In re Volk

• Decision Date: 09 August 2017
• Docket Number: Case No. 16–10592–JNF
• Citation: 571 B.R. 510
• Parties: IN RE Anthony J. VOLK, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

571 B.R. 510

IN RE Anthony J. VOLK, Debtor

Case No. 16–10592–JNF

United States Bankruptcy Court, D. Massachusetts.

Signed August 9, 2017

Entered August 10, 2017

Roger Stanford, Lang, Xifaras & Bullard, New Bedford, MA, for Debtor.

Adam J. Ruttenberg, Justin Kesselman, Posternak Blankstein & Lund LLP, Boston, MA, for Trustee.

Paula R.C. Bachtell, U.S. Department of Justice, Boston, MA, for Assistant U.S. Trustee.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Trustee's Objection to Amended Schedule C filed by Anthony J. Volk (the "Debtor") on March 23, 2017 through which he claimed an exemption in a Guardian Life Insurance Policy with a value in the amount of $23,527.27 pursuant to Mass. Gen. Laws ch. 175, § 125. The Court heard the matter on April 28, 2017, and the parties agreed to file an Agreed Statement of Facts and briefs with respect to the issue presented.

The material facts necessary to resolve the Trustee's Objection are not in dispute and neither party requested an evidentiary hearing. The Court now makes the following findings of fact and rulings of law pursuant to Fed. R. Civ. P. 52, made applicable to this proceeding by Fed. R. Bankr. P. 7052. The legal issue presented is whether the value of the whole life insurance policy, referred to in the Objection as the "Second Guardian Policy" and identified on the Debtor's schedules as "Guardian Life $23,527.27," can be claimed by the Debtor as exempt pursuant to Mass. Gen. Laws c. 175, § 125.

II. FACTS

Following the April 28, 2017 hearing, the parties submitted an Agreed Statement of Facts which the Court now paraphrases.

The Debtor filed a Chapter 7 petition on February 24, 2016. The Trustee was appointed Chapter 7 trustee on February 25, 2016. The Debtor is the owner of a whole life insurance policy issued in 2001 by The Guardian Life Insurance Company of America, namely the Second Guardian Policy. The Debtor scheduled the Second Guardian Policy in his bankruptcy schedules as having a cash surrender value of $23,527.27. The original and only beneficiary of the Second Guardian Policy was and remains The Volk Family Revocable Trust u/d/t dated November 11, 1993 (the "Trust"). The grantors of the Trust were the Debtor and his deceased spouse, Patricia M. Volk. Deborah A. Volk and Kari M. Volk, identified in the Trust, are the daughters of the Debtor. Deborah A. Volk also is known as Debra A. Volk–Beaulieu. Warren A. Volk, identified in the Trust, is the son of the Debtor. Ian E. Anderson, also identified in the Trust, is the son of Patricia M. Volk and the stepson of the Debtor.

On or about December 9, 1993, the Debtor and Patricia M. Volk executed the First Amendment to the Trust. On March 13, 1995, Patricia M. Volk died. On or about October 13, 2004, the Debtor executed a Second Amendment to the Trust.¹

The Debtor initially claimed the Second Guardian Policy as exempt in its entirety pursuant to Mass. Gen. Laws c. 175, § 119A. He subsequently filed an amended Schedule C on March 23, 2107, claiming the Second Guardian Policy as exempt in its entirety pursuant to, and only pursuant to, Mass. Gen. Laws c. 175, § 125. The Trustee timely filed the Objection to the Debtor's claimed exemption in the Second Guardian Policy.

III. POSITIONS OF THE PARTIES

A. The Trustee

The Trustee references In re Chevalier , 330 B.R. 21 (Bankr. D. Mass. 2005), In re Sloss , 279 B.R. 6 (Bankr. D. Mass. 2002), and In re CRS Steam, Inc. , 217 B.R. 365 (Bankr. D. Mass. 1998), in support of her argument that § 125 of ch. 175 requires that the beneficiary must "(1) have been the original beneficiary when the policy was "effected;" (2) be an entity other than the owner; and (3) have an insurable interest in the insured."See Chevalier , 330 B.R. at 25 (quoting Sloss , 279 B.R. at 14 ). In Chevalier , the court determined that "the mere designation of a probate estate as beneficiary disqualifies a policy from that statutory exemption." 330 B.R. at 25.

The Trustee further argues:

The Trust has exactly the same qualities as the beneficiary of the Second Guardian Policy that were found wanting in Chevalier .... Critically, review of the declaration of trust shows that the Trust is a revocable trust, with its grantors, the Debtor and his late wife, retaining numerous rights, expressly including the power "to change the beneficiaries thereof," Article II, paragraph I, page 2. The Trust expressly provides (with an exception not relevant here) that after the death of one Grantor (here, the Debtor's wife), "the surviving Grantor shall continue to have the foregoing power with respect to all the trust property," Id. In fact, the Debtor as surviving Grantor did in 2004 change the beneficiaries of the Trust, executing a Second Amendment to Trust Agreement ... The Second Amendment to Trust Agreement changed the way trust property was divided amongst trust beneficiaries, providing for three new and different treatments for the four trust beneficiaries as well as changing the age at which young beneficiaries would receive distributions from the Trust.

