In re Tougas

• Decision Date: 14 February 2006
• Docket Number: Bankruptcy No. 01-17743 JNF.,Adversary No. 02-01154.
• Citation: 338 B.R. 164
• Parties: In re Jane A. TOUGAS, Debtor. Lynne F. Riley, Chapter 7 Trustee of the Estate of Jane A. Tougas, Plaintiff, v. Jane A. Tougas, Individually and as Trustee of the Tougas Family Realty Trust and George C. Tougas, Jr., Defendants, and Fidelity Distributors Corp., d/b/a Fidelity Investments, Equitable Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

338 B.R. 164

In re Jane A. TOUGAS, DebtorLynne F. Riley, Chapter 7 Trustee of the Estate of Jane A. Tougas, Plaintiff, v.Jane A. Tougas, Individually and as Trustee of the Tougas Family Realty Trust and George C. Tougas, Jr., Defendants, and Fidelity Distributors Corp., d/b/a Fidelity Investments, EquitableDefendant.

Bankruptcy No. 01-17743 JNF.

Adversary No. 02-01154.

United States Bankruptcy Court, D. Massachusetts.

February 14, 2006.

COPYRIGHT MATERIAL OMITTED

Leonard M. Frisoli, Jr., Frisoli & Associates, Cambridge, MA, for Debtor.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I.INTRODUCTION

The matters before the Court are Cross-Motions for Partial Summary Judgment with respect to Counts I, II, III and XIII of the Complaint filed by Lynne F. Riley, Chapter 7Trustee of the Estate of Jane A. Tougas, the Debtor.Through her Motion for Partial Summary Judgment, the Trustee seeks 1) a declaration that certain property held by Jane A. Tougas(the "Debtor"), individually or as Trustee of the Tougas Family Realty Trust ("Trust")," is property of the bankruptcy estate pursuant to 11 U.S.C. § 541; 2) alternatively, a declaration that the Trust is a sham or straw Trust because of the Debtor's pervasive control over the Trust, rendering the Trust res property of the Debtor's bankruptcy estate; 3) a judgment requiring turnover of Trust property in an account at Fidelity Investments ("Fidelity") for the benefit of the estate; and 4) the avoidance and recovery, pursuant to 11 U.S.C. § 549(a), of $19,000.00 in unauthorized post-petition withdrawals by the Debtor from the Fidelity account, the proceeds of which comprised part of the Trust res.

The Debtor filed an Opposition to the Trustee's Motion for Partial Summary Judgment and a Cross-Motion for Partial Summary Judgment with respect to Counts I, II, III, and XIII.She maintains that genuine issues of material fact exist which preclude the entry of summary judgment and that she is entitled to partial summary judgment in her favor.

The Court heard the Cross Motions on January 31, 2006 and took the matters under advisement.The controlling issue is whether the Trust and the Trust res are property of the Debtor's bankruptcy estate because the 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.

II.FACTS¹

A.Undisputed Facts

The Debtor filed a voluntary Chapter 7 petition on October 5, 2001.She did not list an interest in real property on Schedule A. On Schedule B-Personal Property, she disclosed that she was Trustee of the Tougas Family Realty Trust, adding that she was the Trustee only, that she had "no equitable interest" in the Trust, that the value of the Trust was $53,000.00, and that the Trust was excluded from property of the estate under 11 U.S.C. § 541.On Schedule F-Creditors Holding Unsecured Nonpriority Claims, she listed debts totaling $49,585.00, including an obligation to George Tougas and Jacanta [sic] Tougas in the sum of $10,000.00.She described this debt as follows: "borrowed money from trust with authorization of beneficiaries to pay legal fees for law suit by Wareham Community Dev. Authority & to pay accountant fees and taxes for trust."

On Schedules I and J, Current Income and Expenses of Individual Debtor(s), the Debtor disclosed that she is employed as a teacher's aide at the Old Rochester Regional School District earning net monthly income of $1,075.80 and incurring monthly expenses of $1,345.00.

The Debtor is the original and sole Trustee of the Trust pursuant to a declaration of trust, dated August 8, 1991, and recorded in the Plymouth County Registry District of the Land Court.The Debtor and her late husband, George C. Tougas, Sr., were the settlors of the Trust.George C. Tougas, Sr. died on August 8, 1996.According to the Schedule of Beneficiaries of the Trust, dated August 8, 1991, upon the death of George C. Tougas, Sr., the living issue of the Debtor and George C. Tougas, Sr. became the beneficiaries of the Trust.The Debtor's children, George Tougas, Jr. and Jacante Tougas, are the only living issue of the Debtor and George C Tougas, Sr.

By deed dated August 8, 1991, the Debtor and George C. Tougas, Sr. transferred title to their residence, located at 18 Cove Circle, Marion, Massachusetts, which they owned as tenants by the entirety, to the Trust for nominal consideration.Approximately seven years later, and two years after her husband's death, the Debtor sold the Trust property for $390,000.00.The net proceeds of the sale were eventually deposited into an account, number 231-067342, which was in the Debtor's name, at Fidelity.The Debtor is the only person authorized to withdraw funds from the Fidelity account.She is able to call and obtain the issuance of a check, which she can then deposit in her personal checking account.

