Levin, Trustee v. Stroehmann et al

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-2344
PEGGY S. LEVIN, Trustee,
Plaintiff - Appellant,
v.
WACHOVIA BANK; DAVID STROEHMANN, SR.; SAM WOLCOTT,
Defendants - Appellees.
Appeal 	from 	the 	United 	States 	District 	Court 	for 	the 	Eastern
District 	of 	North 	Carolina, 	at 	Raleigh. 	Terrence 	W. 	Boyle,
District Judge. 	(4:09-cv-00087-BO)
Argued: 	March 23, 2011 	Decided: 	June 28, 2011
Before 	MOTZ 	and 	WYNN, 	Circuit 	Judges, 	and 	Ronald 	Lee 	GILMAN,
Senior 	Circuit 	Judge 	of 	the 	United 	States 	Court 	of 	Appeals 	for
the Sixth Circuit, sitting by designation.
Affirmed 	by 	unpublished 	opinion. 	Judge 	Wynn 	wrote 	the 	opinion,
in which Judge Motz and Senior Judge Gilman concurred.
ARGUED: 	William 	Peak 	Janvier, 	EVERETT, 	GASKINS, 	HANCOCK 	&
STEVENS, 	Raleigh, 	North 	Carolina, 	for 	Appellant. 	Michael 	J.
Parrish, 	WARD 	& 	SMITH, 	PA, 	New 	Bern, 	North 	Carolina, 	for
Appellees. 	ON 	BRIEF: 	James 	M. 	Hash, 	EVERETT, 	GASKINS, 	HANCOCK 	&
STEVENS, 	Raleigh, 	North 	Carolina, 	for 	Appellant. 	Paul 	A.
Fanning, 	WARD 	& 	SMITH, 	PA, 	Greenville, 	North 	Carolina, 	for
Appellees.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 1 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 1 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 1 of 19

2
Unpublished opinions are not binding precedent in this circuit.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 2 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 2 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 2 of 19

3
WYNN, Circuit Judge:
This 	case 	requires 	us 	to 	determine 	whether 	a 	debtor’s
remainder 	interests 	in 	the 	corpus 	of 	two 	spendthrift 	trusts 	are
property 	of 	his 	bankruptcy 	estate. 	The 	bankruptcy 	court 	ruled
that 	they 	were; 	on 	appeal, 	the 	district 	court 	ruled 	that 	they
were 	not. 	For 	the 	reasons 	explained 	below, 	we 	believe 	the
district 	court 	is 	correct 	that 	the 	debtor’s 	remainder 	interests
are 	not 	part 	of 	his 	bankruptcy 	estate, 	and 	consequently 	we
affirm the judgment of the district court.
I.
By 	a 	trust 	instrument 	dated 	November 	23, 	1976, 	Gertrude 	S.
Stroehmann 	created 	a 	trust 	(the 	“1976 	trust”) 	for 	the 	benefit 	of
her 	two 	children 	and 	their 	issue. 	The 	corpus 	of 	the 	1976 	trust
was 	first 	divided 	into 	two 	equal 	shares: 	one 	for 	the 	benefit 	of
Harold 	Stroehmann, 	Jr. 	(“Harold, 	Jr.”) 	and 	his 	issue, 	and 	one
for 	the 	benefit 	of 	David 	Stroehmann, 	Sr. 	(“David, 	Sr.”), 	and 	his
issue. 	The 	David, 	Sr. 	share 	was 	further 	divided 	into 	separate
shares 	for 	the 	benefit 	of 	his 	two 	children, 	J. 	Kathryn
Stroehmann 	and 	David 	Stroehmann, 	Jr. 	(“David, 	Jr.”), 	the 	debtor
in this case.
Wachovia 	Bank, 	N.A. 	is 	the 	sole 	trustee 	of 	the 	1976 	trust.
The 	1976 	trust 	grants 	the 	trustee 	the 	power 	to 	distribute 	income
and 	principal 	in 	its 	“sole 	and 	absolute 	discretion.” 	The 	only
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 3 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 3 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 3 of 19

