In re Salkin

Citations: 526 B.R. 31; 2015 Bankr. LEXIS 597; 2015 WL 901219Docket: Case No.: 6:13-bk-28775-MW

Court: United States Bankruptcy Court, C.D. California; February 26, 2015; Us Bankruptcy; United States Bankruptcy Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

John P. Pringle, the appointed chapter 7 trustee of Ellen L. Saltón's bankruptcy estate, is compelled by her motion to turn over the original Promissory Note Secured by Deed of Trust dated October 19, 2001, which was issued by the First Church of Christ and is owned by the Saltón Family Trust, established on June 8, 1984. The Note, with a principal amount of $165,000, requires payments of $1,273.50 monthly, including interest at 8%, with the final payment due November 14, 2026. The Trust was created by Marshall A. Saltón and Ellen L. Saltón, who served as joint settlors and co-trustees until Mr. Saltón's death in December 2011, after which Ms. Saltón became the sole trustee.

The Trust was initially revocable and allowed the Salkins to retain income during their lifetimes. Upon Mr. Saltón's death, the Trust became irrevocable, leading to its division into a Family Trust and a Marital Trust, with the entire estate allocated to the Family Trust due to its value being below the federal estate tax threshold. Ms. Saltón is a lifetime beneficiary of the Family Trust, entitled to its income and distributions for her support.

The Family Trust will distribute its assets to the Salkins’ children upon Ms. Saltón’s death, or to specified beneficiaries if no children are living. Ms. Saltón's beneficial interest in the Trust's net income is considered property of the bankruptcy estate under 11 U.S.C. § 541(a)(1). The Trust's spendthrift provision does not protect her interests from creditor claims, as California Probate Code section 15304(a) renders such clauses unenforceable against the trustee as a creditor of the settlor.

Ms. Saltón holds a beneficial interest in the Trust that qualifies as property of the estate under 11 U.S.C. § 541(a)(1), allowing her access to Trust principal for her "proper care, support, and maintenance" as defined in section 5.02. The spendthrift clause in section 8.03 does not inhibit the Trustee's ability to claim this interest. Although a chapter 7 trustee typically must present evidence regarding the cash needed for a debtor's support, Ms. Saltón's declaration indicates her need for monthly Trust distributions for her basic care, effectively closing this evidentiary gap.

The Court previously expressed concerns regarding California Probate Code section 15304(b), which restricts a creditor's access to Trust assets based on the settlor's contributions. However, the Trustee did not demonstrate Ms. Saltón's contributions to the Trust, yet argued that this statute is inapplicable due to the comprehensive nature of 11 U.S.C. § 541(a)(1), which includes the debtor's entire interest in the Trust. Citing Cutter v. Seror, the Court stated that if a trust allows a debtor-beneficiary to control trust property contributed by others, the estate is entitled to the maximum amount payable to the debtor-beneficiary.

As the sole trustee, Ms. Saltón can access all Trust income and principal, thus the Trustee can compel her to turn over a Note. Although 11 U.S.C. § 541(a)(1) grants the bankruptcy trustee all rights in property, it does not extend beyond the rights of the debtor. An unresolved issue is whether Ms. Saltón’s entitlement to Trust principal for her support is temporally limited; specifically, if anticipated distributions for her maintenance, calculated against her life expectancy, would constrain the Trustee's claim to the entire Trust estate or just the expected distributions.

Cutter suggests that the bankruptcy trustee may be entitled to the entire trust estate, potentially granting the trustee rights to trust principal and income that exceed those of the debtor. A key issue arises regarding whether the trustee can accelerate the right to trust principal distributions designated for "proper care, support, and maintenance," which the debtor may not have the right to do. Specifically, if the trust stipulates that the debtor can only request principal distributions for these purposes within a limited timeframe, the trustee may not have the authority to consolidate lifetime needs into a single request. The Court refrains from addressing these issues, as neither party has presented them, and there is insufficient information on the debtor's age or life expectancy. The decision is concluded with the statement, "IT IS SO ORDERED."