Opinion
Case No. 10-45397-399.
October 26, 2010
MEMORANDUM OPINION
This matter comes before this Court on the objection to Donna Sue Spector's (the "Debtor") claim of an exemption filed by A. Thomas DeWoskin, Chapter 7 trustee (the "Trustee"). In response to the Trustee's objection, the Debtor claimed that her interest in a Deferred Payment Gift Annuity Agreement is excepted from property of her bankruptcy estate pursuant to § 541(c)(2) of Title 11 of the United States Code (the "Bankruptcy Code"). The issues before this Court are whether: (1) the Debtor's interest under the Deferred Payment Gift Annuity Agreement is property of her bankruptcy estate; and (2) if such interest is property of the Debtor's estate, whether the Debtor may claim it as exempt under Missouri Revised Statute § 513.430(1)(10)(e). Based upon a review of the record and after careful consideration, this Court finds that the Debtor's interest in the Deferred Payment Gift Annuity Agreement is excepted from the property of her bankruptcy estate. Accordingly, this Court does not reach the issue of whether such interest would be exempt from the property of the Debtor's bankruptcy estate under § 513.430(1)(10)(e). This Court makes the following findings of fact (which are not disputed) and conclusions of law.
BACKGROUND
On May 14, 2010, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. She was 54 years old at the time.
On her Schedule B, the Debtor listed a personal property interest in her rights under a Deferred Payment Gift Annuity Agreement (the "Agreement") between The Washington University and Jean M. Shoenberg. The Agreement is dated June 11, 2004 and provides that Mrs. Shoenberg made a charitable contribution of $505,055.00 to The Washington University in 2004. From the contribution, the Debtor is to receive monthly installment payments of $4,166.71 (or $50,000.52 annually) beginning on November 1, 2015, and continuing until her death. If the Debtor dies before November 15, 2015, The Washington University has no further obligation to the Debtor under the Agreement. The Agreement is calculated based on the Debtor's date of birth, November 17, 1955. Payments to the Debtor commence during the month of her sixtieth birthday.
The Debtor has not contributed to the Agreement and the terms of the Agreement do not provide her with the option to do so. She has no authority to control the timing or amount of the Agreement payments. The Agreement states "[t]his annuity is nonassignable" and is governed by the laws of the State of Missouri.
In her Affidavit, the Debtor explained that she worked with Mrs. Shoenberg and her family for many years. For the first fifteen years, she worked as a medical assistant, office support person or office manager for Central Medical Group. As a part of her employment with Central Medical Group, the Debtor assisted the Shoenbergs with their personal home needs. Thereafter, the Debtor assisted the Shoenberg family with various matters. It was the Debtor's understanding that the Shoenbergs would make sure that she was "taken care of" during her retirement. Mr. Shoenberg died in 2001. Mrs. Shoenberg died in June of 2008. The Debtor ceased working for the Shoenberg family in 2008.
The Debtor claimed an exemption of her rights in the Agreement under § 513.430(1)(10)(e) of the Missouri Revised Statutes. The Trustee objected to the Debtor's claim of an exemption. In her responses to the Trustee's objection, the Debtor defends her claim of an exemption but also maintains that her interest in the Agreement is excluded from the property of her bankruptcy estate pursuant to spendthrift trust law in Missouri and Bankruptcy Code § 541(c)(2). The Trustee asserts that the Annuity is simply a gift from Mrs. Shoenberg to the Debtor and that it cannot be excluded from her estate as a spendthrift trust and it fails to qualify as exempt under § 513.450(1)(10)(e).
DISCUSSION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), 157(b)(2) and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Property of the Estate
In general, a debtor's bankruptcy estate consists of "all legal or equitable interest of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1); Benn v. Cole (In re Benn), 491 F.3d 811, 813 (8th Cir. 2007). Certain exceptions exist to the general definition of property of the estate. Relevant here is § 541(c)(2), which makes enforceable "[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 claims that her interest in the Agreement is excluded from the property of her bankruptcy estate because the Agreement includes a provision indicating that it is "nonassignable," which qualifies as a spendthrift provision under Missouri law. To determine whether the Debtor's interest in the Agreement is excluded from her bankruptcy estate, this Court conducts a two-part inquiry, asking first whether the Agreement creates a trust and, if so, whether it is a spendthrift trust.