4
mandatory 	distribution 	occurs 	at 	the 	trust’s 	termination, 	when
the 	remaining 	principal 	and 	retained 	income 	are 	to 	be 	paid 	to
the 	named 	beneficiaries. 	The 	instrument 	provides 	that 	the 	trust
shall 	continue 	until 	the 	death 	of 	the 	last 	to 	die 	of 	Harold, 	Jr.
and David, Sr.. 	Harold, Jr. has already died.
The 	1976 	trust 	contains 	a 	spendthrift 	provision. 	Article
XII 	states 	that 	“[t]he 	interest 	of 	any 	beneficiary 	in 	the 	corpus
or 	income 	of 	any 	trust 	shall 	not 	be 	subject 	to 	assignment,
alienation, 	pledge, 	attachment, 	or 	claims 	of 	creditors 	and 	shall
not 	otherwise 	be 	voluntarily 	or 	involuntarily 	alienated 	or
encumbered 	by 	such 	beneficiary.” 	The 	value 	of 	the 	debtor’s
share 	of 	the 	corpus 	of 	the 	1976 	trust 	was 	valued 	at 	$684,285.77
as of January 6, 2009.
A 	second 	trust 	(the 	“Will 	trust”) 	was 	created 	by 	the 	terms
of 	the 	Last 	Will 	and 	Testament 	of 	Gertrude 	S. 	Stroehmann, 	which
was 	executed 	on 	November 	18, 	1987. 	A 	residuary 	clause 	in 	the
Will 	directed 	that 	the 	residue 	of 	the 	estate 	be 	divided 	into 	two
equal 	shares 	to 	be 	held 	in 	trust. 	One 	of 	these 	shares 	was
divided 	further 	between 	David, 	Sr., 	and 	his 	children. 	David,
Jr., 	the 	debtor 	in 	this 	case, 	is 	one 	of 	the 	children 	of 	David,
Sr., and therefore a beneficiary of the Will Trust.
Defendants 	David, 	Sr., 	Samuel 	Wolcott, 	and 	Wachovia 	Bank,
N.A., 	are 	the 	trustees 	of 	the 	Will 	Trust. 	The 	Will 	trust
mandates 	that 	the 	trustee 	make 	distributions 	of 	all 	the 	net
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 4 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 4 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 4 of 19

5
income 	of 	a 	grandchild’s 	share 	in 	at 	least 	quarterly
installments. 	It 	further 	states 	that 	a 	trustee 	has 	absolute
discretion 	to 	invade 	the 	principal 	for 	the 	medical 	expenses,
support, and education of the beneficiaries.
The 	Will 	trust 	also 	contains 	a 	spendthrift 	provision. 	The
“Protective Provision” of the Will Trust states:
I 	direct 	that 	all 	legacies 	and 	all 	shares 	and
interests 	in 	my 	estate 	and 	any 	property 	appointed
under 	this 	will, 	whether 	principal 	or 	income, 	while 	in
the 	hands 	of 	my 	personal 	representatives, 	trustees 	or
the 	guardians 	of 	property, 	shall 	not 	be 	subject 	to
attachment, 	execution, 	or 	sequestration 	for 	any 	tort,
debt, 	contract, 	obligation 	or 	liability 	of 	any 	legatee
or 	beneficiary 	and 	shall 	not 	be 	subject 	to 	pledge,
assignment, conveyance or anticipation.
The 	trustees 	of 	the 	Will 	trust 	are 	directed 	to 	pay 	out, 	in 	full,
a 	grandchild’s 	remaining 	share 	when 	that 	grandchild 	reaches 	the
age 	of 	forty-five 	years 	old. 	If 	a 	grandchild 	dies 	before
reaching 	that 	age, 	the 	grandchild’s 	remaining 	interest 	passes 	to
other beneficiaries named in the Will trust.
A 	codicil 	to 	the 	Will, 	dated 	March 	10, 	1988, 	modifies 	this
last 	provision, 	making 	the 	grandchild’s 	interest 	pass 	to 	the
grandchild’s 	estate. 	The 	codicil 	further 	provides 	that 	“[n]o
principal 	or 	income 	of 	any 	grandchild’s 	trust 	may 	be 	used 	for
any 	person 	other 	than 	the 	grandchild 	for 	whom 	held . . . .”
David, 	Jr. 	was 	born 	on 	March 	2, 	1965 	and 	reached 	the 	age 	of
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 5 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 5 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 5 of 19

6
forty-five 	on 	March 	2, 	2010. 1
David, 	Jr., 	filed 	a 	Chapter 	7 	petition 	for 	bankruptcy 	on
June 	12, 	2007. 	Plaintiff 	Peggy 	S. 	Levin, 	the 	Chapter 	7 	Trustee
appointed 	to 	David, 	Jr.’s 	case, 	filed 	an 	adversary 	proceeding 	on
March 	14, 	2008. 	Plaintiff 	asked 	the 	bankruptcy 	court 	to 	order
Defendants 	to 	turn 	over 	all 	amounts 	distributed 	to 	the 	debtor
under 	“the 	Stroehmann 	Trust” 	since 	the 	filing 	of 	the 	petition,
including 	the 	principal 	of 	the 	trust, 	and 	all 	future 	income
generated 	by 	the 	trust.
The 	debtor’s 	interest 	in 	the
principal 	of 	the 	Will 	trust 	had 	a 	value 	of 	$299,581.31 	as 	of
January 6, 2009.
2
The 	bankruptcy 	court 	conducted 	a 	hearing 	on 	July 	10, 	2008.
In 	a 	subsequent 	order, 	the 	bankruptcy 	court 	reasoned 	that 	the
1976 	trust 	gives 	the 	debtor 	separate 	interests 	in 	the 	trust: 	(1)
an 	interest 	in 	the 	income 	from 	the 	trust 	during 	the 	life 	of 	the
trust, 	(2) 	an 	interest 	in 	the 	principal 	during 	the 	life 	of 	the
trust, 	and 	(3) 	a 	future 	interest 	in 	the 	principal 	that 	must 	be
paid 	to 	the 	debtor 	upon 	the 	termination 	of 	the 	trust. 	Later 	in
the 	order, 	the 	bankruptcy 	court 	recognized 	the 	latter 	two
Defendants 	filed 	a 	motion 	to 	dismiss
the complaint on June 18, 2008.
1 The 	Will 	trust 	therefore 	terminated, 	at 	least 	with 	regard
to the debtor’s share, during the pendency of this appeal.
2 The initial complaint does not distinguish between the two
trusts, but names all three Defendants as trustees.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 6 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 6 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 6 of 19

