Lewiston

Filing 13

MEMORANDUM OPINION and ORDER Signed by District Judge Avern Cohn. (MVer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IN RE:
RICHARD MARTIN LEWISTON,
Debtor.
______________________________________/
RICHARD MARTIN LEWISTON,
Plaintiff-Appellant,
v.

Case No. 15-10804
Case No. 14-14452
HON. AVERN COHN

GENE R. KOHUT, Chapter 7
Trustee,
Defendant-Appellee.
______________________________________/
MEMORANDUM AND ORDER
I. INTRODUCTION

These are appeals from orders in a Chapter 7 bankruptcy, holding that the
debtor’s interest in a living trust, or the debtor’s beneficial interest in the living trust, is
not exempt under the Bankruptcy Code. The trust in question is the Lois and Richard
Lewiston Living Trust, dated September 10, 1986 (the “Trust”). The Bankruptcy Court
ruled from the bench. (See B.R. Docs. 477, 574; see also B.R. Court Transcripts, B.R.
Docs. 493, 595)
Now before the Court are the debtor’s (“Lewiston”) appeals from the Bankruptcy
Court orders.

Because both appeals concern Chapter 7 Trustee Gene R. Kohut’s

objections to Lewiston’s claimed exemptions, they are discussed together, below. For
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the reasons that follow, the orders of the Bankruptcy Court will be affirmed.1
II. BACKGROUND
A. The Lois and Richard Lewiston Living Trust
The Lois and Richard Lewiston Living Trust, dated September 10, 1986, named
Lewiston and his wife as trustees and as beneficiaries of the Trust. (B.R. Doc. 489, Ex.
A at 1, 4). It provided, however, that Lewiston would be the Managing Trustee and that,
as such, “he shall have the sole and absolute authority to exercise the rights, powers,
and duties . . . in connection with the management, investment, and administration of
the [T]rust assets; and his signature on any documents relating to any of these matters
shall be sufficient to bind the [T]rust.” Only after Richard’s death or incapacity, would
his wife Lois become Managing Trustee (Id. at 2). Under the terms of the Trust, the
Managing Trustee’s rights include the ability to “sell, exchange, assign, transfer and
convey any security or property, real or personal, held in the [T]rust estate . . .” (Id. at 8)
A February 2008 amendment changed this to state that “[e]ither Richard or Lois,
acting alone, shall be considered the Managing Trustee of the [T]rust . . .” and would
have the full “rights, powers, and duties” of a Managing Trustee, described above.
(B.R. Doc. 489, Ex. B at 1)
B. Bankruptcy Court Proceedings
Lewiston filed a voluntary Chapter 7 bankruptcy petition on August 13, 2012.
(B.R. Doc. 1) On September 20, 2012, Kohut was elected Chapter 7 Trustee.
Lewiston filed his initial Schedule C on August 27, 2012, in which he asserted
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The Court recognizes that, should there be an appeal to the Court of Appeals,
the decisions of the Bankruptcy Court will be reviewed de novo. See In re Batie, 995
F.2d 85, 88 (6th Cir. 1993).
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exemption of the Trust. (B.R. Doc. 40 at 9) Kohut filed an objection (B.R. Doc. 385),
arguing that the Trust is not among the types of property which can be claimed exempt
under M.C.L. §§ 557.151 and 600.5451(1)(n). Lewiston opposed Kohut’s objection.
(B.R. Doc. 430)

On September 19, 2014, the Bankruptcy Court sustained Kohut’s

objection, agreeing with Kohut that none of the bases asserted by Lewiston allowed for
the exemption.

(B.R. Docs. 477, 493)

