In re Dodart

Decision Date20 November 2017
Docket NumberBankruptcy Number: 16–20582
Citation577 B.R. 406
Parties IN RE: Oliver David DODART, Debtor.
CourtU.S. Bankruptcy Court — District of Utah

577 B.R. 406

IN RE: Oliver David DODART, Debtor.

Bankruptcy Number: 16–20582

United States Bankruptcy Court, D. Utah.

Signed November 20, 2017


577 B.R. 407

Kristin K. Woods, Kristin K. Woods, PLLC, St. George, UT, for Debtor.

George B. Hofmann, Patrick E. Johnson, Cohne Kinghorn PC, Salt Lake City, UT, for Trustee.

MEMORANDUM DECISION

WILLIAM T. THURMAN, U.S. Bankruptcy Judge

The matter before the Court is the chapter 7 trustee's Motion to Turnover Property (the "Motion"). The Court conducted a hearing on the Motion on November 2, 2017. Patrick Johnson appeared on behalf of the chapter 7 trustee, David West (the "Chapter 7 Trustee"). Kristin Woods appeared on behalf of the Debtor.

After review of the pleadings filed, and based upon the oral arguments made by the parties at the hearing, the Court took the matter under advisement, and now issues the following Memorandum Decision, which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this contested matter by Federal Rule of Bankruptcy Procedure 9014(c).

I. Jurisdiction and Venue

The jurisdiction of this Court is properly invoked under 28 U.S.C. § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(E) and this Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. §§ 1408 and 1409. Notice of the hearings is found to be adequate in all respects.

II. Facts

The parties have stipulated to the facts. This case was filed under Chapter 7 of the Bankruptcy Code on January 27, 2016 (the "Petition Date"), which created a bankruptcy estate of the Debtor's assets, and the Chapter 7 Trustee was appointed to administer the Debtor's Estate.

577 B.R. 408

The Debtor is a beneficiary of the Amy Jean Sanders Family Trust, created on August 14, 2006 (the "Trust"). Amy Jean Sanders (the "Settlor") is the Debtor's mother, and she passed away on or about June 29, 2015. Greg Sanders is the Debtor's brother, and the current trustee of the Trust ("Trustee Greg Sanders").

Several clauses of the Trust must be considered in this ruling. They are as follows:

1.1 Purpose of the Trust. The Settlor establishes this Trust for the primary benefit of the Settlor during the Settlor's lifetime, and for the Settlor's family thereafter.

...

3.1 Rights of the Settlor. As long as the Settlor is alive the Settlor reserves the right to amend, modify or revoke this Trust in whole or in part, and to make additions to or withdrawals from this Trust....

...

5.1 Trust for Settlor and Children. The Trustee, in the Trustee's sole discretion, shall distribute part, all or none of the income and principal of the Trust Estate, as the Trustee deems necessary for the health, support, maintenance and education of the Settlor and issue. The Trustee's primary responsibility shall be to provide for the Settlor. The Trustee's secondary responsibility shall be to provide for Settlor's children. In making distributions pursuant to these directions, the Trustee need not make equal distributions to the various beneficiaries.

5.2 Distribution Upon the Death of Settlor. All remaining trust assets (principal and income) shall be held, administered and distributed as follows: Until the youngest living child of the Settlor is age 30, the Trustees, in their sole discretion, shall distribute such funds from income or principal of the Trust Estate, as they deem necessary for the support, maintenance and education of the Settlor's children, and grandchildren (if the Trustee deems the grandchildren to be in need); such payments need not be in equal amount.... If amounts are not disbursed under this provision after the youngest living child has reached age 30, then the remainder shall be distributed according to Section 5.3.

5.3 Distribution—Separate Trusts. When the Settlor's youngest child has reached 30 years of age, the Trustee, as soon as is conveniently possible, shall divide the remaining property of the Trust Estate into equal shares to create one share for each of Settlor's then living children and one share collectively for the issue of each of Settlor's then deceased children. The Trustee shall administer and distribute the shares as follows:

5.301 Living Children. The Trustee shall continue to hold the share created for each then living child as a separate trust for that child and shall distribute his or her share to each child upon the child's request therefore....

