Linda Thompson-Rossbach v. Gene W. Doeling ( 2015 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 15-6012
___________________________
In re: Linda Thompson-Rossbach, also known as Linda Thompson, also known as
Linda Rossbach
lllllllllllllllllllllDebtor
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Linda Thompson-Rossbach
lllllllllllllllllllllDebtor - Appellant
v.
Gene W. Doeling
lllllllllllllllllllllTrustee - Appellee
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Appeal from United States Bankruptcy Court
for the District of Minnesota - Fergus Falls
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Submitted: October 9, 2015
Filed: December 2, 2015
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Before SCHERMER, SALADINO, and NAIL, Bankruptcy Judges.
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NAIL, Bankruptcy Judge.
Linda Thompson-Rossbach appeals the February 25, 2015 order of the
bankruptcy court1 overruling her objection to the chapter 7 trustee's final report and
denying her motion to compel the chapter 7 trustee to abandon $16,893.44 he had
received from the Ruth E. Thompson Revocable Trust. We affirm.
BACKGROUND
On January 16, 2012, Ruth E. Thompson, Thompson-Rossbach's mother,
executed a trust agreement that created the Ruth E. Thompson Revocable Trust ("the
Trust"). The trust agreement included, inter alia, the following provisions:
2.3.3 The trustee shall divide all the trust assets not
effectively distributed by the preceding provisions of this
agreement, including any property that becomes
distributable to my trustee at my death, in eight equal
shares, one share for each child of mine who survives me,
and one share for each child of mine who does not survive
me. My daughter Ruth Elaine Thompson is disabled and
has special needs. The share of my daughter Ruth Elaine
Thompson shall be held in trust under the provision of
paragraph 2.3.4 below. My trustee shall distribute to each
of my other children one share, or if any of my children do
not survive me such child's share shall be distributed per
stirpes to such child's descendants who survive me, or if no
such descendant survives me, then such share shall be
distributed to the distributees taking under this paragraph
in proportion to their respective shares.
4.1.1 Disposition of Certain Assets. If any assets of my
trust become distributable to a person who has not attained
age twenty-one (21), such assets, in the discretion of the
1
The Honorable Michael E. Ridgway, United States Bankruptcy Judge for the
District of Minnesota.
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trustee, may be distributed to such person, or may be
retained in a separate trust for such person's benefit. . . .
5.2.1 Governing Law. Except as altered by this agreement,
the law of Minnesota shall govern the meaning of this
document and the validity, legal effect and administration
of my trust. . . .
5.3.4 Spendthrift Provisions. Neither principal or income
of any trust nor any beneficiary's interest therein shall be
subject to alienation, assignment, encumbrance,
appointment or anticipation by the beneficiary, to
garnishment, attachment, execution or bankruptcy
proceedings, to claims for alimony, support, maintenance,
or payment of other obligations by any person against the
beneficiary, or to any other transfer, voluntary or
involuntary, by or from any beneficiary [provided that any
principal distributable to any beneficiary by reason of
having attained a specified age shall be fully alienable by
such beneficiary after attaining such age].
(Brackets in original.)
Less than two months later, Thompson passed away. At the time of her death,
Thompson had eight children, including Thompson-Rossbach, all of whom were over
the age of twenty-one; twelve grandchildren, all of whom were also over twenty-one;
and five great-grandchildren, all of whom were under twenty-one.
On January 31, 2013, Thompson-Rossbach filed a petition for relief under
chapter 7 of the bankruptcy code. Gene W. Doeling was appointed the chapter 7
trustee. In that capacity, Doeling received two distributions from the Trust: an
interim distribution of $500.00 in May 2013 and a final distribution of $16,393.44 in
December 2013.
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When Doeling filed his final report, he included the $16,893.44 he had
received from the Trust in the funds he proposed to distribute to Thompson-
Rossbach's creditors. Thompson-Rossbach filed an objection to Doeling's final report
and a motion to compel Doeling to abandon the $16,893.44. Thompson-Rossbach
argued the Trust was a "spendthrift trust" and her interest in it was thus excluded
from the bankruptcy estate.
