PETER McNIFF, United States Bankruptcy Judge.
This matter came before the court for hearing on February 24, 2000 on the trustee's objection to the debtors' claim of exemption in a life insurance policy. The court has considered the arguments of the parties, the undisputed facts, and the applicable law, and concludes the objection should be sustained.
At the date of filing the chapter 7 bankruptcy petition, the debtors scheduled two term life insurance policies with no cash surrender value. The trustee objected. At the hearing, the facts elicited show that one of the policies, that was issued by Massachusetts Mutual, has a cash surrender value of $505.69. The trustee has apparently abandoned her objection to the exemption claimed in the other insurance policy.
Mrs. Ertz is the owner of the Mass. Mutual policy. Mr. Ertz is the beneficiary. The policy is claimed exempt under Wyoming Statute § 26-15-129 (Lexis 1999).
Conclusions of Law
Under Wyoming Statute § 26-15-129, an exemption is created in life insurance proceeds as follows:
If a policy of insurance is executed by any person on his own life or on another life, in favor of a person other than himself . . . the lawful beneficiary or assignee thereof, other than the insured or the person executing the insurance, are (sic) entitled to its proceeds against the creditors and representatives of the insured and of the person executing the policy, whether or not:
(i) The right to change the beneficiary is reserved or permitted.
In the recent case of In re Evans, No. 99-CV-092-J, slip op. (D.Wyo. January 11, 2000), the court discussed the exemption at issue here. The court ruled that an insured owner/debtor was not entitled to claim an exemption from the bankruptcy estate in the cash surrender value of a policy under which a non-debtor is the beneficiary. The debtors here concede that under that ruling, the owner of a life insurance policy is not entitled to claim an exemption in the cash surrender value. However, they argue that because Mr. Ertz is the beneficiary of the policy, he is entitled to exempt the cash surrender value in his own bankruptcy case.
The issue is whether a debtor/beneficiary can exempt the cash surrender value of an insurance policy from his joint creditors in a policy which is owned by his jointly filing spouse. The court concludes he cannot.
Under § 26-15-129, a beneficiary is entitled to exempt policy proceeds from the creditors of the insured or owner. However, the statute provides no definition of the term proceeds. In the case of In re Morgan, No. C85-527, slip op. (D.Wyo. July 30, 1986), the court held that a debtor/beneficiary could exempt the proceeds of a life insurance policy from creditor claims arising from her own and her deceased husband's debts. Not surprisingly, in that case the proceeds consisted of death benefits.
In the case of In re Gibson, No. C86-0420-B, slip op. (D.Wyo. May 19, 1987), the court ruled the cash surrender value of a policy was subsumed within the term "proceeds." However, in that case, the court allowed the claimed exemption by the debtor/beneficiary and joint debtor/owner under § 26-15-131 as well as § 26-15-129. The language of § 26-15-131 relates to group policies and provides a more expansive exemption than does § 26-15-129, applicable here. The Gibson court did not discuss the distinctions.
The court in the Evans case ruled that when the insured retained the power to change the beneficiary, the named beneficiary has only a contingent interest in the policy. In re Evans, slip op. at 7. The court distinguished between the interest the owner has in the policy (immediate rights) and those of the beneficiary (contingent right to death benefits).
A definition of "proceeds" depends upon from whose perspective and whose interest the policy is viewed. A policy owner has a right to maintain the insurance, cancel the policy, cash in the policy and receive the cash surrender value, or change the beneficiary. The owner can eliminate the beneficiary's interest entirely. When a policy owner files bankruptcy, the cash surrender value is the interest that exists and becomes property of the estate as of the filing of the bankruptcy case.
On the other hand, a beneficiary has a future interest which may become a right to the death benefits on the death of the insured. A beneficiary cannot cash in the policy. On that basis, the Evans court held that the future rights of the beneficiary were not relevant to a determination of an exemption by the owner. Id. at 17.
When this case was filed, Mr. Ertz had no rights in the policy to which the estate could succeed or of which he could claim an exemption. A beneficiary's ability to exempt "proceeds" from the owner's creditors arises when death benefits are available, and the beneficiary's interest is vested.
To the extent the Gibson case is correct that cash surrender value is "proceeds," only an owner of the policy owns a right to the cash surrender value. There is no connection between the beneficiary's rights and the right to the actual cash value. Thus, when the estate succeeds to the cash surrender value, there is no exemption available to the owner or the beneficiary. The beneficiary has nothing to exempt in this case.
This distinction between interests is also important from a policy standpoint. A debtor has no ability under the Bankruptcy Code to claim an exemption for a non-debtor. In re Johnson, 184 B.R. 141, 145 (Bankr.D.Wyo. 1995). Nor does the Code provide a means for a non-debtor to claim an exemption. Thus, under the debtors' analysis, jointly filing debtors would be entitled to claims of exemption that other debtors were not. That result is not within the contemplation of the statute.
A beneficiary's interest in insurance policy proceeds does not extend to the right to cash in the policy and claim the actual cash value. Thus, there is nothing in this case that Mr. Ertz can exempt. Accordingly, it is ORDERED that the debtors' claim of exemption pursuant to Wyoming Statute § 29-15-129 is denied, and the trustee's objection is sustained.