7
interests 	as 	two 	aspects 	of 	the 	same 	thing; 	the 	debtor’s 	right
to 	receive 	principal 	is 	divided 	into: 	(1) 	the 	present 	right 	to
receive 	disbursements 	of 	principal 	at 	the 	discretion 	of 	the
trustees, 	and 	(2) 	the 	future 	right 	to 	receive 	mandatory
distribution of principal upon termination of the trust.
Ultimately, 	the 	bankruptcy 	court 	granted 	Defendants’ 	motion
to 	dismiss 	as 	to 	the 	debtor’s 	right 	to 	receive 	income 	and
principal 	distributions 	during 	the 	life 	of 	the 	trust. 3
During 	the 	course 	of 	the 	proceedings, 	Plaintiff 	learned
that 	the 	debtor 	was 	the 	beneficiary 	of 	another 	trust, 	the 	Will
trust 	(discussed 	above). 	With 	leave 	of 	the 	bankruptcy 	court,
Plaintiff 	filed 	an 	amended 	complaint 	on 	February 	2, 	2009,
requesting 	an 	order 	that 	Defendants 	turn 	over 	all 	amounts 	paid
since 	the 	filing 	of 	the 	petition 	under 	the 	1976 	trust 	and 	the
The
bankruptcy 	court 	denied, 	however, 	the 	motion 	to 	dismiss 	“as 	to
the 	debtor’s 	future 	remainder 	interest 	in 	the 	trust 	principal,”
finding 	that 	such 	an 	interest 	“is 	a 	separate 	property 	interest
of 	the 	debtor 	that 	is 	property 	of 	the 	bankruptcy 	estate.”
Defendants 	filed 	a 	motion 	for 	summary 	judgment 	on 	January 	9,
2009. 	Plaintiff 	filed 	a 	motion 	for 	summary 	judgment 	on 	January
12, 2009.
3 Both 	the 	bankruptcy 	court 	and 	the 	district 	court 	found
these 	interests 	protected 	by 	a 	valid 	spendthrift 	provision.
Plaintiff does not challenge this ruling on appeal.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 7 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 7 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 7 of 19

8
Will 	trust, 	all 	future 	amounts 	to 	be 	paid 	under 	either 	trust,
and 	declaring 	that 	the 	debtor’s 	interest 	in 	both 	trusts 	is
property 	of 	the 	bankruptcy 	estate. 	Defendants 	filed 	answers 	to
the 	amended 	complaint 	and 	filed 	another 	motion 	for 	summary
judgment.
In 	an 	order 	entered 	on 	March 	30, 	2009, 	the 	bankruptcy 	court
referred 	to 	its 	previous 	order 	regarding 	only 	the 	1976 	trust 	and
recognized 	that 	“[t]his 	is 	the 	same 	issue 	previously 	determined
in 	this 	case, 	only 	with 	relation 	to 	a 	different 	trust
agreement.” 	Consistent 	with 	its 	previous 	order, 	the 	bankruptcy
court 	granted 	Plaintiff 	summary 	judgment 	insofar 	as 	“the
debtor’s 	remainder 	interests 	in 	both 	trusts 	are 	property 	. 	. 	.
that 	belong[s] 	to 	the 	bankruptcy 	estate.” 	The 	bankruptcy 	court
granted 	Defendants 	summary 	judgment 	“to 	the 	extent 	that 	the
income 	and 	principal 	distributions 	during 	the 	life 	of 	the 	trusts
are not property of the bankruptcy estate.”
Defendants 	appealed 	to 	the 	district 	court. 	The 	district
court 	reversed 	the 	bankruptcy 	court, 	concluding 	that 	the
debtor’s 	“future 	remainder 	interest 	in 	the 	principal 	of 	the
Trusts 	is 	protected 	by 	a 	valid 	spendthrift 	provision.” 	Wachovia
Bank, 	N.A. 	v. 	Levin, 	419 	B.R. 	297, 	303 	(E.D.N.C. 	2009).
Plaintiff appealed to this Court.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 8 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 8 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 8 of 19

