- Case Type:
- Case Status:
- Reversed and Remanded
- BAP No. CC-20-1285-GTL (9th Circuit, Sep 03,2021) Published
- Under California probate law, the execution of a written disclaimer of an interest in a trust by a beneficiary is insufficient to makes the disclaimer a voidable transfer under California's enactment of the Uniform Fraudulent Transfer Act (Cal. Civ. Code §§ 3439‒3449). Disclaiming an interest in a trust is not an act of dominion or control over an interest in the trust.
- Procedural context:
- The bankruptcy court granted summary judgment in favor of the debtor's chapter 7 trustee, holding that the debtor's execution of a Consent to Exercise Discretion was an acceptance of the debtor's interest in a Bypass Trust. The bankruptcy court thus held that the execution of the Consent was a constructively fraudulent transfer under California Civil Code §§ 3439.04(a)(2) and 3439.05 (part of the Uniform Fraudulent Transfer Act). The recipient of the assets of the Bypass Trust, the debtor's mother (Linda), asked the bankruptcy court to reconsider its holding. The bankruptcy court denied the motion, but certified the order granting partial summary judgment as a final order for purposes of Rule 54(b). Linda timely appealed.
- James Christopher Patow ("James"), the son of Linda and Alvin Patow, was a beneficiary of the Alvin and Linda Patow 2006 Trust before he filed a Chapter 7 bankruptcy petition. In 2007, James' father died and the Trust's assets were transferred to a Survivor's Trust and a Bypass Trust. The Survivor's Trust was revocable during Linda Patow's life. In addition, the income from the Bypass Trust was to be distributed to the surviving spouse (Linda), and the Bypass Trust was subject to spendthrift provisions prohibiting beneficiaries, including James, from alienating his interest in the trust. The spendthrift provisions do not prohibit a beneficiary from disclaiming his interest. In 2014, Linda's attorney advised her that the Bypass Trust was no longer necessary from a tax perspective. The attorney advised Linda to use her discretion to transfer the Bypass Trust's assets to herself and then to the Survivor's Trust. The attorney prepared an Agreement, which included a document captioned Consent to Exercise Discretion. The Consent was prepared for execution by James and his sister, the other beneficiary of the Bypass Trust. The Consent states that James "consent[s] to the Exercise of Discretion by the Trustee of [the Bypass] Trust, to invade the principal of said Trust and return it all to Linda E. Patow." James did not receive any consideration for executing the Consent in May 2014. In September 2015, a judgment for $16,583.69 was entered against James. Another judgment was entered against James in May 2017. James filed his Chapter 7 petition on May 21, 2018.
- GAN, TAYLOR, and LAFFERTY, Bankruptcy Judges
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