A payment to a debtor received within 180 days of bankruptcy as a death beneficiary under an individual retirement account is not estate property that the debtor must turn over to the trustee, according to Bankruptcy Judge Joel D. Applebaum of Flint, Mich.
Four months after the debtor filed a chapter 7 petition, her mother died. Along with her three siblings, the debtor was a death beneficiary under her mother’s IRA. The debtor’s share of the IRA was about $100,000.
The trustee filed a turnover motion that Judge Applebaum denied in an opinion on November 25.
The case turned on undefined terms in Section 541(a)(5). Property of the estate includes property that would have been property of the estate that the debtor “becomes entitled to acquire within 180 days” of filing “by bequest, devise, or inheritance” or as a “beneficiary of . . . a death benefit plan.”
Judge Applebaum said that “bequest, devise, or inheritance” are not defined in the Bankruptcy Code. In Michigan, a “devise” means a testamentary disposition when used as a noun. When used as a verb, the word means “to dispose of real or personal property by will.”
In Black’s Law Dictionary, “bequest” refers to something given by a will.
For the IRA to have become estate property under Section 541(a)(5)(A), Judge Applebaum said that the “Debtor must have received the funds from her mother’s IRA as part of a testamentary disposition or by intestate succession. That did not occur here.”
In Michigan, a transfer on death resulting from a registration of beneficiary form is effective by contract and is not testamentary, Judge Applebaum said, quoting a Michigan statute.
Similarly, the distribution was not by inheritance because it was not received as a consequence of intestate succession, Judge Applebaum said, citing decisions from Florida and Kansas reaching the same result on similar facts.
The distribution was also not from a death-benefit plan under Section 541(a)(5)(C).
A death-benefit plan, Judge Applebaum said, must arise from someone’s employment. Because the IRA distribution was not from a death-benefit plan, it was not estate property for that reason also.
A payment to a debtor received within 180 days of bankruptcy as a death beneficiary under an individual retirement account is not estate property that the debtor must turn over to the trustee, according to Bankruptcy Judge Joel D. Applebaum of Flint, Mich.
Four months after the debtor filed a chapter 7 petition, her mother died. Along with her three siblings, the debtor was a death beneficiary under her mother’s IRA. The debtor’s share of the IRA was about $100,000.
The trustee filed a turnover motion that Judge Applebaum denied in an opinion on November 25.
The case turned on undefined terms in Section 541(a)(5). Property of the estate includes property that would have been property of the estate that the debtor “becomes entitled to acquire within 180 days” of filing “by bequest, devise, or inheritance” or as a “beneficiary of . . . a death benefit plan.”
Judge Applebaum said that “bequest, devise, or inheritance” are not defined in the Bankruptcy Code. In Michigan, a “devise” means a testamentary disposition when used as a noun. When used as a verb, the word means “to dispose of real or personal property by will.”