death of the owner. Egner, 183 N.J.Super. at 328, 443 A.2d 1104. The specific language of the Will provides otherwise:

Upon my death, title to any real property passing under this Will shall vest title in my personal representative in his fiduciary capacity and shall remain so vested until my personal representative distributes or sells that property, at which time title shall vest in the distributee or purchaser.

Will of Marlin Stoner, Article 6, Paragraph G, Docket Entry No. 42–5 at *4. Given this language, this Court finds that the decedent's intent was to vest title to the Property with his personal representative, as opposed to the devisees.

It is of no import that the Debtor, himself, is the decedent's personal representative; title rested with him solely in his capacity as a fiduciary solely for the purpose of managing the Property in accordance with the terms of the Will. Indeed, if the debts of the probate estate had exceeded the assets, the devisees would not have received any distribution under the Will, let alone title to the Property. Therefore, the title he held in his capacity as the personal representative was legal and not equitable. Section 541(d) dictates that if a debtor holds only legal title, and not an equitable interest at the commencement of the bankruptcy case, then only the legal title, and not the equitable interest, becomes property of the estate. 11 U.S.C. § 541(d). At the time of the bankruptcy filing, the Debtor, as executor under the Will, possessed only bare legal title to the Property and a contingent interest as a beneficiary under the Will.

Resolution to this dispute, however, requires more than simply identifying title to the Property at the time of the bankruptcy filing. Section 522(d)(1) refers to an “interest” in property, not “title” to property. Whether or not the Debtor has title to the Property is not determinative of the issues. Rather, the Court must examine whether the Debtor's interest in this Property, as a contingent beneficiary, may be exempted as an “interest [ ] in real property [ ] that the Debtor uses [ ] as a residence ...” 11 U.S.C. § 522(d)(1).

C. Interest Subject to Exemption

Section 522 of the Bankruptcy Code governs the exemptions...