Green v. Zukerkorn (In re Zukerkorn)

Green v. Zukerkorn (In Re Zukerkorn), Bankruptcy No.: 10-13626, BAP No.: NC-11-1506-JuKiJo
The Ninth Circuit Bankruptcy Appellate Panel affirmed the Bankruptcy Court denial of Chapter 7 Trustee's Motion to Compel turnover of all or some of a spendthrift trust as part of the Bankruptcy Estate. CHOICE OF LAW CLAUSE: The State of Hawaii recognizes spendthrift clauses and the choice of law clause was upheld because Hawaii has a substantial relationship to the trust given the facts of the case and the fact that the Debtors were domiciled in California, sought bankruptcy relief in California and some creditors were located in California were not enough to outweigh the relationship to Hawaii. POST-PETITION PAYMENTS FROM SPENDTHRIFT TRUST: The Trustee asserted that 11 USC 541(a)(5)(A), under California law, would allow for the interception of a percentage of the payments as an inheritance for the 180 days after filing Bankruptcy. The Court ruled against the Trustee with the reasoning that this statutory provision only applies to testamentary trust and not an inter vivos trust.
Procedural context:
The Chapter 7 Trustee moved the Bankruptcy Court to compel the turnover of all or part of a spendthrift trust. The Bankruptcy Court denied the Trustee's Motion on all three issues: 1) enforceability of the trust's choice of law provision designating Hawaii; 2) validity of the trust's spendthrift clause; and 3) whether post-petitions payments to Debtor became part of the estate.
While living in Hawaii, with most if not all of her assets located in Hawaii, Zukerkorn's mother prepared a trust in which a spendthrift clause would not allow for the payment of trust property to creditors of the beneficiary. Many years later and after being domiciled in California for more than two years, the Debtor filed Bankruptcy. At the time of filing Bankruptcy, Zukerkorn was both the Trustee and the Beneficiary of the spendthrift trust. Listing the Trust as the basis of a large portion of income, Zukerkorn filed for Chapter 7 protection.
Presiding Bankruptcy Judge Alan Jaroslovsky, Judge Jury, Judge Johnson

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