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Frealy v. Reynolds (In re Reynolds)

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Aug 15, 2017
No. 12-60068 (9th Cir. Aug. 15, 2017)

Opinion

No. 12-60068 BAP No. 11-1433

08-15-2017

IN RE RICK H. REYNOLDS, Debtor. TODD A. FREALY, Attorney, Chapter 7 Trustee of Estate of Rick Reynolds, Appellant, 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.

COUNSEL 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.


FOR PUBLICATION

OPINION Appeal from the Ninth Circuit Bankruptcy Appellate Panel
Hollowell, Pappas, and Dunn, Bankruptcy Judges, Presiding Argued and Submitted March 7, 2014 Pasadena, California Before: Alex Kozinski and Susan P. Graber, Circuit Judges, and Charles R. Breyer, District Judge. Per Curiam Opinion SUMMARY

The Honorable Charles R. Breyer, United States District Judge for the Northern District of California, sitting by designation.

This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. --------

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. COUNSEL 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.

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

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Summaries of

Frealy v. Reynolds (In re Reynolds)

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Aug 15, 2017
No. 12-60068 (9th Cir. Aug. 15, 2017)
Case details for

Frealy v. Reynolds (In re Reynolds)

Case Details

Full title:IN RE RICK H. REYNOLDS, Debtor. TODD A. FREALY, Attorney, Chapter 7…

Court:UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Date published: Aug 15, 2017

Citations

No. 12-60068 (9th Cir. Aug. 15, 2017)