Lewiston appealed the Bankruptcy Court’s

decision in In re Richard Martin Lewiston, Case No. 14-14452 (“Lewiston I”).
Following the filing of the first appeal, Lewiston amended his Schedule C to list
additional bases for exemption of the Trust. (B.R. Doc. 518 at 9-10) Kohut again
objected, arguing that the additional statutory grounds do not support the exemption;
Lewiston argued to the contrary. (B.R. Docs. 532, 547). At a hearing on February 13,
2015, the Bankruptcy Court sustained Kohut’s objection to the exemptions. (B.R. Doc.
574, 595) Lewiston appealed the Bankruptcy Court’s second decision in In re Richard
Martin Lewiston, Case No. 15-10804 (“Lewiston II”).
C. Claims on Appeal2
In Lewiston I, Lewiston argues that because the Trust is “owned” jointly by him
and his wife, the Trust is held in a tenancy by the entirety, which is exempt under
bankruptcy law.
In Lewiston II, Lewiston takes a slightly different approach. He says that he and
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Lewiston originally claimed exempt his membership interest in a limited liability
company, Lewiston/Etterbeek Associates, L.L.C. Kohut’s objection was sustained by
the Bankruptcy Court, which Lewiston appealed in Lewiston I. (See B.R. Docs. 477,
493) While on appeal, the amended Schedule C asserted additional bases for the
exemption. Upon rehearing, Kohut’s objections were overruled. (B.R. Doc. 574, 595)
Both parties therefore agree that Lewiston’s appeal in Lewiston I is now moot as it
relates to the membership interest.
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his wife own the beneficial interest in the Trust as tenants by the entirety, which is
similarly exempt.
Thus, the issue before the Court is whether the Trust and/or Lewiston’s beneficial
interest in the Trust is exempt as claimed by Lewiston
III. STANDARD OF REVIEW
The district court reviews factual findings made by a bankruptcy court for clear
error, which requires the appellant to demonstrate “the most cogent evidence of mistake
of justice.” WesBanco Bank Barnesville v. Rafoth (In re Baker & Getty Fin. Servs.), 106
F.3d 1255, 1259 (6th Cir. 1997); see also Fed. R. Bankr. P. 8013. Conclusions of law
are reviewed de novo. Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d
1020, 1023 (6th Cir. 2001); see also Lopez v. Donaldson (In re Lopez), 292 B.R. 570,
573 (E.D. Mich. 2003).
IV. LEWISTON I
Under the Bankruptcy Code, a debtor is required to list the assets that he or she
claims as exempt. 11 U.S.C. § 522(l). The list must be filed on the appropriate form as
required by Fed. R. Bankr. P. 1007. See Fed. R. Bankr. P. 4003(a). The Bankruptcy
Code permits a debtor to list exempt assets by electing either the federal exemptions or
state-law exemptions. 11 U.S.C. § 522. Lewiston has elected the state-law exemptions
by checking the “11 U.S.C. § 522(b)(3)” box on his Schedule C. (B.R. Doc. 40, p. 9)
Schedule C further requires a debtor to “specify [the] law providing each exemption”
next to the description of the asset sought to be exempt. (Id.)
Lewiston bases exemption on the three citations listed in his original Schedule C:

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(1) M.C.L. § 557.151, (2) M.C.L. § 600.5451(1)(n)3, and (3) Zavradinos v. JTRB, Inc.,
482 Mich. 858 (2008).
In Lewiston I, the Bankruptcy Court held that (1) the Trust is not among the types
of properties listed in M.C.L. §§ 557.151 or 600.5451(1)(o), and (2) Zavradinos does
apply because it is not a bankruptcy case; it involves security accounts, rather than an
interest in a living trust. (See Transcript of Bankruptcy Court, Case No. 15-10804, Doc.
12 Ex. 1)

The Bankruptcy Court’s reasoning is correct; Lewiston’s arguments lack

merit.
A. M.C.L. §§ 557.151 and 600.5451(1)(n)
Under Michigan law, certain forms of personal property held jointly by husband
and wife are afforded protection in bankruptcy. The protections are described in M.C.L.
§ 600.5451(1)(n), which exempts “[p]roperty described in . . . M.C.L. 557.151, or real
property, held jointly by a husband and wife as a tenancy by the entirety . . . .” M.C.L. §
557.151 defines the forms of property that can be held by husband and wife in a joint
tenancy:
557.151. Evidence of indebtedness payable to husband and wife;
ownership in joint tenancy
Sec. 1. All bonds, certificates of stock, mortgages, promissory notes,
debentures, or other evidences of indebtedness hereafter made payable
to persons who are husband and wife, or made payable to them as
endorsees or assignees, or otherwise, shall be held by such husband and
wife in joint tenancy unless otherwise therein expressly provided, in the
same manner and subject to the same restrictions, consequences and
conditions as are incident to the ownership of real estate held jointly by
husband and wife under the laws of this state, with full right of ownership
by survivorship in case of the death of either.

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Previously, this exemption was contained in subsection (1)(o).
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M.C.L. § 557.151. Further, there is a statutory presumption that the types of personal
property listed in § 557.151 are held by spouses as tenants by the entirety. DeYoung v.
Mesler, 373 Mich. 499, 504 (1964). Thus, by claiming that the Trust is exempt under
M.C.L. §§ 600.5451(1)(n) and 557.151, Lewiston asserts that the Trust and/or or his
beneficial interest in the Trust is held with his wife as tenants by the entirety. This
argument is without merit.
B. Living Trusts and Tenancies by the Entirety
1.
Michigan case law is clear that a tenancy by the entirety is created only when
property is transferred directly to a husband and wife. See Budwit v. Herr, 339 Mich.
265, 272 (1954) (emphasis added). A consequence of a tenancy by the entirety is that
one spouse cannot unilaterally convey, alienate, or encumber entireties property without
the consent of the other spouse. M.C.L. § 600.6023a; Budwit, 339 Mich. at 278.
The creation of a tenancy by the entirety requires a written instrument of
conveyance that creates unities of time, title, interest, possession, and person (marriage
of husband and wife). Id. However, tenancies by the entirety are statutorily limited to
certain kinds of property. See M.C.L. § 557.151. Further, there is a common law
presumption—as well as a statutory presumption—that a conveyance of an estate to
husband and wife creates a tenancy by entirety. DeYoung, 373 Mich. at 504; see
generally Jason L. Honigman, Tenancy by Entirety in Michigan, 5 Mich. St. B.J. 196,
204 (1925-1926).
contrary.

To overcome this presumption requires express language to the

M.C.L. § 557.151 (recognizing tenancy by the entirety “unless otherwise

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therein expressly provided”); DeYoung, 373 Mich. at 503-04.
Trusts, by contrast, are considered a distinct “legal ‘entity,’ consisting of the trust
estate and the associated fiduciary relation between the trustee and the beneficiaries.”
Restatement (Third) of Trusts § 2 cmt a. (2003). A “living” trust is one created during
the lifetime of the settlor (the person creating the trust). Id. § 2 cmt.1, illus. 5. Unlike
tenancies by the entirety, any property, real or personal, can be held in trust. Id. § 8.
Within the legal framework of a trust, trustees and beneficiaries have distinct
relationships with respect to trust property: although the trustee holds “bare” legal title to
the property, beneficiaries hold the beneficial interests, or “equitable title,” in the trust
property. Id. § 42 cmt a.
2.
Here, there is no question that when the Trust was created, certain assets were
transferred to the Trust, and that Lewiston and his wife were named both as
beneficiaries and trustees of the Trust; under the 2008 amendment, both Lewiston and
his wife were considered Managing Trustees of the Trust. Lewiston says that the Trust
is “a vessel for interests in both real estate and personal property,” which was “owned
jointly by a husband and wife,” and that the creation of the Trust was, “in effect,” the
transfer of property from Lewiston to the joint ownership of Lewiston and his wife.
Lewiston’s position lacks legal support and collapses the legal distinction
between living trusts and tenancies by the entirety. As explained above, a living trust is
a distinct legal “entity,” distinguishable from tenancy by the entirety, which is merely a
form of joint property ownership between husband and wife. Under Michigan law, a

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living trust has specific rights, duties, restrictions, consequences, and conditions related
to Trust assets, which are different from those pertaining to property held in a tenancy
by the entirety. Lewiston provides no support for his assertion that the Trust is held with
his wife as tenants by the entirety.
C. Zavradinos
1.
Lewiston cites Zavradinos v. JTRB, Inc., 482 Mich. 838 (2008), for the
proposition that the statutory presumption in favor of tenancies by the entirety should
apply to the Trust and/or to his beneficial interest in the Trust. Lewiston’s argument
lacks merit.
In Zavradinos, the plaintiff sought garnishment of certain security accounts held
by the defendant spouses. However, because property held as tenants by the entirety
is not subject to garnishment, the plaintiff argued that the defendants held the security
accounts as joint tenants, rather than as tenants by the entirety. The Court of Appeals
disagreed, holding that the plaintiff failed to overcome the presumption that the
accounts were held by the defendants as tenants by the entirety. Zavradinos v. JTRB,
Inc., No. 268570, 2007 WL 2404612 at *4 (Mich. Ct. App. Aug. 23, 2007) (citing M.C.L.
§ 557.151; DeYoung, 373 Mich. at 504). The Supreme Court of Michigan denied leave
to appeal, noting the “statutory presumption in favor of tenancies by the entirety . . .
when the conveyance is ‘made payable to persons who are husband and wife.’ ”
Zavradinos, 482 Mich. at 863 (citing M.C.L. § 557.151) (emphasis omitted).
2.

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Lewiston says that, like the security accounts in Zavradinos, the Trust is a
“vessel” for assets that are held with his wife in a tenancy by the entirety. The argument
lacks merit.
To begin, the Court of Appeals in Zavradinos expressly relied on M.C.L. §
557.151, stating that it “explicitly and unambiguously provides that classes of property
named in the statute, which includes stocks and bonds, owned by a husband and wife
are owned as tenants by the entirety ‘unless otherwise therein expressly provided.’”
2007 WL 2404612, at *1. In Zavradinos, the parties did not dispute that M.C.L. §
557.151 applied, only differing on whether the security accounts should be considered a
joint tenancy or a tenancy by the entirety.
Here, unlike the security accounts in Zavradinos, the text of M.C.L. § 557.151
does not include a living trust and/or the beneficial interest in a living trust.

The

Bankruptcy Court properly held that Zavradinos does not support an expansion of the
types of properties included in M.C.L. §§ 557.151 and 600.5451(1)(n). (See Transcript
of Bankruptcy Court, Case No. 15-10804, Doc. 12 Ex. 1 at 49-48, 51-52, 57)
V. LEWISTON II
In Lewiston II, Lewiston claims exemption of his beneficial interest in the Trust
under 11 U.S.C. § 522(b)(3)(B).4 In the second adversary proceeding, the Bankruptcy

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Lewiston’s amended Schedule C additionally cites M.C.L. §§ 450.4504 and
600.6023a. M.C.L. § 450.4504 concerns membership interests in Michigan limited
liability corporations, and is inapplicable to living trusts. M.C.L. § 600.6023a states that
“[p]roperty described in . . . M.C.L. § 557.151, or real property, held jointly by a husband
and wife as a tenancy by the entirety is exempt from execution under a judgment
entered against only 1 spouse.” Lewiston’s brief on appeal, however, makes no
argument with respect to either section. Lewiston has therefore abandoned reliance on
M.C.L. §§ 450.4504 and 600.6023a.
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Court drew a distinction between a beneficial interest in a living trust on one hand, and
tenancies by the entirety on the other. The Bankruptcy Court stated that Lewiston failed
to demonstrate that a husband and wife’s beneficial interest in a living trust enjoys the
same protections afforded tenancies by the entirety. (See B.R. Doc. 574, 595) The
Bankruptcy Court’s reasoning is correct.
A. 11 U.S.C. 522(b)(3)
11 U.S.C. § 522(b)(3) states that a debtor may exempt:
any interest in property in which the debtor had, immediately before the
commencement of the case, an interest as a tenant by the entirety or joint
tenant to the extent that such interest as a tenant by the entirety or joint
tenant is exempt from process under applicable nonbankruptcy law.
Id. § (b)(3)(B).
The Bankruptcy Court said that this claimed exemption was duplicative of the
checked box at the top of Lewiston’s Schedule C, which indicated that Lewiston elected
state-law exemptions under 11 U.S.C. § 522(b)(3). (See B.R. Doc. 40, p. 9).
Exemption under § 522(b)(3) depends on whether property is held in a tenancy
by the entirety under Michigan law. By claiming this exemption, Lewiston apparently
asserts that his beneficial interest in the Trust is held with his wife as tenants by the
entirety. This argument, too, is without merit.
B. Lewiston’s Beneficial Interest in the Trust
In the second appeal, Lewiston reiterates that his beneficial interest in the Trust
should be protected to the same extent in bankruptcy as his interest in a tenancy by the
entirety. In support, he says that the Trust has “all the attributes of a tenancy by the
entirety” and should therefore be considered as such in bankruptcy. This argument
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lacks merit.
While Lewiston is correct that a living trust and a tenancy by the entirety may
share certain attributes, they are not equivalent.

Indeed, the essential attribute of

tenancy by the entirety that Lewiston seeks to benefit from is the restraint on alienation.
However, the 2008 amendment to the Trust expressly states that Lewiston, “acting
alone,” may “sell, exchange, assign, transfer, or convey” any real or personal property
held in the Trust. (B.R. Doc. 489, Ex. A at 8; Ex. B at 1) By contrast, if his beneficial
interest in the Trust held by Lewiston and his wife was as tenants by the entirety, neither
Lewiston nor his wife would be able to unilaterally convey, alienate, or encumber
entireties property without the consent of the other spouse. Lewiston’s argument that
the Trust has “all the attributes” of a tenancy by the entirety is mere legal fiction.
Here, although Lewiston and his wife are both beneficiaries of the Trust, this
does not transform the beneficial interest of each into an asset held by the entirety.
Lewiston’s argument seeks to collapse a living trust—a separate and distinct legal
entity—indistinguishably into a tenancy by the entirety.

Lewiston’s assertions are

without merit, and he cites no case law or statutory law to support his position.
VI. CONCLUSION
For the foregoing reasons, the Bankruptcy Court’s decision was legally sound
and in no way clearly erroneous. Accordingly, decisions of the Bankruptcy Court are
AFFIRMED.
SO ORDERED.
s/Avern Cohn
AVERN COHN
UNITED STATES DISTRICT JUDGE
Dated: August 13, 2015
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