Olga M. Rodrigues

UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
OLGA M. RODRIGUES, 	Chapter 7
Debtor 	Case No. 09-11960-JNF
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MEMORANDUM
I. INTRODUCTION
The matter before the Court is the Objection of Chapter 7 Trustee to Debtor’s Claim
of Homestead Exemption in Real Estate. The Debtor, Olga M. Rodrigues (the “Debtor”),
filed an Opposition to the Trustee’s Objection. The Court heard the matter on January 14,
2010.
The material facts necessary to resolve the parties’ dispute are not contested. The1
issues presented include whether the Debtor effectively revoked a trust in recording a
homestead, and whether the Debtor has a valid homestead exemption in view of the deed
transferring the property to a trust which she can both amend and revoke. The Court now
See Federal Rule of Bankruptcy Procedure 9014, which makes Rule 7056 (and,1
therefore, Fed. R. Civ. P. 56(c)) applicable to contested matters.
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makes the following findings of fact and rulings of law in accordance with Fed. R. Bankr.
P. 7052.
II. FACTS
The Debtor filed a voluntary Chapter 7 petition on March 11, 2009. On Schedule A-
Real Property, she listed ownership, in fee simple, of property located at 15 Joshua Weeks2
Lane, South Dartmouth, Massachusetts (the “property”) with a value of $250,000, subject
to a lien in the amount of $116,000. 	On Schedule C-Property Claimed as Exempt, the3
Debtor claimed the property as exempt pursuant to Mass. Gen. Laws ch. 188, § 1.
On or about September 19, 1979, the Debtor and her now deceased husband,
Emanuel B. Rodrigues, purchased the property. When he died on November 16, 1994, the
Debtor became the sole owner of the property.
The Debtor transferred the property by quitclaim deed to the Olga M. Rodrigues
Living Trust (the “Trust”) for a stated consideration of $1 on August 5, 2003 , the same day
she created the Trust whose beneficiaries are her children. 	The Trust is an 82-page
document with estate planning, tax and other complex provisions related to the Debtor’s
Debtor’s counsel admitted at the hearing that he did not learn that title to the2
property was in the Olga M. Rodrigues Living Trust until contacted by the mortgagee.
Had counsel conducted a title search before the commencement of the Chapter 7 case,
the Debtor and the Chapter 7 Trustee easily could have avoided the legal fees associated
with this contested matter.
In her response to the Trustee’s Objection, the Debtor indicated that the most3
recent broker’s opinion of the value of the property was $237,000 and that the amount
of claims secured by the property was $130,000, leaving equity of approximately
$107,000. On Schedule F-Creditors Holding Unsecured Nonpriority Claims, the Debtor
listed $61,286.40 in mostly credit card debt.
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potential incapacity, including Section 6, captioned “Government Assistance and Medicaid
Planning.” The Trust contains the following pertinent provisions:
My Trust Agreement, dated Aug - 5 2003 [sic] is made between OLGA M .
RODRIGUES, 	the 	Trustor, 	and 	the 	following 	Initial 	Trustee: 	OLGA 	M .
RODRIGUES.
My Trust is a revocable trust. 	My Trust is a grantor trust under the
provisions of Sections 673-677 of the Code. . . . [Article One, Section 3].
Unless otherwise provided in my Trust Agreement, when I am serving as
Trustee under my Trust, I may conduct business and act on behalf of my
Trust without the consent of any other Trustee. [Article One, Section 4].
***
While I am alive and competent, I may add a Trustee, or remove or replace
any other Trustee appointed under my Trust Agreement at any time without
cause. [Article 3, Section 3.a]
***
While I am alive, I may at any time or times amend any provision of my
Trust Agreement or revoke my Trust in whole or in part. [Article 4, Section
3.a]
Any amendment or revocation of my Trust Agreement made during my life
shall be by a written instrument signed by me and delivered to my Trustee.
[Article 4, Section 3.b]
Any exercise of a power of amendment substantially affecting the duties,
rights and liabilities of my Trustee shall be effective upon my Trustee only
if agreed to by my Trustee in writing. [Article 4, Section 3.c]
After any revocation with respect to my Trust, my Trustee shall promptly
deliver the trust property to me. [Article 4, Section 3.d]
Additionally, on August 5, 2003, the Debtor executed a Declaration of Homestead in her
capacity as Trustee of the Olga M. Rodrigues Living Trust.