9
II.
Initially 	we 	address 	a 	question 	of 	justiciability 	raised 	by
Defendants. 	Defendants 	argue 	that 	this 	appeal 	should 	be
dismissed 	as 	moot 	since 	provisions 	in 	both 	trusts 	permit
distribution of the entire principal prior to termination.
This 	Court 	has 	recognized 	that 	“when, 	pending 	appeal, 	an
event 	occurs, 	without 	the 	fault 	of 	the 	defendant, 	that 	makes 	it
impossible 	for 	the 	court 	to 	grant 	effective 	relief 	to 	the
plaintiff, 	should 	the 	plaintiff 	prevail 	on 	the 	merits, 	the
appeal 	should 	be 	dismissed 	and 	the 	court 	should 	not 	proceed 	to
judgment.” 	Cent. 	States, 	Se. 	and 	Sw. 	Areas 	Pension 	Fund 	v.
Cent. 	Transp., 	Inc., 	841 	F.2d 	92, 	95-96 	(4th 	Cir. 	1988). 	“The
mootness 	doctrine 	is 	a 	limit 	on 	our 	jurisdiction 	that 	originates
in 	Article 	III’s 	case 	or 	controversy 	language.” 	Townes 	v.
Jarvis, 	577 	F.3d 	543, 	554 	(4th 	Cir. 	2009) 	(quotation 	marks 	and
brackets 	omitted), 	cert. 	denied, 	130 	S. 	Ct. 	1883 	(2010). 	A
claim 	is 	not 	moot, 	however, 	as 	long 	as 	the 	parties 	have 	a
concrete 	interest 	in 	the 	outcome 	of 	the 	litigation. 	In 	re 	Balt.
Emergency 	Servs. 	II, 	Corp., 	432 	F.3d 	557, 	560 	n.* 	(4th 	Cir.
2005).
In 	the 	present 	case, 	Defendants 	argue 	that 	provisions 	of
the 	trusts 	permit 	the 	trustees 	to 	disburse 	the 	entire 	principal
prior 	to 	the 	termination 	of 	the 	trusts. 	It 	follows, 	according
to 	Defendants, 	that 	a 	judgment 	for 	Plaintiff 	“would 	not 	lead 	to
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 9 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 9 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 9 of 19

10
the 	recovery 	of 	any 	value 	for 	the 	benefit 	of 	[the 	debtor’s]
creditors.” 	Brief 	of 	Appellees 	at 	7-8. 	Defendants 	conclude
from 	this 	that 	the 	harm 	allegedly 	suffered 	by 	Plaintiff 	cannot
be redressed by a favorable decision.
Defendants 	do 	not, 	however, 	assert 	that 	as 	trustees 	they
have 	distributed 	the 	entire 	principal 	of 	the 	trusts. 	Indeed,
noticeably 	lacking 	from 	Defendants’ 	argument 	is 	any 	suggestion
that 	they 	have 	actually 	exercised 	their 	discretion 	under 	the
trust 	provisions 	that 	they 	claim 	prevent 	Plaintiff 	from
obtaining 	redress. 	Insofar 	as 	Plaintiff 	seeks 	to 	compel 	the
transfer 	of 	the 	debtor’s 	presently 	held 	remainder 	interests 	in
both 	trusts, 	the 	case 	is 	not 	rendered 	moot 	by 	the 	mere
possibility 	that 	they 	may 	later 	have 	no 	value. 	See 	In 	re 	Smith,
71 	F.2d 	378, 	380 	(9th 	Cir. 	1934) 	(subsequent 	payment 	of 	trust
principal 	did 	not 	render 	appeal 	moot 	where 	question 	raised 	was
whether 	debtor’s 	remainder 	interest 	was 	transferable 	in
bankruptcy).
Plaintiff 	observes 	in 	reply 	that 	the 	Will 	trust 	has 	already
terminated, 	and 	the 	debtor’s 	remainder 	interest 	in 	that 	trust 	is
now 	identifiable. 	We 	do 	not 	believe 	this 	circumstance 	has 	any
bearing 	on 	the 	alleged 	mootness 	of 	this 	appeal. 	Insofar 	as 	the
parties 	continue 	to 	dispute 	the 	debtor’s 	entitlement 	to 	his
remainder 	interests, 	the 	parties 	have 	a 	concrete 	interest 	in 	the
outcome 	of 	the 	litigation. 	It 	follows 	that 	the 	case 	is 	not
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 10 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 10 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 10 of
19

