Mr. and Mrs. Foley each had several life insurance policies which named as the beneficiary a testamentary trust created by virtually identical wills. These directed the estate trustee to use any income and principal from the trust “for the health, maintenance and support” of the surviving spouse or subsequently their son. A later provision, however, authorized the trustee to “compromise claims”. Based on this provision, the bankruptcy trustee objected to the Foley’s claimed exemption.
The bankruptcy court started from the position that exemptions are to be liberally construed in favor of the debtor, see Elmwood v. Elmwood, 295 N.C. 168, 185, 244 S.E.2d 668, 678 (1978) (citing Goodwin v. Claytor, 137 N.C. 24, 49 S.E. 173 (1904)) and that, pursuant to Bankruptcy Rul2 4003(c), the party objecting to exemptions has the burden of establishing the claim exemption are improper. Despite holdings in In re Foster, No. 11-02711-8- JRL, 2011 WL 5903393, at *2 (Bankr. E.D.N.C. Nov. 1, 2011) and In re Eshelman, No. 11-08925-8-SWH, 2012 WL 1945709 (Bankr. E.D.N.C. May 30, 2012), the bankruptcy court overruled the trustee’s objection. While in both Foster and Eshelman, the estate trustee was specifically authorized to pay claims against the decedents’ estates, here the authority to “compromise claims” was more vague and ambiguous. Further, the Wills here, unlike in the other cases, pointedly directed expenditures and disbursements for th “for the health, maintenance and support” of the spouse and child, which was close enough to restricting funds for the “sole use and benefit” of the spouse and child to fall within a liberal construction of the exemption.
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