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Massachusetts Agencies

Bankruptcy of Beneficiary/Trustee

Trusts and Trustees

Under 11 U.S.C.A. 541 (a)(1), the estate of the debtor that passes to the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Clearly, and without question, the debtor's beneficial interest in the business trust succeeded to the bankruptcy estate. The question is, whether the legal interest of the debtor serving as trustee, also succeeded to the bankruptcy estate. There is no doubt that if the trust were a nominee or real estate trust where the debtor served as trustee and had a beneficial interest the answer would be in the affirmative. Does it make any difference where the debtor serves as a trustee of a Massachusetts Business Trust? This answer depends upon the characteristics of such a trust and the relationship of the trustee to it according to local law. The answer is found in Larson v. Sylvester, 282 Mass. 352, 185 N.E. 44 (1933), where the court said this about a trust of the type that would be governed by G.L.c. 182.

Speaking generally a trust is not a legal personality. With the exception later to be dealt with, it cannot be sued. It is represented by the trustee. He embodies it. He holds title. He deals with the property in which trust rights exist. Contracts with regard to the rights and property affected by trusts are the contracts of the trustee. He, in person, is liable on them. He is not acting as representative or agent of another. He is acting for himself, but with fiduciary obligations to others. (Citations omitted). It differs from a corporation or partnership. The former is a legal person. The latter, in the law of Massachusetts, is an association of individuals united for transaction of business. The former can be sued as a body corporate in its own name. The later must be sued, ordinarily, in the names of the partners. Many purposes are served if persons may unite in placing property in the hands of a trustee and allowing him to transact business not as an agent or a partner of theirs but as owner of the property subject only to equitable obligations. * * *

The trust here in question was of the character described by the statute, now G.L. (Ter. Ed.) c. 182, §§1,6. The judge was right in stating that it could be sued at law. The statutes, however, have made no change in the law applicable to the trustee. * * * Save for the purpose of being sued, the trust, as distinguished from the trustee, is not made a separate entity; and only the particular trusts organized under a written instrument with beneficial interests divided into transferable shares are suable at law. (Emphasis added).