The Debtor filed an individual, federal income tax return for 1998 in which she personally claimed a capital gains exclusion in the sum of $250,000.00 for the profit from the sale of the Trust property.The Debtor also reported income from the Trust on her individual tax returns for 1998 and 1999.

By letter dated March 29, 2000, the Debtor asked Fidelity to change the name on her account from Jane A. Tougas to "Tougas Family Realty Trust."The Trust filed a fiduciary return in 2001, the year in which the Debtor filed a Chapter 7 petition.

On January 2, 2002, approximately three months after the Debtor filed her voluntary Chapter 7 petition, the Trustee filed a Motion for Leave to Examine Debtor Jane A. Tougas pursuant to BankruptcyRule 2004(a) and for Production of Documents.On the same day, the Trustee also filed a Motion for 60-Day Extension of Time to Object to Debtor's Discharge and/or Dischargeability of Debts in which she requested an extension of time to March 8, 2002 within which to file a complaint under 11 U.S.C. §§ 523,727.On March 4, 2002, she filed an Assented-to Motion for Second 60-Day Extension of Time to Object to Debtor's Discharge, requesting a further extension to May 7, 2002.The Trustee filed the instant Complaint on May 6, 2002, which, among its 13 counts, contains counts under 11 U.S.C. § 727(a)(6)(Count VII), § 727(a)(3)(Count VIII), as well as the counts referenced above.²

The Trustee conducted an examination of the Debtor on February 12, 2002 and April 30, 2002.The Debtor testified, and her Schedules I and J reflect, that her income from her job as a teacher's aide is insufficient to satisfy in full her regular monthly living expenses.The Debtor testified that her children lend her money from the Trust when she needs it.The Debtor, however, has never executed a promissory note with her children or established any repayment terms.Moreover, the Debtor's children have never refused her request for a loan.The Debtor indicated that she hopes to repay the loans from her children but has no plan for doing so.

Immediately prior to the commencement of the Debtor's bankruptcy estate, the Trust res totaled 844,941.75.On May 10, 2002, this Court issued a preliminary injunction, and, on or about May 15, 2002, Fidelity "froze" the Debtor's account.As of May 31, 2002, the Trust res in the Fidelity Account was $25,077.90.The Debtor made post-petition withdrawals from the Fidelity account which she used for living expenses and to pay for her daughter's wedding.These withdrawals are summarized below.

Check Date   Check Number    Amount      Payee
                02/04/02     301906725       $1,200.00   Jane A. Tougas, Trustee (Deposited in Debtor's
                                                         personal account at Citizens Bank)
                02/13/02     301910992       $1,000.00   Same
                02/14/02     301911653       $  500.00   Jane A. Tougas, Trustee (Deposited in Debtor's
                                                         personal account at People's Savings Bank)
                02/26/02     301915310       $1,200.00   Jane A. Tougas, Trustee (Deposited in Debtor's
                                                         personal account at Citizens Bank)
                03/25/02     301926237       $4,000.00   Same
                04/26/02     301940783       $4,500.00   Same
                05/09/02     301945546       $3,100.00   Same
                05/10/02     301945834       $3,000.00   Same
                05/13/02     301946456       $  500.00   Jane A. Tougas, Trustee (Deposited in Debtor's
                                                         account at People's Savings Bank)
                

The Debtor withdrew a total of $19,000.00 after the commencement of her bankruptcy case.

B. George C. Tougas, Jr.'s Chapter Case

George C. Tougas, Jr. filed a voluntary Chapter 7 petition on August 20, 1998, approximately two years before his mother elected to file her Chapter 7 petition.On his Schedule B, he disclosed a 50% beneficial interest in the Trust.He referenced its spendthrift provisions and 11 U.S.C. § 541(c)(2);he also claimed $5,275.00 exempt under 11 U.S.C. § 522(d)(5).The duly appointed Chapter 7trustee investigated George Tougas Jr.'s assets.By letter dated September 21, 1998, a bankruptcy investigator from the trustee's law firm requested "[a]ny instrument that the Debtor is relying on to claim the exemption of the Spend Thrift Clause of the Tougas Family Realty Trust...."The trustee did not commence an adversary proceeding relating to the Trust, and, approximately two months later, George C. Tougas, Jr. received a discharge.Seven months after his case was filed, it was closed as a "no-asset" case.

C.The Affidavits

The Debtor attached an Affidavit, dated January 23, 2006, to her Opposition in which she stated that she has never been a beneficiary of the Trust; that she does not have the power to terminate or to revoke the Trust, or the power to substitute, add, or eliminate beneficiaries of the Trust; that she has never amended the Trust; and that the only Trust money disbursed to her was with the express permission of her children.

George Tougas, Jr. also filed an Affidavit, dated January 25, 2006,...