Both matters were heard, and on February 25, 2015, the bankruptcy court
issued its oral ruling overruling Thompson-Rossbach's objection and denying her
motion to compel abandonment and entered a written order memorializing its oral
ruling. The bankruptcy court concluded because Thompson-Rossbach had attained
the age of twenty-one at the time of Thompson's death, her interest in the Trust was
fully alienable on the petition date and was thus not excluded from the estate.
Thompson-Rossbach timely appealed.
STANDARD OF REVIEW
On appeal, Thompson-Rossbach challenges the bankruptcy court's
interpretation of the trust agreement. Neither Thompson-Rossbach nor Doeling
suggests the trust agreement is ambiguous. Consequently, we review de novo the
bankruptcy court's interpretation of it. See Arvest Bank v. Cook (In re Cook), 504
B.R. 496, 502 (B.A.P. 8th Cir. 2014) ("A bankruptcy court's interpretation of an
unambiguous contract is an issue of law to be reviewed de novo.") (citation therein).
DISCUSSION
The filing of a petition for relief under the bankruptcy code creates a
bankruptcy estate comprising, inter alia, all the debtor's legal and equitable interests
in property on the petition date. 11 U.S.C. § 541(a)(1). State law determines the
nature and extent of a debtor's interest in property. Butner v. United States, 440 U.S.
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48, 55 (1979). However, federal law determines the extent to which the debtor's
interest becomes property of the bankruptcy estate. Lindquist v. JNG Corp. (In re
Lindell), 334 B.R. 249, 253 (Bankr. D. Minn. 2005) (citing N.S. Garrott & Sons v.
Union Planters Nat'l Bank (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir.
1985)).
Section 541(a)(1) defines property of the estate broadly and encompasses
conditional, future, speculative, and equitable interests of the debtor. United States
ex rel. Gebert v. Transport Admin. Services, 260 F.3d 909, 913 (8th Cir. 2001)
(citations therein). This seemingly all-encompassing language is tempered somewhat
by other provisions of the bankruptcy code, including § 541(c)(2), which excludes
spendthrift trusts2 from the estate: "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 [bankruptcy] case[.]" 11 U.S.C. § 541(c)(2).
In this case, Thompson-Rossbach and Doeling agree the trust agreement
included a valid spendthrift provision. They disagree, however, on whether that
spendthrift provision applied to Thompson-Rossbach's interest in the Trust on the
petition date.
In interpreting the trust agreement, we are guided first and foremost by the
language of the trust agreement itself:
The trustor's intent, as expressed in the language of the
trust, dominates construction. If there is no ambiguity in
the language when read in light of the surrounding
circumstances, extrinsic evidence of the trustor's intent is
2
Under Minnesota law, a spendthrift trust is a trust "in which the power of
alienation has been suspended[.]" Van Dyke v. First Nat'l Bank (In re Moulton's
Estate), 46 N.W.2d 667, 670 (Minn. 1951) (citations omitted).
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not allowed. The reviewing court may not speculate as to
what the trustor would have done if he knew of events that
occurred after his death.
In re Trust of Wiedemann, 358 N.W.2d 139, 141 (Minn. Ct. App. 1984) (citations
omitted) (emphasis added).
When we apply the foregoing principles, our reading of the trust agreement
comports with that of the bankruptcy court. The spendthrift provision in ¶ 5.3.4
unambiguously provides, "any principal distributable to any beneficiary by reason of
having attained a specified age shall be fully alienable by such beneficiary after
attaining such age."
To have been entitled to a distribution under ¶ 2.3.3 upon Thompson's death,
a beneficiary had to have attained the age of twenty-one. Otherwise, pursuant to ¶
4.1.1, the trustee, in the trustee's discretion, could have either made a distribution to
the beneficiary or retained the distribution in a separate trust for the beneficiary's
benefit.