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On July 6, 2004, in conjunction with the execution of a note and mortgage in favor
of Citizens Bank encumbering the property, the Debtor, as trustee of the Trust, executed
a Trustee’s Certificate, attesting that the Trust was in “full force and effect, having not been
revoked as of the date hereof nor amended, altered or modified,” and that she was the sole
trustee of the Trust.
On April 2, 2008, less than one year before the commencement of her Chapter 7 case,
the Debtor, individually, executed a Declaration of Homestead pursuant to Mass. Gen.
Laws ch. 188, § 1 with respect to the property. The Declaration of Homestead was properly
recorded in the Bristol County Registry of Deeds. 	It provides in pertinent part the
following:
Know all men by these presents that I, Olga Rodrigues . . . as a householder
and having a family being entitled to an Estate of Homestead in the land and
buildings thereon am filing for protection under Massachusetts Laws,
Chapter 188, [sic] and I do hereby declare that I own and am possessed and
occupy said hereinafter described premises as a residence and homestead
under Massachusetts General Law, Chapter 188 [sic] as amended. . . .4
There is no dispute that the Debtor has lived in the property since at least 1979 and that she
is an elderly widow whose primary source of income is Social Security.
At the present time, title to the property remains in the Trust. Although the Debtor
erroneously listed the property on Schedule A, the Chapter 7 Trustee has not commenced
The Declaration of Homestead did not reference a subsection of Mass. Gen.4
Laws ch. 188. Section 1 provides: “An estate of homestead to the extent of $500,000 in
the land and buildings may be acquired pursuant to this chapter by an owner or owners
of a home or one or all who rightfully possess the premise by lease or otherwise and
who occupy or intend to occupy said home as a principal residence.” Mass. Gen. Laws
ch. 188, § 1.
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an adversary proceeding seeking a determination that property is property of the estate
because the Debtor, as Trustor, exercised sufficient control over the Trust property that,
when coupled with her power to alter, amend and revoke, the property should be included
in the Debtor’s estate as real property. 5
III. POSITIONS OF THE PARTIES
A. The Trustee
The Trustee, citing In re Bowers, 222 B.R. 191, 193 (Bankr. D. Mass. 1998), and
Assistant Recorder of the North Registry District of Bristol Co. v. Spinelli, 38 Mass. App.
Ct. 655 (1995), argues that the Debtor is unable to claim a Massachusetts homestead
exemption on real estate held in trust, “unless the trust is in name only and is collapsible,
thus vesting legal and equitable title in one person.” The Trustee acknowledges that if a
debtor conveys real property to a trust while reserving a life estate, he or she may claim a
Massachusetts homestead with respect to the life interest, see In re Zmijewski, 390 B.R. 24
(Bankr. D. Mass. 2008). He also acknowledges that the trustee of a nominee trust may be
eligible for the Massachusetts homestead exemption as “owner,” or if the doctrine of
merger applies, see In re Szwyd, 370 B.R. 882 (B.A.P. 1st Cir. 2007)(debtor sole trustee and
beneficiary of nominee trust); see also In re Aroesty, 385 B.R. 1, 5 (B.A.P. 1st Cir.
The Debtor is not a beneficiary of the Trust. For bankruptcy purposes, her5
interest in the Trust properly should have been included on Schedule B-Personal
Property. See 11 U.S.C. § 541(d) (“Property in which the debtor holds, as of the
commencement of the case, only legal title and not an equitable interest . . . become
property of the estate under subsection (a)(1) or (2) of this section only to the extent of
the debtor’s legal title to such property, but not to the extent of any equitable interest in
such property that the debtor does not hold.”).
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2008)(statutory cap applied to property transferred to debtor from trust within 1,215 days
of the petition date), In re Khan, 375 B.R. 5, 9 (B.A.P. 1st Cir. 2007) (“[I]n a nominee trust,
the legal title of the trustee and the equitable title of the beneficiary merge when the same
person hold [sic] both titles.”). In the absence of a life estate or the merger of the legal and
equitable interests, however, the Trustee maintains that the decision in Zmijewski, where
the debtor’s interest was not an interest in real estate but an interest in personalty, controls
the outcome of the instant dispute because the Trust at issue is a true trust.