The Debtor's power to change the beneficiaries of the Trust at any time makes the Trust just like the debtor's probate estate in Chevalier ; just as a "simple alteration to his or her estate plan" could undermine the statute by retaining the exemption while changing the beneficiary of the life insurance policy, so too could a change of the beneficiaries of the Trust change the beneficiaries of the Second Guardian Policy. The fact that the Debtor still has this power over the beneficiaries of the Trust prevents the Trust from falling into the class of life insurance beneficiaries protected by § 125. The Debtor therefore cannot claim exemption in the Second Guardian Policy pursuant to § 125.

(footnote omitted).²

B. The Debtor

The Debtor argues that Mass. Gen. Laws ch. 175, § 125 protects the lawful beneficiary from claims of creditors of the insured. Citing In re Beach , 8 F.Supp. 910, 911–12 (D. Mass. 1934), and McCarthy v. Griffin , 299 Mass. 309, 310–11, 12 N.E.2d 836, 837 (1938), he argues that he did not change the beneficiary of the Second Guardian Policy. Acknowledging that there are limitations to the protections afforded by § 125 for premiums paid in fraud of creditors, the Debtor, citing CRS Steam, Inc. , further argues that the requirement that the beneficiary named in the policy have an insurable interest has been satisfied as the Trust beneficiaries are the Debtor's children and stepson.

In addition, the Debtor argues that the Trust was established in 1993 and there has been no change in beneficiaries, despite two amendments, one which clarified the name of the Debtor's second wife, and the other reflected the death of the Debtor's spouse and maintenance of the existing beneficiaries. The Debtor stated:

Unlike a probate estate which can be avoided or changed in many fashions, the Trust beneficiaries of the Volk Family Revocable Trust have not changed and Mr. Volk as Trustee owes a fiduciary obligation to the beneficiaries. Section 125 applies only to policies in favor of another in the case cited by the Trustee. Judge Boroff [in Chevalier ] indicated that the Debtor who designated his probate estate as beneficiary of the life insurance policy was in substance naming himself [sic] as beneficiary and not an entity other than the Debtor.

IV. DISCUSSION

A. Applicable Law

Although not specifically labeled an exemption statute, Mass. Gen. Laws ch. 175, § 125 provides significant protections for beneficiaries of life insurance policies from creditors of the insured. It provides:

If a policy of life or endowment insurance is effected by any person on his own life or another life, in favor of a person other than himself having an insurable interest therein , the lawful beneficiary thereof, other than himself or his legal representatives, shall be entitled to its proceeds against the creditors and representatives of the person effecting the same, whether or not the right to change the named beneficiary is reserved by or permitted to such person ; provided, that, subject to the statute of limitations, the amount of any premiums for said insurance paid in fraud of creditors, with interest thereon, shall enure to their benefit from the proceeds of the policy; but the company issuing the policy shall be discharged of all liability thereon by payment of its proceeds in accordance with its terms, unless before such payment the company shall have written notice, by or on behalf of a creditor, of a claim to recover for certain premiums paid in fraud of creditors, with specification of the amount claimed. No court, and no trustee or assignee for the benefit of creditors, shall elect for the person effecting such insurance to exercise such right to change the named beneficiary.

Any person to whom a policy of life or endowment insurance, issued subsequent to April eleventh, eighteen hundred and ninety-four, is made payable may maintain an action thereon in his own name.

Mass. Ann. Laws ch. 175, § 125 (emphasis supplied). Although there are a limited number of state court decisions interpreting Mass. Gen. Laws ch. 175, § 125, the Supreme Judicial Court in Rosenberg v. Robbins , 289 Mass. 402, 194 N.E. 291 (1935), addressed whether a creditor of the defendants, Robbins and Siegel, could reach and apply the beneficiaries' interest in life insurance policies to satisfy the defendants' obligations. The Supreme Judicial Court held that "[t]he provisions of G.L. c. 175, §§ 125, 126, as amended, prevent the plaintiff from reaching and applying to the payment of her note the cash surrender value of the policies." 289 Mass. at 406, 194 N.E. at 293. See also In re Caron , 305 B.R. 614, 616 (Bankr. D. Mass. 2004).

In In re CRS Steam, Inc. , 217 B.R. 365 (Bankr. D. Mass. 1998), the court considered whether the debtor, Thomas F. LeBlanc, whose case was jointly administered with that of CRS Steam, Inc., could exempt a whole life...