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In Massachusetts, with respect to nominee trusts, for purposes of 11 U.S.C.S. § 541, the debtor's estate includes equitable ownership of the nominee trust res. If the beneficiary holds equitable ownership to trust property, and also has the power to control the trustee's disposition of trust property, the equitable and legal ownership of the property is virtually merged in the beneficiaries. The trustee is nothing more than a bare legal title-holder, an agent, without any protected or protectable interest in the trust res.
Debtor Howard Stoll is a one-third beneficiary of two trusts known as SFT Realty Trust and ESM Realty Trust (collectively, the "Trusts"), alongside his siblings Kenneth Stoll and Ellen Miller. The Trusts were created on July 29, 1991 pursuant to the laws of Massachusetts. SFT owns property located at 3880 Lucerne Park Drive, Greenacres, Florida (Palm Beach County), and maintains a bank account with Fidelity Federal Bank and Trust of West Palm Beach Florida, bearing account number 00-179636-7 which had a balance of $ 2,816.10 as of the date of filing. ESM owns real property located at 1006 Paradise Road, Swampscott, Massachusetts (Essex County). This property was purchased for $ 157,000 in August 2001 and is free and clear of all liens. ESM maintains a bank account with Fidelity Federal Bank and Trust of West Palm Beach, Florida, bearing account number 00-179636-7, which had a balance of $ 53,828.83 as of the date of filing. In her Affidavit in Opposition to the Motion for Summary Judgment, Ellen Miller, the trustee of the Trusts, acknowledges that all property held by the Trusts was purchased by Seymour and Marilyn Stoll (hereinafter the "Settlors"), and that all deposits in the trust bank accounts were made by the Settlors. Further, the real property owned by the Trusts are free of encumbrances and leased back to the beneficiaries' parents for rent of $ 1.00 per year. Lastly, the Rule 7056 statement indicates, and the parties' agree, that the Trusts may only be terminated on the consent of all three beneficiaries, submitted in writing to the Trustee Ellen Miller.
Stoll filed a Chapter 7 bankruptcy case in 2004. Thereafter, in 2005, Thomas Genova, as Trustee for the estate of Stoll, filed an adversary proceeding. Genova alleges in the Complaint that because the Trusts are nominee trusts under Massachusetts law and are therefore "pass through" entities, the assets are considered to be held by the beneficiaries as tenants in common, and thus, Stoll is one-third owner of the Trusts' assets.
Is Stoll’s interest in the trust the property of the bankruptcy estate?
Stoll as beneficiary has one-third control over the res of the Trusts. The Trusts' assets cannot be sold or transferred without the consent of the other beneficiaries, but it bears noting that neither can the other beneficiaries dispose of trust properties without the Debtor's consent. Furthermore, Debtor's interest in the trust is freely alienable, i.e. may be transferred or assigned. It has already been established that pursuant to Massachusetts law, legal title to nominee trust property may be transferred by a mere assignment of the beneficiaries' interest in the trust. The bankruptcy trustee now stands in the shoes of the Debtor as beneficial owner of the Trusts res. As the purpose of a nominee trust is to give beneficiaries control over the res of the trust, and the Debtor as beneficiary is permitted to freely transfer his interest in the trust, which would accomplish a transfer of an interest in the real property held by the trust, and in light of the case law that states that a partial interest in a nominee trust is property of the bankruptcy estate, the Court determines that Debtor's one-third, freely alienable interest in the two Trusts is property of the bankruptcy estate. The Court's determination in this regard is further bolstered by the fact that Massachusetts law permits the transfer of trust real property held by a nominee trust by the assignment of a beneficiary's interest in the trust to the prospective purchaser without nominee trustee consent.