Specifically the debtor had a one quarter interest in real estate that was subject to a life estate. The debtor filed bankruptcy and attempted to claim her one quarter remainder interest as exempt, pursuant to the Massachusetts Homestead statute.
The trustee objected to the exemption on the basis that the Massachusetts homestead statute does not specifically protect the debtor's type of ownership interest. The judge and panel agreed with the trustee, as the statute only protects a "sole owner, joint tenant, tenant by the entirety, tenant in common, life estate holder, or holder of a beneficial interest in a trust", none of which specifically capture the debtor's ownership type.
Despite the debtor's argument that creating a life estate with a remainder interest by simple deed is a common and cost effective estate planning tool, the court held that the specific language of the statute could not be ignored, and the legislature's failure to include remainder interests meant the homestead protection did not apply to the debtor. As such, the beneficiary of a remainder interest seeking bankruptcy protection would be better off talking to an estate planning attorney about establishing a trust in order to protect the real estate prior to filing bankruptcy.
Justin H. Dion, Esq.
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