11
moot. 	See 	In 	re 	Balt. 	Emergency 	Servs. 	II, 	Corp., 	432 	F.3d 	at
560 n.*.
III.
We 	turn 	now 	to 	the 	merits 	of 	Plaintiff’s 	appeal. 	“We
review 	the 	judgment 	of 	a 	district 	court 	sitting 	in 	review 	of 	a
bankruptcy 	court 	de 	novo, 	applying 	the 	same 	standards 	of 	review
that 	were 	applied 	in 	the 	district 	court.” 	In 	re 	Merry-Go-Round
Enters., 	Inc., 	400 	F.3d 	219, 	224 	(4th 	Cir. 	2005). 	Thus, 	we
review 	the 	bankruptcy 	court’s 	factual 	findings 	for 	clear 	error,
and 	we 	review 	questions 	of 	law, 	including 	summary 	judgment, 	de
novo. 	Id.; 	see 	also 	In 	re 	French, 	499 	F.3d 	345, 	351 	(4th 	Cir.
2007).
A.
The 	bankruptcy 	estate 	includes 	“all 	legal 	or 	equitable
interests 	of 	the 	debtor 	in 	property 	as 	of 	the 	commencement 	of
the 	case,” 	with 	some 	exceptions. 	11 	U.S.C. 	§ 	541(a)(1). 	One
such 	exception 	provides 	that 	“[a] 	restriction 	on 	the 	transfer 	of
a 	beneficial 	interest 	of 	the 	debtor 	in 	a 	trust 	that 	is
enforceable 	under 	applicable 	nonbankruptcy 	law 	is 	enforceable 	in
a 	case 	under 	this 	title.” 	11 	U.S.C. 	§ 	541(c)(2). 	The
bankruptcy 	court 	and 	the 	district 	court 	agreed 	that 	this
provision 	excludes 	from 	the 	property 	of 	the 	bankruptcy 	estate
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 11 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 11 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 11 of
19

12
interests 	in 	trust 	that 	are 	protected 	under 	a 	spendthrift 	clause
that 	is 	enforceable 	under 	applicable 	state 	law. 	See 	Patterson
v. 	Shumate, 	504 	U.S. 	753, 	758 	(1992) 	(“The 	natural 	reading 	of
the 	provision 	entitles 	a 	debtor 	to 	exclude 	from 	property 	of 	the
estate 	any 	interest 	in 	a 	plan 	or 	trust 	that 	contains 	a 	transfer
restriction enforceable under any relevant nonbankruptcy law.”).
The 	parties 	do 	not 	dispute 	that 	the 	1976 	trust 	and 	the 	Will
trust 	are 	subject 	to 	Pennsylvania 	state 	law. 	Pennsylvania 	law
recognizes 	that 	“[a] 	spendthrift 	provision 	is 	valid 	only 	if 	it
restrains 	both 	voluntary 	and 	involuntary 	transfer 	of 	a
beneficiary’s 	interest.” 	20 	Pa. 	Cons. 	Stat. 	Ann. 	§ 	7742(a)
(West 	2006). 	Subject 	to 	certain 	exceptions 	not 	alleged 	to 	apply
here, 	“a 	creditor 	or 	assignee 	of 	the 	beneficiary 	of 	a
spendthrift 	trust 	may 	not 	reach 	the 	interest 	or 	a 	distribution
by 	the 	trustee 	before 	its 	receipt 	by 	the 	beneficiary.” 	Id. 	at 	§
7742(c). 	Both 	the 	bankruptcy 	court 	and 	the 	district 	court 	found
that 	both 	trusts 	here 	contained 	spendthrift 	provisions 	that 	are
valid under state law.
Pennsylvania 	courts 	“construe[] 	spendthrift 	provisions
broadly.” 	In 	re 	Blanchard, 	201 	B.R. 	108, 	125 	(Bankr. 	E.D. 	Pa.
1996). 	“No 	principle 	in 	the 	law 	of 	wills 	and 	trusts 	is 	more
firmly 	and 	clearly 	established 	than 	that 	the 	intention 	of 	the
testator 	or 	settlor 	must 	prevail.” 	Clark 	v. 	Clark, 	411 	Pa. 	251,
255, 	191 	A.2d 	417, 	419-20 	(1963). 	“The 	law 	rests 	its 	protection
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 12 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 12 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 12 of
19