The Eighth Circuit Court of Appeals conducted a review of similar inquiries by lower courts under Minnesota and California law in Drewes v. Schonteich, 31 F.3d 674 (1994), a case involving "gift annuity agreements" with many similarities to the Agreement in this case. In Schonteich, the debtor had worked as a live-in companion and caretaker for an elderly man. Id. at 676. The elderly man entered into agreements with charitable institutions. The debtor was named as beneficiary under the agreements. Id. The man contributed cash and stock to the charitable institutions and the institutions were required to pay the debtor monthly amounts. Id. The monthly payments were terminable at the debtor's death. Id. The agreements were expressly nonassignable. Id. They were called "gift annuity agreements" and the word "trust" did not appear in the agreements. Id. at 677. The Eighth Circuit concluded that the bankruptcy court did not err when it determined that the agreements between the elderly man and the debtor were spendthrift trusts under applicable state law and were not property of the debtor's bankruptcy estate. Id. at 678. Agreement as a Trust
Missouri has adopted the Missouri Uniform Trust Code. MO. REV. STAT. §§ 456.1-101 to 456.11-1106. It provides for the creation of a trust by, among other things, "transfer of property to another person as trustee during the settlor's lifetime." Id. at 456.4-401. Other than for trusts established by statutes that are inapplicable here, certain requirements must be met before a trust is created: (1) the settlor has capacity to create a trust; (2) the settlor indicates an intention to create the trust; (3) the settlor has a definite beneficiary . . .; (4) the trustee has duties to perform; and (5) the same person is not the sole trustee and sole beneficiary." Id. at § 456.4-401.
The Missouri Uniform Trust Code took effect on January 1, 2005. MO. REV. STAT. § 456.11-1104. "Sections 456.1-101 to 456.11-1106 apply to all trusts created before, on or after January 1, 2005." MO. REV. STAT. § 456.11-1106.
Each requirement for the creation of a trust is met by the Agreement. Mrs. Shoenberg transferred money to The Washington University during her lifetime. It is clear that The Washington University acted as a fiduciary. There has been no suggestion that Mrs. Shoenberg lacked the capacity to create a trust in 2004 when she signed the Agreement. The Debtor is a definite beneficiary of the Agreement. As a fiduciary, The Washington University has duties to perform by making the requisite distributions to her. The Debtor is the beneficiary, but she is not the trustee.
This leaves the question of Mrs. Shoenberg's intent. No specific words are required for the creation of an express trust. If the settlor's intent is adequately expressed, the terms "trust" or "trustee" are not required. Schonteich, 31 F.3d at 677 (citing Bingen v. First Trust Co. Of St. Paul, 103 F.2d 260, 263 (8th Cir. 1939)); Ramsey v. City of Brookfield, 237 S.W.2d 143,145 (Mo. 1951) (citation omitted). The evidence necessary to establish the validity of a trust, "must be clear and convincing and so full and demonstrative as to remove from the mind . . . any reasonable doubt with respect thereto." Tonkovich v. Crown Life Ins. Co., 165 S.W.3d 210, 215 (Mo. Ct. App. 2005) (quoting Atlantic Nat'l Bank of Jacksonville, Fla. v. St. Louis Union Trust Co., 211 S.W.2d 2, 5 (Mo. 1948)). It is clear from the face of the Agreement that Mrs. Shoenberg intended for the Debtor to benefit during her lifetime from her gift to The Washington University. See Schonteich, 31 F.3d at 677 (finding no error in lower courts' determination that settlor possessed requisite trust intent in that he intended for debtor to benefit for her lifetime from the funds he gave to the charitable institutions). Based on the inclusion of language stating that the annuity is nonassignable, it is also evident that Mrs. Shoenberg intended for the trust to be a spendthrift trust.
Agreement as a Spendthrift Trust
The next step of this Court's inquiry is to determine whether the Debtor's interest in the Agreement is subject to a valid spendthrift provision, excepting it from property of her bankruptcy estate under Bankruptcy Code § 541(c)(2).
General Spendthrift Trust Law
Section 456.1-103 of the Missouri Trust Code defines the term "spendthrift provision" as "a term of a trust which restrains either the voluntary or involuntary transfer or both the voluntary and involuntary transfer of a beneficiary's interest." MO. REV. STAT. § 456.1-103. Likewise, § 456.5-502(1) provides that "[a] spendthrift provision is valid if it restrains either the voluntary or involuntary transfer or both the voluntary and involuntary transfer of a beneficiary's interest." MO. REV. STAT. § 456.5-502(1).