B. The Debtor
The Debtor maintains that she revoked the Trust when she filed the Declaration of
Homestead, “at least in part, as it has to do with the real property pursuant to its terms”
adding that “[t]he real property automatically reverted back to the debtor’s possession and
ownership and therefore the homestead exemption applies . . . .” The Debtor maintains
that the 2008 Declaration of Homestead satisfies the provision of Article 4, Section 3.b of
the Trust which provides that the Trustee may revoke the Trust Agreement by “a written
instrument signed by me and delivered to my Trustee.” The Debtor adds that it was her
intent by filing the Declaration of Homestead “to revoke the Trust, at a minimum as it
relates to the real property.” She states:
[T]he Debtor was not seeking protection of a homestead for the Trust but
rather the revocation of the Trust and a homestead for herself. 	Her
intentions were, by her actions, to revoke the Trust in whole or at least in
part as it pertained to the real property by declaring in writing that she, as
of April 2, 2008 owned the real property.
The Debtor admitted that she intended to have an attorney prepare a deed from the Trust
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to herself when her finances permitted such employment.
IV. DISCUSSION
Based upon the undisputed facts, the Court finds that the Debtor’s argument that
the Trust was revoked lacks merit. Although the Debtor may have intended to revoke the
Trust, the Declaration of Homestead dated August 5, 2008 makes no specific reference to
the Trust Agreement. Revocation of the Trust and a deed from the Trust to the Debtor
would have had to precede the Declaration of Homestead for the Debtor to declare the
homestead as the owner of the property. While the Debtor may have occupied the property
at the time she executed the Declaration of Homestead, she did not hold legal title to the
property. In the absence of a writing in which the Debtor expressly stated that she was
revoking the Trust, and in the absence of a deed from the Trust back to the Debtor, the
Court concludes that the Trust was not revoked and that the Debtor was not the legal owner
of the property for purposes of claiming a homestead under Mass. Gen. Laws ch. 188, § 1.
According to the Court in Bongaards v. Millen, 440 Mass. 10 (2003), “‘[t]he law of
Massachusetts is plain that a valid trust, once created, cannot be revoked or altered except
by the exercise of a reserved power to do so, which must be exercised in strict conformity
to its terms.’” Id. at 15 (quoting Phelps v. State St. Trust Co., 330 Mass. 511, 512, 115 N.E.2d
382 (1953)). While the Trust Agreement does not expressly set forth what form the “written
instrument” of revocation must take, the Court concludes, based upon the numerous and
detailed provisions of the 82-page Trust Agreement, that revocation of the Trust was to
have been expressly stated in a writing and that revocation by implication was not
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contemplated by the Debtor as Testator at the time of the execution of the Trust
Agreement. Thus, the Court determines that the April 2, 2008 Declaration of Homestead,
in and of itself, was ineffective to revoke the Trust.
Having concluded that the Trust was not revoked, the next issue is whether the
property held in Trust is property of the Debtor’s bankruptcy estate. 	The Debtor
erroneously indicated on Schedule A that she owned the property in fee simple. Moreover,
as noted above, the Trustee has not filed an adversary proceeding for a determination that
the Debtor holds the equitable interest in the Trust property, as opposed to legal title to the
property in her capacity as trustee of the Olga M. Rodrigues Living Trust as reflected in the
recorded deed from the Debtor to herself as trustee of the Olga M. Rodrigues Living Trust.
Both the Trustee and the Debtor assume in one fashion or another that the property
is property of the estate. See 11 U.S.C. § 541(a). 	From the point of view of the Debtor,
because the property is property of the estate, she can claim it as exempt. From the point
of view of the Trustee, the Debtor does not own real property and cannot claim it as
exempt, but clearly the Debtor has an interest in the property which he can liquidate for
the benefit of creditors. In other words, the Chapter 7 Trustee confronts a timing challenge.
If he were to file an adversary proceeding before obtaining a determination that the Debtor
does not have a valid homestead, relying on cases from this Court, such as In re Tougas,
339 B.R. 164 (Bankr. D. Mass. 2006) (because debtor, as co-settlor and sole trustee of the
trust, retained broad power to alter and amend the trust and retained the incidents of
ownership of the trust res, the trust and trust res were property of debtor's bankruptcy
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estate); and In re Beatrice, 277 B.R. 439 (Bankr. D. Mass. 2002)(same), and if he obtained a
determination that the property is property of the estate, he would, in effect, undermine
his objection to the Debtor’s homestead. This is particularly so where, as here, there is no
evidence that the Debtor is intending to manipulate the bankruptcy process to the
detriment of her creditors.