13
of 	what 	is 	known 	as 	a 	spendthrift 	trust 	fundamentally 	on 	the
principle 	of 	cujus 	est 	dare, 	ejus 	est 	disponere. 	[He 	who 	has 	a
right 	to 	give, 	has 	the 	right 	to 	dispose 	of 	the 	gift.] 	It 	allows
the 	donor 	to 	condition 	his 	bounty 	as 	suits 	himself 	so 	long 	as 	he
violates 	no 	law 	in 	so 	doing.” 	In 	re 	Morgan’s 	Estate, 	223 	Pa.
228, 230, 72 A. 498, 499 (1909).
B.
In 	this 	case, 	Plaintiff 	argues 	that 	the 	bankruptcy 	court
correctly 	ruled 	that 	the 	debtor’s 	remainder 	interests 	in 	both
trusts 	are 	property 	of 	the 	bankruptcy 	estate. 	Plaintiff
concedes 	that 	the 	debtor’s 	interests 	in 	income 	and 	principal
during 	the 	life 	of 	the 	trusts 	are 	protected 	by 	the 	spendthrift
provisions 	and 	therefore 	not 	part 	of 	the 	bankruptcy 	estate.
Plaintiff 	contends, 	however, 	that 	the 	debtor’s 	remainder
interests 	in 	the 	corpus 	of 	the 	trusts 	are 	not 	similarly
protected.
Plaintiff 	relies 	on 	Ginsburg 	v. 	Hilsdorf, 	30 	Pa. 	D. 	& 	C.2d
384 	(1962). 	In 	Ginsburg, 	the 	Court 	of 	Common 	Pleas 	of
Pennsylvania 	considered 	whether 	the 	defendants’ 	interests 	in
three 	trusts 	might 	be 	attached 	in 	light 	of 	the 	spendthrift
provisions 	the 	trusts 	contained. 	Id. 	at 	390. 	The 	defendants 	in
Ginsburg 	were 	the 	vested 	remaindermen 	of 	the 	trusts’ 	corpus, 	but
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 13 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 13 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 13 of
19

14
were 	not 	beneficiaries 	entitled 	to 	any 	of 	the 	income. 	Id. 	at
395-96. 	The spendthrift provision stated:
No 	sum 	payable 	by 	my 	Trustees 	under 	the 	provisions 	of
the 	foregoing 	trust 	shall 	be 	pledged, 	assigned,
transferred 	or 	sold, 	or 	in 	any 	manner 	whatsoever
anticipated, 	charged 	or 	encumbered 	by 	the
beneficiaries 	thereunder, 	or 	any 	of 	them, 	or 	be 	in 	any
manner 	liable 	in 	the 	hands 	of 	my 	Trustees 	for 	the
debts, 	contracts 	and 	engagements 	of 	the 	beneficiaries
thereunder, or any of them.
Id. 	at 	394-395. 	The 	court 	found 	it 	clear 	from 	this 	provision
that 	the 	settlors 	intended 	to 	protect 	only 	the 	income
beneficiary. 	“If 	they 	intended 	the 	spendthrift 	provision 	to
protect 	the 	vested 	remainderman 	they 	could 	have 	said 	so. 	. 	. 	.
In 	failing 	to 	include 	the 	remainder 	interests 	in 	the 	spendthrift
provisions, 	the 	testators 	have 	left 	the 	door 	open 	to 	the 	present
attachment proceedings.” 	Id.
The
at 395.
Ginsburg 	court 	distinguished 	other, 	more 	expansive,
spendthrift 	provisions 	such 	as 	that 	which 	appeared 	in 	Riverside
Trust 	Co. 	v. 	Twitchell, 	342 	Pa. 	558, 	20 	A.2d 	768 	(1941). 	The
defendant 	in 	Riverside 	was 	the 	income 	beneficiary 	of 	a 	trust
established 	by 	her 	aunt. 	Id.
that 	there 	shall 	be 	no 	power 	of 	anticipation 	or 	of
pledge 	or 	assignment 	either 	of 	the 	income 	or 	of 	the
principal 	of 	the 	Trust 	Fund, 	or 	of 	any 	interest
therein 	whatsoever; 	and 	the 	Trustee, 	its 	successors
and 	assigns, 	shall 	hold 	and 	administer 	the 	Trust 	and
pay 	over 	the 	income 	received 	by 	it 	as 	aforesaid, 	and
the 	principal 	sum 	upon 	the 	termination 	of 	the 	Trust,
as 	herein 	provided, 	free 	from 	any 	debts, 	liabilities,
at 	560, 	20 	A.2d 	at 	769. 	The
spendthrift provision there stated
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 14 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 14 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 14 of
19