Thompson-Rossbach was entitled to a distribution under ¶ 2.3.3 upon her
mother's death because she had attained the age of twenty-one at the time. Pursuant
to ¶ 5.3.4, her interest in the Trust was therefore fully alienable by her on the petition
date. Consequently, her interest in the Trust was not excluded from the bankruptcy
estate under § 541(c)(2), and both the interim distribution and the final distribution
were properly paid to–and properly retained by–Doeling for distribution to
Thompson-Rossbach's creditors.
Thompson-Rossbach argues the bankruptcy court's interpretation of the
bracketed portion of ¶ 5.3.4 "deprives the introductory language of that paragraph of
any real meaning [because] there were no reasonably likely circumstances prior to
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[Thompson's] death that one could envision that would make the spendthrift clause
applicable." We disagree.
While the circumstances under which ¶ 5.3.4 would have been implicated, e.g.,
the untimely passing of at least one of Thompson's children and at least one of that
child's children, may not have seemed likely, the possibility of those circumstances
coming to pass still existed when Thompson executed the trust agreement. And, as
Doeling suggests, in ¶ 4.1.1, Thompson clearly contemplated just such a scenario
when, knowing all her children and grandchildren were over twenty-one, she
nevertheless conditioned a beneficiary's absolute right to receive a distribution on the
beneficiary's attaining the age of twenty-one.
Thompson-Rossbach also argues the bracketed portion of ¶ 5.3.4 "was meant
to apply to the more likely second scenario, where the supplemental needs trust for
[Thompson's] daughter, [Ruth Elaine Thompson], established by Paragraph 2.3.4 of
the Trust, terminated sometime in the future and the remaining assets of the
supplemental needs trust became distributable [under ¶ 2.3.4.4.6.23] to a minor - a
great[-]grandchild or even great-great[-]grandchild of . . . Thompson." We agree the
bracketed portion of ¶ 5.3.4 would also apply to that scenario. However, to the extent
Thompson-Rossbach is arguing the bracketed portion of ¶ 5.3.4 was meant to apply
only to that scenario–and that is how we read her argument–we disagree.
Nothing in the language of the trust agreement supports such a restrictive
interpretation. If the bracketed portion of ¶ 5.3.4 had been meant to apply only to the
supplemental needs trust established for Ruth Elaine Thompson, ¶ 5.3.4 could easily
3
Pursuant to ¶ 2.3.4.4.6.2, upon Ruth Elaine Thompson's death, "The Trustee
shall distribute the entire remaining balance of the [supplemental needs] trust estate
as follows: To [Thompson's] descendants, who survive [Ruth Elaine Thompson], per
stirpes."
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have so provided. It did not. Alternatively, it could easily have been included
somewhere in ¶ 2.3.4. It was not.
Instead, ¶ 5.3.4 was included in Article Five of the trust agreement. The
introductory paragraph of Article Five unambiguously provides, "In applying the
provisions of [the trust agreement], the following shall govern[.]" Paragraph
5.3.4–including the bracketed portion thereof–thus applies to the entire trust
agreement, not just to the supplemental needs trust established by ¶ 2.3.4.
Finally, Thompson-Rossbach argues "the special circumstances of . . . [Ruth
Elaine Thompson], for whom a supplemental needs trust was created, [Thompson's]
very short life expectancy at the time she executed [the] Trust, and the number and
ages of [Thompson's] descendants at that time, all are proper 'surrounding
circumstances' for [our] consideration." Thompson-Rossbach does not, however,
clearly explain how these surrounding circumstances warrant our ignoring the
unambiguous language of the trust agreement. In any event, for the reasons discussed
above, our consideration of them does not alter our reading of the trust agreement.
CONCLUSION
Having reviewed the trust agreement de novo, we agree with the bankruptcy
court: Pursuant to ¶ 5.3.4 of the trust agreement, Thompson-Rossbach's interest in
the Trust was fully alienable by her on the petition date, and her interest in the Trust
was not excluded from the bankruptcy estate under § 541(c)(2). We therefore affirm
the bankruptcy court's February 25, 2015 order overruling Thompson-Rossbach's
objection to Doeling's final report and denying her motion to compel Doeling to
abandon the $16,893.44 he received from the Trust.
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