...

8.2 Spendthrift Clause. The interest of each beneficiary in the income or principal of any Trust shall not be subject to the claims of any creditor, any spouse for alimony or support, or others. No creditor may attach, garnish or lien the assets of the Trust. No beneficiary may voluntarily or involuntarily alienate or encumber the beneficiary's interest in the Trust or the assets of the Trust. This provision shall not restrict the exercise of any power of appointment or withdrawal that is granted to a beneficiary in this Trust Agreement.
577 B.R. 409

The Settlor had four children, and the Debtor and his siblings are each entitled to one-fourth of the Trust's assets. The Trust contained a number of assets that Trustee Greg Sanders has administered. The available cash and a life insurance policy have already been distributed equally among the four siblings. One of the siblings purchased the Settlor's home by paying the other three siblings one-fourth of the value each. Two of the real property assets were apparently sold long ago, before the Settlor's death. The asset identified as the Clearfield property is "in limbo"1 and does not appear to have much value, in the opinion of Trustee Greg Sanders. Another asset identified as the Monitor investment may be worth approximately $368,000.00 and Trustee Greg Sanders comments that he is "hopeful that this will be paid back over the next few years if the real estate market remain stable. This is not a certainty."2 The Court assumes this means that the real property value will be converted to cash and then distributed. The Clearfield property and the Monitor investment are the only two assets left in the Trust. The parties provided a list of distributions from the Trust that show that each of the four siblings has received $150,500.00 over a period of time between July, 2015 and late in 2017.

The Debtor received distributions from the Trust prior to the Petition Date, which are not the subject of the Motion. On April 1, 2016, the Debtor testified during his continued 341 meeting that the Trust's remaining assets included real property in which Greg Sanders lives and a hard money loan investment.

The Debtor further testified at the 341 meeting that the Settlor's home was not for sale and he did not expect any additional distributions from the Trust until the home was sold. Not long thereafter, Greg Sanders decided to buy the home. On or about July 10, 2016, Greg Sanders made an initial payment of $10,000 to the Debtor for a portion of his one-fourth share of the value of the home. Greg Sanders made three additional payments to the Debtor for $20,000, $20,000 and $30,000 on September 3, 2016, November 8, 2016, and January 21, 2017, respectively, for a total of $80,000 for the Debtor's portion of the home. On or about January 15, 2017, the Debtor and the other beneficiaries of the Trust agreed that Greg Sanders purchased the house from the Trust for $320,000. The parties signed documents evidencing this sale.

In addition to the $80,000 received from the sale of the home, the Debtor received distributions of $7,000 and $3,500 from the Trust on or about April 19, 2016 and June 7, 2017, respectively. In sum, the Debtor has received $90,500.00 in distributions from the Trust since the Petition Date.

The administration of the Trust is still ongoing, and the Trust still owns assets in need of administration.

When the Debtor initially filed his petition, he included his interest in the Trust on Schedule B. Later, the Debtor amended Schedule B on October 4, 2017 and removed his interest in the Trust, citing the recent Tenth Circuit case, Scott v. King (In re Amerson), 839 F.3d 1290 (10th Cir. 2016).

577 B.R. 410

III. Legal Analysis

The commencement of a bankruptcy case creates a bankruptcy estate that is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a).3 This phrase is to be construed broadly.4 However, Congress expressly excluded a debtor's beneficial interest in a trust if there is "[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law ...." § 541(c)(2). " ‘For purposes of most bankruptcy proceedings, property interests are created and defined by state law. Once that state law determination is made, however, we must still look to federal bankruptcy law to resolve the extent to which that interest is property of the estate’ under § 541." In re Dittmar, 618 F.3d 1199, 1204 (10th Cir. 2010) (quoting Parks v. FIA Card Servs., N.A., 550 F.3d 1251, 1255 (10th Cir.2008) ). If the spendthrift...

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