In re Brajkovic, Bankruptcy No. 91-53910-C

Citation151 BR 402
Decision Date06 January 1993
Docket NumberBankruptcy No. 91-53910-C,Adv. No. 92-5009-C.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas
PartiesIn re James & Diana Sue BRAJKOVIC, Debtors, John Patrick LOWE, Trustee, Plaintiff, v. Diana Sue BRAJKOVIC, Defendant.

Richard H. Ihfe, Ihfe & Associates, P.C., San Antonio, TX, for debtor and defendant.

Michael C. Boyle, Matthews & Branscomb, P.C., Uvalde, TX, for plaintiff.

DECISION ON TRUSTEE'S COMPLAINT TO SET ASIDE FRAUDULENT TRANSFER AND TO RECOVER PROPERTY TRANSFERRED OR ITS VALUE AND DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

LEIF M. CLARK, Bankruptcy Judge.

CAME ON for docket call the Complaint of Plaintiff John Patrick Lowe, Trustee to Set Aside a Fraudulent Transfer and to Recover Property Transferred or Its Value, and Defendant's Motion for Summary Judgment. The cause was set for trial September 28, 1992. The parties presented the case to the court on stipulated facts. For the reasons set forth herein, the court finds and concludes that Defendant's Motion for Summary Judgment should be denied, and judgment should be entered in favor of Plaintiff.

JURISDICTION

The principle theory on which plaintiff proceeds is that the disclaimer of devise under a will executed by Mrs. Brajkovic should be avoided as a fraudulent conveyance under 11 U.S.C. § 548(a). This is a core proceeding. 28 U.S.C. § 157(b)(2)(E) and (H). This court has jurisdiction of this proceeding. 28 U.S.C. § 1334(b).

BACKGROUND FACTS

The parties stipulated to the facts of this case.

Walter McCune was the grandfather of Diana Sue Brajkovic, Defendant. Mr. McCune died on November 30, 1990. In his will, Mr. McCune bequeathed certain land in Missouri to Ms. Brajkovic and her brother, a one-half undivided interest to each. Ms. Brajkovic's share has a value of at least $10,000.

On August 28, 1991, Ms. Brajkovic executed a valid disclaimer, pursuant to Missouri law, renouncing her share of the bequest. As a result of the disclaimer, whatever interest Ms. Brajkovic received under her grandfather's will passed directly to her four minor children as though she had pre-deceased them. See MO.REV.STAT. §§ 473.260, 474.490. Ms. Brajkovic received no consideration for the execution of her disclaimer, and was insolvent at the time of its execution. On October 15, 1991, Ms. Brajkovic and her husband, Jim, filed for bankruptcy under chapter 7. In their Statement of Financial Affairs, the Brajkovics listed themselves as guardians for the Brajkovic children in relation to the subject property.

The defendant argues that, by virtue of the "relation back" provisions of the Missouri disclaimer statute, whatever interest she might have had in the property in question was erased by operation of law prior to bankruptcy. Thus, she maintains, not only is the property in question not property of the estate as of the bankruptcy filing (a point the trustee plaintiff of course does not contest), but also it never was property of the defendant, because under the Missouri statute, the disclaimer erased the defendant from the chain of title. So far as this proceeding is concerned, claims the defendant, she has never owned this property: it passed (as a result of her execution of the disclaimer) directly from her grandfather to her four minor children. Thus, concludes the defendant's argument, there can be no "transfer" to avoid.1

The plaintiff responds that we must focus on the fact of the execution of the disclaimer itself, an act which, under the generous definition of transfer found in the Bankruptcy Code, counts as a transfer, and which, under section 548, can be undone, restoring to the estate the property interest which the debtor attempted to divest. The plaintiff adds that neither the state law definitions of disclaimer nor the associated "relation back" doctrine can operate to alter the definition of "transfer" found in the Bankruptcy Code, yet that is precisely what defendant's argument, if accepted, would permit.

Plaintiff Trustee relies on a bankruptcy decision by Bankruptcy Judge Keith Lundin interpreting a similar provision found in Tennessee law. In re Peery, 40 B.R. 811 (Bankr.M.D.Tenn.1984). Defendant relies on a relatively recent Seventh Circuit decision by Senior District Judge Will interpreting a similar Illinois disclaimer statute. In re Atchison, 925 F.2d 209 (7th Cir.1991). Both statutes are substantially the same in language and structure as the Missouri statute here in question.2

DISCUSSION

In order for there to be an avoidable fraudulent conveyance under these facts, we must be able to identify a transfer of an interest of the debtor in property. See 11 U.S.C. § 548(a).3 The first concept, that of a "transfer," is controlled by federal law, as this term (as it is used in section 548) is defined by the Bankruptcy Code itself. See 11 U.S.C. § 101(54); McKenzie v. Irving Trust Co., 323 U.S. 365, 369-70, 65 S.Ct. 405, 407-08, 89 L.Ed. 305 (1945).4 For the second concept, "an interest of the debtor in property," we turn to state law, as the Bankruptcy Code does not define this term. See, e.g., Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979); Matter of Gervich, 570 F.2d 247, 251 (8th Cir.1978).