15
obligations 	or 	other 	engagements 	whatsoever 	of 	the
Grantor, 	or 	of 	any 	persons 	who, 	by 	the 	terms 	hereof,
may be or become beneficiaries hereunder.
Id. 	at 	560-61, 	20 	A.2d 	at 	769-70. 	The 	Riverside 	court 	held 	that
the 	spendthrift 	provision 	was 	meant 	to 	protect 	both 	income 	and
principal. 4 Id.
The
at 561-62, 20 A.2d at 770.
Ginsburg 	court 	also 	distinguished 	the 	spendthrift
provision 	that 	appeared 	in 	Harder 	v. 	Follansbee, 	102 	Pitts. 	L.
J. 231 (Pa. C.P. 1954). 5 The trust instrument in Harder directed
the 	trustee 	to 	pay 	the 	income 	to 	the 	settlor’s 	widow 	for 	life,
and 	thereafter 	to 	the 	defendant, 	who 	also 	held 	a 	remainder
interest 	in 	the 	corpus. 	Id. 	at 	231. 	The 	trust 	contained 	a
spendthrift 	provision 	that 	stated, 	“neither 	the 	principal 	nor
income 	of 	this 	trust 	fund 	shall 	in 	any 	manner 	be 	liable 	to 	the
control 	or 	answerable 	for 	the 	debts, 	contracts 	or 	engagements 	of
the 	beneficiaries 	hereunder 	or 	liable 	to 	any 	charge,
encumbrance, 	assignment, 	conveyance 	or 	anticipation 	by 	them.”
Id. 	at 	232. 	The 	Harder 	court 	held 	that 	the 	provision 	protected
the defendant’s interest in both income and principal. 6
4 The provision in Riverside, the Ginsburg court said, is “a
far 	cry 	from 	the 	one 	in 	the 	case 	at 	bar.” 	Ginsburg, 	30 	Pa. 	D. 	&
C.2d at 394.
Id.
5 This 	case 	is 	not 	available 	on 	Westlaw 	or 	Lexis 	but 	may 	be
obtained through public resources in the State of Pennsylvania.
6 The 	Ginsburg 	court 	stated 	simply 	that 	such 	a 	provision 	as
appeared 	in 	Harder 	did 	not 	appear 	in 	the 	instant 	case.
Ginsburg, 30 Pa. D. & C.2d at 393.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 15 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 15 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 15 of
19

16
Plaintiff 	notes 	that 	the 	spendthrift 	provisions 	here 	did
not 	explicitly 	cover 	the 	trust 	principal 	upon 	termination 	of 	the
trusts, 	as 	did 	the 	provision 	in 	Riverside. 	Plaintiff 	asserts
that 	the 	language 	of 	the 	trusts 	here, 	particularly 	that 	of 	the
Will 	trust, 	is 	similar 	to 	the 	language 	of 	the 	trusts 	construed
in 	Ginsburg
The 	spendthrift 	provision 	of 	the 	1976 	trust 	protects 	“[t]he
interest 	of 	any 	beneficiary 	in 	the 	corpus 	or 	income 	of 	any
trust” 	and 	the 	spendthrift 	provision 	of 	the 	Will 	Trust 	protects
“all 	shares 	and 	interests 	in 	my 	estate 	and 	any 	property
appointed 	under 	this 	will, 	whether 	principal 	or 	income.” 	Thus,
unlike 	the 	spendthrift 	provision 	in
. 	Plaintiff 	concludes 	that 	the 	debtor’s 	remainder
interests 	in 	the 	trusts 	are 	therefore 	not 	subject 	to 	the
protection of the spendthrift provision.
Ginsburg, 	the 	provisions
here 	explicitly 	mention 	both 	the 	income 	and 	the 	corpus/principal
of 	the 	trusts. 	They 	are 	therefore 	more 	analogous 	to 	the
spendthrift 	provisions 	distinguished 	by 	Ginsburg
Indeed,
than 	the
provisions at issue in that case.
Harder 	is 	directly 	on 	point. 	Like 	the 	debtor 	in
this 	case, 	the 	defendant 	in 	Harder 	held 	both 	an 	interest 	in 	the
income 	and 	a 	remainder 	interest 	in 	the 	principal 	of 	the 	trust.
Harder, 	102 	Pitts. 	L. 	J. 	at 	231. 	The 	court 	held 	that 	the
spendthrift 	provision 	obviously 	applied 	to 	income 	but 	also 	to
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 16 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 16 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 16 of
19

17
the 	defendant’s 	remainder 	interest 	in 	the 	principal. 	Id. 	at
232. 	The same reasoning applies here.
C.
Plaintiff 	next 	argues 	that 	this 	Court 	should 	join 	those
courts 	that 	have 	held 	a 	debtor’s 	remainder 	interest 	in 	a
spendthrift 	trust 	upon 	termination 	of 	the 	trust 	is 	part 	of 	the
bankruptcy 	estate. 	See 	In 	re 	Britton, 	300 	B.R. 	155 	(Bankr. 	D.
Conn. 	2003); 	In 	re 	Crandall, 	173 	B.R. 	836 	(Bankr. 	D. 	Conn.
1994); 	Matter 	of 	Strasma, 	26 	B.R. 	449 	(Bankr. 	W.D. 	Wis. 	1983).
Plaintiff 	insists 	that 	if 	the 	debtor 	holds 	an 	interest 	in 	the
corpus 	of 	a 	spendthrift 	trust 	upon 	its 	termination, 	“then 	those
funds 	cannot, 	by 	the 	plain 	language 	of 	the 	trust, 	be 	subject 	to
the 	spendthrift 	clause 	which 	necessarily 	must 	terminate 	with 	the
trust.” 	Brief 	of 	Appellant 	at 	18. 	Plaintiff 	recognizes 	that
the 	district 	court 	relied 	on 	Pennsylvania 	bankruptcy 	cases
contrary 	to 	her 	position, 	but 	argues 	that 	the 	courts 	that
decided 	those 	cases 	“failed 	to 	consider 	that 	they 	were 	expanding
the 	scope 	of 	spendthrift 	protection 	beyond 	that 	provided 	for 	by
state law.” 	Brief of Appellant at 22.
The 	district 	court 	explained 	that 	the 	apparent 	split 	of
authority 	does 	not 	support 	the 	bankruptcy 	court’s 	conclusion
that 	the 	principal 	here 	is 	unprotected 	because 	Pennsylvania 	law
alone 	controls 	this 	case. 	As 	the 	district 	court 	recognized,
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 17 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 17 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 17 of
19