The Court need not make a determination that the property - - the Trust res - - is
property of the estate, however. 	Were the Trustee or even the Debtor to seek such a
determination, the likely outcome would be controlled by the decisions in Tougas and
Beatrice, and this Court would likely find that property located at 15 Joshua Weeks Lane,
is property of the estate as the Debtor retained broad powers to amend and revoke the
Trust and she exercised incidents of ownership.
Nevertheless. the decisions in In re Zmijewski, 390 B.R. 24 (Bankr. D. Mass. 2008),
and Assistant Recorder of the North Registry District of Bristol County v. Spinelli, 38 Mass.
App. Ct. 655 (1995) (The statute makes no provision for property held in trust for the
benefit of a settlor who makes the property his or her principal reisdence.”), cannot be
ignored. In Zmijewski, the court stated:
[T]he Trust interest is not an interest in real estate. She [the debtor] holds an
interest in the Trust and such interest is personal property, not real estate.
In re Bowers, 222 B.R. 191, 193 (Bankr. D. Mass.1998). See also Markham v.
Fay, 74 F.3d 1347, 1361 (1st Cir.1996)(“Where, as here, a trust contains both
real and personal property, and the trust instrument directs that the trust
assets be liquidated upon termination of the trust, the beneficiaries’ interests
are personal property from the trust’s inception. See Priestley v. Burrill, 230
Mass. 452, 120 N.E. 100, 104-05 (1918); Dana v. Treasurer and Receiver
General, 227 Mass. 562, 116 N.E. 941, 943-44 (1917).”). As the court noted in
Bowers, the Debtor does not live in the trust, she lives in the res of the Trust.
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390 B.R. at 25.
With respect to the Spinelli decision, the United States Bankruptcy Appellate Panel
for the First Circuit in In re Khan, analyzed it in depth. It stated:
The Spinelli court relied primarily on a prior decision of the Massachusetts
Supreme Judicial Court (the “SJC”) denying a real estate tax exemption to an
equitable owner of a residence under strict construction of the word “owner”
in a tax exemption statute. Id. at 413 (citing Kirby v. Assessors of Medford,
350 Mass. 386, 215 N.E.2d 99 (1966)). The Spinelli court also relied in part on
an earlier decision of the SJC regarding equitable title and the homestead
exemption. Id. at 413 (citing Thurston v. Maddocks, 88 Mass. (6 Allen) 427,
428 (1863)). In Thurston, the SJC held that the equitable title created under a
bond for a deed is not sufficient to create a right to claim a homestead
exemption under Massachusetts law. However, the Panel finds the Trustee’s
reliance on the Spinelli decision problematic.
First, Spinelli is not controlling authority in Massachusetts because it was
decided by an intermediate appellate court. Szwyd, 370 B.R. at 889, n. 10.
Second, the SJC has specifically overruled the strict construction standard
applied to the homestead statute by the Spinelli court. Dwyer v. Cempellin,
424 Mass. 26, 673 N.E.2d 863, 867 (1996). In Dwyer, the SJC decided questions
certified to it by the federal district court involving the proper construction
of the Massachusetts homestead statute. The SJC concluded that “in light of
the public policy and the purpose of the statute, the State homestead
exemption should be construed liberally in favor of debtors.” Id. In Dwyer,
the chapter 7 trustee had objected to a declaration of homestead because it
was a joint declaration of homestead when the statute at the time of the
declaration provided that only one owner could acquire a homestead
interest. Id. at 27, 673 N.E.2d 863. The SJC held that the second signature on
the declaration of homestead did not invalidate the first signature and found
that the first signatory to the declaration had a valid homestead interest. Id.
at 31, 673 N.E.2d 863.
The SJC has since reaffirmed its view that the public policy behind the
homestead exemption requires that it be construed liberally in favor of
debtors. Shamban v. Masidlover, 429 Mass. 50, 705 N.E.2d 1136 (1999). In
Shamban, the SJC dealt with another certified question from the federal
district court arising from an objection to a claim of homestead exemption by
a chapter 7 trustee. Ten years before the filing of her bankruptcy petition, the
debtor had filed a declaration claiming a $200,000.00 homestead exemption
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(twice the amount generally available at the time) on account of a disability.
Mass. Gen. Laws ch. 188, § 1A (2007). The chapter 7 trustee’s objection was
based upon the failure of the debtor to include with her declaration of
homestead the proper documentary proof of her disability as required by the
explicit provisions of the statute. Shamban, 705 N.E.2d. at 113 9. The SJC held
that although the debtor’s declaration of the homestead exemption available
to disabled individuals was invalid because her declaration did not comply
with the statute, Id. at 53, 705 N.E.2d 1136, her declaration was valid under
the statute pertaining to the regular homestead exemption, it was effective
to establish a homestead exemption in the regular amount. Id. at 54, 705
N.E.2d 1136.
Finally, even if Spinelli is authority for the Trustee’s position that a person
holding an equitable interest in a nominee trust which holds legal title to that
person’s principal residence may not file a valid homestead declaration
under Massachusetts law, the decision itself has been called into question.
The decision in Spinelli was based upon that court’s determination that the word
“owner” did not include the holder of an equitable as opposed to a legal interest in
a principal residence. However, the Massachusetts homestead statute provides
that a homestead interest “may be acquired . . . by an owner or owners of a
home or one or all who rightfully possess the premise by lease or otherwise.” Mass.
Gen. Laws ch. 188, § 1 (2007). The precise identity of the persons other than the
“owner” who may acquire a homestead interest is not clear in either the statute or
the decided cases. In Szwyd, Judge Boroff pointed out that Spinelli “only
tangentially touched on the ‘or one or all who rightfully possess by lease or
otherwise’ language” in the homestead statute and that the court simply
quoted the language in Thurston which stated that such language applied to
leased land. Szwyd, 346 B.R. at 292. Therefore, the Spinelli court did not
construe the homestead statute liberally in favor of the debtor, the Thurston
decision did not deal with an equitable interest under a nominee trust and
no case establishes whether a person other than an owner may acquire a
homestead interest. It may be that the holding in Spinelli goes too far in its
restrictive interpretation of the words “or one or all who rightfully possess
by lease or otherwise;” however, Judge Boroff's view was that “such an
inquiry should be certified to the state’s highest court for resolution.” Id. at
293. The Panel agrees with Judge Boroff. However, this case can be disposed
of without the need for a certified question.
In re Khan, 375 B.R. at 11-13(emphasis supplied).
Although the Debtor, as Trustee of the Olga M. Rodrigues Living Trust, was not
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technically the legal owner of the property, in executing the Declaration of Homestead, she
stated: 	“I own and am possessed and occupy” the property. 	Based upon the decision in
Khan, and, more importantly, the plain language of Mass. Gen. Laws ch. 188, § 1, the
statute provides that a person other than an owner may claim an estate of homestead. The
statute provides that “one or all who rightfully possess the premise by lease or otherwise,”
may acquire the estate of homestead. Thus, a lessee may claim an estate of homestead. But
what does possession “or otherwise” mean? There are no cases interpreting this precise
language, but Khan points the way.
Based upon the undisputed evidence in this case, the Court concludes that the
Debtor, in her capacity as Trustee, granted herself rightful possession of the property and
intended to occupy it as her principal residence. She did not need to execute a lease with
herself to authorize rightful possession. Although the Debtor may not have successfully
revoked the Trust, the record contains evidence in the form of the Declaration of
Homestead and Schedule A that she viewed the property as her home and intended to
occupy it as such. In view of the decisions of the Supreme Judicial Court in Shamban v.
Masidlover, 429 Mass. 50, 705 N.E.2d 1136 (1999), and Dwyer v. Cempellin, 424 Mass. 26,
673 N.E.2d 863, 867 (1996), this Court finds and predicts that the Supreme Judicial Court
also would find that the Debtor rightfully possessed the property through a grant of
occupancy to herself and validly claimed a homestead under Mass. Gen. Laws ch. 188, §
1.
The Trustee’s Objection is predicated upon an invalid homestead. The Court finds
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that the Debtor has a valid homestead under Massachusetts law. 	The question left
unanswered is whether the real property is property of the estate. Whether it is, or is not,
and whether the Debtor can claim the property as exempt from property of the estate
under 11 U.S.C. § 522(b), is not determinative. 	Even were the parties to obtain a
determination that the property is property of the estate, because this Court has
determined that the Debtor has a valid homestead she could claim the property as exempt.
In other words, even were the Trustee to file and adversary proceeding and obtain a
determination as to the status of the property as property of the estate, and proceeds from
a sale of the property after satisfaction of valid liens and encumbrances would inure to the
benefit of the Debtor, not the unsecured creditors.
V. CONCLUSION
For the reasons set forth above, the Court shall enter an order overruling the
Trustee’s Objection.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: February 23, 2010
cc: Andrew Barrett, Esq., Arvid Von Taube, Esq., Warren Agin, Esq.
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