I. Transfer

The definition of a transfer is so broad under the Bankruptcy Code that the execution of a disclaimer should easily fall within it. See In re Peery, 40 B.R. 811, 813 (Bankr.M.D.Tenn.1984). If a debtor has an interest in property just prior to the disclaimer, and does not have such an interest after the disclaimer is executed,5 then the execution of the disclaimer functioned as a mode of parting with property. 11 U.S.C. § 101(54). Under federal law, this will count as a "transfer." Id.; In re Peery, 40 B.R. at 813; In re Atchison, 925 F.2d 209, 210 (7th Cir.1991); see also Hoecker v. United Bank of Boulder, 476 F.2d 838, 842 (10th Cir.1973) (Holloway, J., dissenting) (construing similar provision under the Bankruptcy Act).6

II. An Interest of the Debtor in Property

The single issue, then, is whether the debtor had an interest in property to transfer just prior to the execution of the disclaimer. If so, then the disclaimer caused the debtor to part with7 that interest, a transfer avoidable under section 548. In one sense, the question is its own answer, for there would be no need to execute a disclaimer but for the fact that, absent its execution, the debtor will own some property. Missouri law provides no mechanism (or requirement) for affirmative acceptance of a testamentary gift. Rather, acceptance is presumed unless expressly renounced. MO.REV.STAT. §§ 473.260, 474, 490 (Vernon Supp.1992); see Sanders v. Jones, 147 S.W.2d 424, 427 (Mo.1940). Thus, there seems to be some interest in property residing in the debtor at the moment the disclaimer is executed just by virtue of the fact that it takes a written disclaimer to get rid of it.

However, the law of the state of Missouri lends independent express support to the conclusion that the defendant did hold an interest in property prior to the execution of the disclaimer, and that the execution of the disclaimer divested the debtor of that interest. We turn to an examination of that law.

A. Property interest created in beneficiary on date of death of decedent.

It is well settled under Missouri law that upon the death of a person, equitable title to a decedent's real estate passes immediately to the heirs or devisees. See MO.REV.STAT. § 473.260 (1992);8 Baker v. Dale, 123 F.Supp. 364 (W.D.Mo.1954); Missouri v. Cox, 784 S.W.2d 244, 245 (Mo.Ct. App.1989); In re Jackson's Will, 291 S.W.2d 214 (Mo.Ct.App.—Springfield 1956). Missouri, like most states, follows the common law rule that favors estates vesting at the earliest possible period, to prevent the title to property from being left uncertain. See Tindall v. Tindall, 167 Mo. 218, 225, 66 S.W. 1092, 1094 (1902).

A probate estate is itself not a legal entity that can own property. A probate estate is the property, not the possessor or owner of the property. The probate estate cannot possess or own; it can only be possessed or owned. Missouri v. S.E., 675 S.W.2d 86, 87 (Mo.App.1984); In re Estate of Cromwell, 522 S.W.2d 36, 41 (Mo.App.1975). Thus, a testator's property is not owned by the probate estate.

Nor is it owned by the administrator or executor of the probate estate. These persons merely take custody of the property, to discharge whatever debts burden the property before distribution; it is the beneficiary who has the real interest in the property. In fact, real property cannot even be sold through the probate court without making the named beneficiaries party to the action. See, e.g., Clapper v. Chandler, Administrator, 406 S.W.2d 114, 120 (Mo.App.1966).

Although a beneficiary's interest may be of no economic value until the will is probated, an heir or devisee may nonetheless legally sell or convey this interest immediately upon the death of the testator, without waiting for probate. Trenton Motor Company v. Watkins, 291 S.W.2d 659, 663 (Mo.App.1956). This power of control itself constitutes a definite and irrefutable interest in property, albeit an equitable interest, which vests upon the death of the benefactor. MO.REV.STAT. § 473.260 (1992); In re Jackson's Will, supra; see In re Peery, 40 B.R. 811, 813 (Bankr.M.D.Tenn.1984). A named beneficiary under a will ". . . has a legal and a beneficial interest in the residual estate which it acquires upon the death of the testatrix." Missouri ex rel. Eagleton v. Hon. Harry A. Hall, 389 S.W.2d 798, 801 (Mo.1965). Title passes to beneficiaries subject only to "the possession of the decedent's executor or administrator for probate purposes." In re Estate of Williamson, 380 S.W.2d 333, 338 (Mo.1964). Undoubtedly, then, upon Mr. McCune's death, an interest in his property vested in Ms. Brajkovic under Missouri law.9

B. Disclaimers under Missouri law.

Ms. Brajkovic exercised her right under...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT