In re Jones – Property acquired by “devise”

     In In re Jones, 2012 Bankr. LEXIS 5769 (Bankr. D. Ariz. 2012), decided by Judge Curley on December 13, 2012, the court held that real property that was acquired by the debtor through a beneficiary deed within 180 days after the bankruptcy was filed was property of the bankruptcy estate pursuant to section 541(a)(5) of the Bankruptcy Code.

     The debtor’s grandmother executed a beneficiary deed in favor of her grandson, which conveyed her home to the debtor effective upon her death.  The grandmother died just three days after the debtor filed bankruptcy.  The bankruptcy trustee filed a motion to sell the home free and clear of liens and the debtor objected, arguing that the home was not property of the bankruptcy estate.

     Section 541(a)(5)(A) of the Bankruptcy Code provides that property of the bankruptcy estate includes property that is acquired within 180 after the bankruptcy is filed “by bequest, devise, or inheritance.”  Neither party disputed the fact that the property was acquired within 180 after the bankruptcy was filed.  Nor did the parties dispute that the property was not acquired by bequest or inheritance.  The question for the court, therefore, was whether the property was acquired “by devise” pursuant to Arizona law.

     The Arizona Probate Code defines “devise” as follows:  “when used as a noun, means a testamentary disposition of real or personal property and, when used as a verb, means to dispose of real property by will.”  ARS § 14-1201.  Although the debtor argued that the word “devise” was used as a verb in section 541(a)(5)(A), the court found that it was clearly used as a noun, since it’s the subject of a prepositional phrase.  Thus, even though the property did not pass to the debtor through a will, the Court held that the beneficiary deed was a “testamentary disposition” and was therefore a “devise” under the broader meaning given to that term when used as a noun.     

     The court also found, as an alternative basis, that the property was property of the bankruptcy estate under section 541(a)(1), which defines property of the estate as including “all legal or equitable interests of the debtor in property as of the commencement of the case.”  The court reasoned that the debtor had a contingent interested in the property on the petition date, which was transformed into a full ownership interest upon the death of the debtor’s grandmother.