In re Rick H. Reynolds, Debtor.
v.
Rick H. Reynolds; John M. Carmack, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust - Survivor's Trust, as amended; John Morris, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust - Survivor's Trust, as amended, Appellees. Todd A. Frealy, Attorney, Chapter 7 Trustee of Estate of Rick Reynolds, Appellant,
Argued
and Submitted March 7, 2014 Pasadena, California
Appeal
from the Ninth Circuit Bankruptcy Appellate BAP No. 11-1433
Panel Hollowell, Pappas, and Dunn, Bankruptcy Judges,
Presiding
Jesse
S. Finlayson (argued), Finlayson Williams Toffer Roosevelt
& Lilly LLP, Irvine, California, for Appellant.
David
W. Meadows (argued), Law Offices of David W. Meadows, Los
Angeles, California, for Appellees.
Before: Alex Kozinski and Susan P. Graber, Circuit Judges,
and Charles R. Breyer, [*] District Judge.
SUMMARY[**]
Bankruptcy
The
panel reversed a decision of the Bankruptcy Appellate Panel
following the California Supreme Court's opinion
answering a certified question regarding whether the
creditors of the beneficiary of a spendthrift trust may reach
the trust distributions.
The
panel held that a bankruptcy estate is entitled to the full
amount of spendthrift trust distributions due to be paid as
of the date of the bankruptcy petition. But the estate may
not access any portion of that money the beneficiary needs
for his support or education, as long as the trust instrument
specifies that the funds are for that purpose. The estate may
also reach 25 percent of expected future payments from the
spendthrift trust, reduced by the amount the beneficiary
needs to support himself and his dependents.
OPINION
PER
CURIAM.
Debtor
is the beneficiary of a spendthrift trust. The trust payments
he receives come entirely from trust principal. The
California Probate Code is unclear as to whether and to what
extent his creditors may reach the trust distributions, so we
certified the question to the California Supreme Court.
Frealy v. Reynolds, 779 F.3d 1028, 1030 (9th Cir.
2015). That court answers us in the attached opinion.
In our
order certifying the question, we recounted the facts of this
case. Id. at 1031-32. Based on the California
Supreme Court opinion, we now hold that a bankruptcy estate
is entitled to the full amount of spendthrift trust
distributions due to be paid as of the petition date. See
Carmack v. Reynolds, 391 P.3d 625, 628 (Cal. 2017); Cal.
Prob. Code § 15301(b). But the estate may not access any
portion of that money the beneficiary needs for his support
or education, as long as the trust instrument specifies that
the funds are for that purpose. See Carmack, 391
P.3d at 629; Cal. Prob. Code § 15302. The estate may
also reach 25 percent of expected future payments from the
spendthrift trust, reduced by the amount the beneficiary
needs to support himself and his dependents. See
Carmack, 391 P.3d at 632; Cal. Prob. Code §
15306.5.
We
remand so that the bankruptcy court can apply the teachings
of Carmack.
REVERSED
and REMANDED.
APPENDIX
215
Cal.Rptr.3d 749
John
M. CARMACK, as Trustee, etc., et al., Plaintiffs and
Respondents,
v.
Rick
H. REYNOLDS, Defendant;
Todd
A. Frealy, as Trustee in
Bankruptcy,
etc., Claimant and Appellant.
S224985
Supreme
Court of California.
Filed
3/23/2017
Background:
Chapter
7 trustee brought adversary proceeding, seeking to compel
turnover of the undistributed principal to which debtor was
entitled under spendthrift trust established by his late
father. The United States Bankruptcy Court for the Central
District of California, Meredith A. Jury, J., granted
debtor's motion for summary judgment, and trustee
appealed. The Bankruptcy Appellate Panel (BAP), Hollowell,
J., 479 B.R. 67, affirmed, and trustee appealed, and the
Court of Appeals, 2017 WL 1131882, certified question to the
California Supreme Court as to the extent to which a
bankruptcy estate may reach a beneficiary's interest in
spendthrift trust.
Holding:
The
Supreme Court, Liu, J., held that creditor may petition for
pending distribution of principal as well as up to 25 percent
of future payments. Question answered.
1.
...