18
Pennsylvania 	law 	protects 	remainder 	interests 	in 	the 	corpus 	of 	a
trust 	if 	the 	spendthrift 	provision 	of 	the 	trust 	instrument 	so
provides. 	See 	Clark, 	411 	Pa. 	at 	256, 	191 	A.2d 	at 	420 	(holding
that 	attempted 	conveyance 	of 	remainder 	interest 	in 	a 	trust 	was
invalid 	because 	the 	spendthrift 	provision 	prohibited 	beneficiary
from 	making 	any 	binding 	commitment 	of 	principal 	or 	income 	during
the 	life 	of 	the 	trust); 	In 	re 	Blanchard, 	201 	B.R. 	at 	126
(applying 	Pennsylvania 	law 	to 	provide 	spendthrift 	protection 	to
debtor’s 	remainder 	interest 	in 	the 	corpus 	of 	a 	trust 	and 	to
exclude 	the 	debtor’s 	interest 	in 	the 	corpus 	from 	the 	bankruptcy
estate); 	In 	re 	Katz, 	220 	B.R. 	556, 	565 	(Bankr. 	E.D. 	Pa. 	1998)
(holding 	that 	when 	the 	debtor’s 	entire 	interest 	in 	a 	trust 	was
protected 	by 	a 	valid 	spendthrift 	provision, 	the 	debtor 	could 	not
assign 	his 	interest 	in 	either 	the 	principal 	or 	the 	income 	before
they 	were 	distributed); 	cf. 	In 	re 	Will 	of 	Rintz, 	2007 	Phila. 	Ct.
Com. 	Pl. 	LEXIS 	254 	(June 	19, 	2007) 	(approving 	the 	distribution
of 	certain 	income 	and 	principal 	directly 	to 	the 	trust
beneficiary, 	despite 	the 	claims 	of 	his 	Chapter 	7 	bankruptcy
trustee, 	because 	they 	were 	protected 	by 	a 	valid 	spendthrift
provision).
The 	issue 	is 	thus 	not 	whether 	we 	should 	choose 	to 	follow
one 	line 	of 	cases 	or 	another. 	Rather, 	we 	are 	compelled 	to
follow 	applicable 	nonbankruptcy 	law. 	11 	U.S.C. 	§ 	541(c)(2). 	In
this 	case, 	that 	means 	we 	apply 	Pennsylvania 	law. 	Under
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 18 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 18 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 18 of
19

19
Pennsylvania 	law, 	“the 	intention 	of 	the 	testator 	or 	settlor 	must
prevail.” 	Clark, 	411 	Pa. 	at 	255, 	191 	A.2d 	at 	419-20. 	For 	the
reasons 	explained 	above, 	we 	believe 	that 	by 	explicitly 	invoking
the 	trusts’ 	principal, 	the 	settlor 	here 	intended 	the 	spendthrift
provisions to apply to the debtor’s remainder interests therein.
The 	spendthrift 	provisions 	here 	represent 	“[a] 	restriction
on 	the 	transfer 	of 	a 	beneficial 	interest 	of 	the 	debtor 	in 	a
trust 	that 	is 	enforceable 	under 	applicable 	nonbankruptcy 	law.”
11 	U.S.C. 	§ 	541(c)(2). 	The 	debtor’s 	remainder 	interests 	in 	the
trusts’ 	principal 	are 	therefore 	not 	included 	in 	his 	bankruptcy
estate. 	Id. 	The 	determination 	of 	the 	district 	court 	is
consequently
AFFIRMED.
Appeal: 09-2344 	Document: 27 	Date Filed: 06/28/2011 	Page: 19 of 19
Case 4:09-cv-00087-BO 	Document 31 	Filed 06/28/11 	Page 19 of 19
Case 08-00027-8-JRL Doc 75 Filed 06/30/11 Entered 06/30/11 09:26:16 Page 19 of
19