Thompson-Rossbach v. Doeling (In re Thompson-Rossbach)

No. 15-6012 (8th Cir. B.A.P. Dec. 2, 2015).
Trust distributions that had become fully alienable and were no longer protected by spendthrift provisions were not excluded from the bankruptcy estate by § 541(c)(2) and were therefore available for distribution by the trustee to creditors. Affirmed.
Procedural context:
Debtor objected to chapter 7 trustee’s final report and moved to compel trustee to abandon funds distributed to the chapter 7 trustee from a family trust. The bankruptcy court concluded that the trust distribution was fully alienable, and therefore § 541(c)(2) did not prevent the funds from becoming property of the estate. The debtor appealed.
Debtor was the beneficiary of a revocable trust created by her mother. The trust included a spendthrift provision preventing any alienation, encumbrance, or assignment of trust property or any beneficiary’s interest therein, except that any property distributable by virtue of the beneficiary having attached a specified age (21) would be fully alienable. Shortly after the trust settler died, debtor filed a petition for chapter 7 relief, and the chapter 7 trustee received approximately $17,000 in distributions from the trust, which the debtor argued were excluded by § 541(c)(2) from the definition of “property of the estate” and therefore should be abandoned. In affirming the bankruptcy court’s denial of the debtor’s motion, the Bankruptcy Appellate Panel concluded that the language of the trust agreement was unambiguous in rendering fully alienable any property distributable by reason of the beneficiary reaching a specified age. Given that the debtor had already reached the age of 21, the trust distributions were fully alienable and therefore not excluded from the estate under § 541(c)(2).
Schermer, Saladino, and Nail.

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