If you’ve read my newsletter regarding the Massachusetts Homestead, you know the amount of protection afforded by the homestead is $500,000 in equity. Under  the Bankruptcy Code, the homestead is capped at $125,000 (this cap is indexed and adjusted periodically) when the debtor acquires an interest in a homestead property within 1215 days of the bankruptcy filing. This much is clear, but what constitutes “acquiring an interest”?

Recently, the Bankruptcy Appellate Panel for the First Circuit considered whether the transfer of real estate from a nominee realty trust in which the debtor was the sole beneficiary to herself constituted a transfer of an interest within 1215 days, resulting in a capped homestead. A nominee realty trust is a document where someone is named as a trustee to hold the title to property of record at the registry of deeds. This is known as legal title. The world views the trustee/trust as the owner. The trustee holds legal title exclusively for the benefit of the beneficiary. who holds equitable title. Equitable title entitles one to the use and enjoyment of the trust property. Massachusetts courts have found that the nominee realty trust is more an agency relationship between the trustee and beneficiary than a true trust arrangement. When the same person is the sole trustee and sole beneficiary, the nominee trust ceases to exist.

In the case of In re Aroestey, 2008 WL 976842 (1st Cir. BAP 2008) the Court found that the cap did apply holding that legal title in real property transferred by a nominee trust to the debtor within 1215 days of the petition date, is an interest acquired by the debtor, triggering the limitation under section 522(p)(1) of the bankruptcy code.