The Agreement includes a valid spendthrift provision expressly stating that "[t]his annuity is nonassignable." The Court interprets this restriction broadly prohibiting voluntary and involuntary transfers. Moreover, the Debtor does not exercise dominion or control over the trust assets. See Markmueller v. Case (In re Markmueller), 51 F.3d 775, 777 (8th Cir. 1995) (spendthrift provision invalid if beneficiary has right to exercise dominion or control over trust assets) (citations omitted). The parties stipulated that: (1) the Debtor has not contributed to the Agreement and she is not permitted to do so; and (2) she has no authority to control the timing or amount of payments. Likewise, The Debtor could not amend or revoke the trust and she had no powers in it. In re Walters, 172 B.R. 283, 286 (Bankr. W.D. Mo. 1994) (citations omitted) (spendthrift trust is unenforceable if beneficiary may revoke trust or has powers in it).
Rules regarding whether a settlor may also be a beneficiary of a spendthrift trust have been used to assess the validity of spendthrift provisions. Because the Debtor was not the settlor of the trust, this Court does not analyze Missouri law on self-settled spendthrift trusts.
The Trustee argues that the Debtor's interest in the Agreement becomes property of her estate because the spendthrift provision protects only the Debtor's voluntary transfers of her interest, not the involuntary transfers. Nothing in the Agreement weighs in favor of such a restrictive reading. The language in the Agreement indicating that "[t]his annuity is nonassignable" is recognized as a valid spendthrift provision under § 456.5-502(1). MO. REV. STAT. § 456.5-502(1). Bankruptcy Code § 541(c)(2) recognizes that a restriction on the transfer of a beneficial interest that is enforceable under state law is also enforceable in bankruptcy. 11 U.S.C. § 541(c)(2). The Debtor's interest in the Agreement is, thus, excluded from her bankruptcy estate.
MO. REV. STAT. § 456.014In her original response to the Trustee's objection, the Debtor argued that her interest in the Agreement was excepted from her estate pursuant to § 456.014 of the Missouri Revised Statutes and Bankruptcy Code § 541(c)(2). Thereafter, the Debtor amended her response to state that her interest in the Agreement is excepted from her estate under spendthrift law in Missouri generally and § 541(c)(2). Section 456.014 provides, in pertinent part, that:
[a] trust created as part of a stock bonus plan, nonpublic pension plan, disability or death benefit plan, profit-sharing plan, or retirement plan, for the exclusive benefit of employees to which contributions are made by an employer . . . for the purpose of distributing to such participant the earnings or the principal, or both earnings and principal of the fund so held in trust, shall be deemed to be a spendthrift trust if the plan or trust includes a provision restraining the assignment, alienation, or other voluntary or involuntary transfer of the interest of a participant in the trust. MO. REV. STAT. § 456.014.
Because this Court has already determined that the Agreement creates a trust with a valid spendthrift provision under Missouri law, the Court does not address whether it would also be deemed to be a spendthrift trust under § 456.014.
Exemption
"[M]ost assets become property of the estate upon the commencement of the bankruptcy case, see 11 U.S.C. § 541, and exemptions represent the debtor's attempt to reclaim those assets or, more often, certain interests in those assets, to the creditors' detriment." Mwangl v. Wells Fargo Bank, N.A. (In re Mwangi), 432 B.R. 812, 820 (B.A.P. 9th Cir. 2010) (quoting Schwab v. Reilly, 560 U.S. ___, ___, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010)). In light of this Court's determination that the Debtor's interest in the Agreement was excluded from her estate in the first instance, there is no reason to consider whether the Debtor's interest in the Agreement qualifies as exempt under § 513.430(1)(10)(e) of the Missouri Revised Statutes.
CONCLUSION
The Debtor's interest in the Agreement is excluded from her bankruptcy estate pursuant to Bankruptcy Code § 541(c)(2) as a valid spendthrift trust under Missouri law. Because the Debtor's interest in the Agreement never became property of her estate, this Court does not need to address whether it would have qualified as exempt under § 513.430(1)(10)(e) of the Missouri Revised Statutes. Accordingly, the Trustee's objection to the Debtor's claim of an exemption shall be denied.