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Title
Judge Alice M. Batchelder endeavors to limit via a dissenting opinion the damage one
federal appellate court has surely done to the institution of the trust.
Text
The foundation of the federal appellate court’s holding in JPMorgan Chase Bank v.
Winget (6th Cir., 2022) is the false premise that an inter vivos trust under which its settlor has
reserved a right of revocation (hereinafter “revocable trust”) and the settlor personally are
autonomous when it comes to affording the settlor’s creditors access to the entrusted property.
Throughout the court’s opinion the trust is referred to as an “entity.” First, a trust is a fiduciary
relationship with respect to property title to which is in the trustee. It is not an entity. Second,
equity deems property subject to a revocable trust to be owned outright by the settlor for creditor
access purposes. Just as moving funds from one’s checking account to one’s savings account
alone cannot be a fraudulent conveyance, so also revoking one’s revocable trust alone cannot be
one. In neither situation is economic value relinquished or alienated.
Judge Alice M. Batchelder dissented “in the perhaps vain hope that this small gesture
might help restrain the opinions and holdings in this case to just this case.” She bemoaned the 15
years of unnecessary litigation that had been fueled by the early muddling of basic trust law by
an ever-unrepentant appellate court. There had already been eight appeals, not to mention 40
federal district court opinions.
Here is the trust law that should have been applied throughout: During the lifetime of the
settlor of a revocable trust, the trust property is subject to the claims of the settlor’s creditors. In
equity, the right of revocation is an ownership-equivalent power. While such a trust is a true trust
and not an agency, see National Shawmut Bank v. Joy, 53 N.E.2d 113 (Mass. 1944), functionally
the trustee, for all intents and purposes, is an agent of the settlor. Thus, as is the case with the
relationship of principal and agent, it cannot be said that the settlor of a revocable trust and the
trust relationship itself are autonomous. As to a revocable declaration of trust, where the settlor
and the trustee are one and the same, even the agency analogy breaks down as one cannot enter
into an agency relationship with oneself. The Winget trust was just such a trust.
Here is what happened: Venture, Mr. Winget’s company, became insolvent. Venture
owed lenders $450 million. In exchange for Winget’s personal guarantee of $50 million, Chase,
the lenders’ administrative agent, held off accelerating the debt. As per the unfortunate
documentation, the “trust” ostensibly was a co-guarantor. Lacking, however, was any language
applying to the “trust” the $50 million cap. The trial judge had found this omission to have been
a mutual mistake. Venture filed for bankruptcy. Winget paid the $50 million. Chase then
endeavored to reach and apply the assets subject to his revocable trust in satisfaction of the “rest
of the debt.” At some point Winget revoked the trust. In 2022 the appellate court held that the
revocation had been a fraudulent conveyance in that the $50 million cap applied only to Winget
personally: “Today, we address whether Winget can revoke the Trust, making the trust assets
unreachable to Chase. He cannot.” Judge Batchelder dissented: The entrusted assets had always
been reachable by Chase, but subject to the $50 million cap, this because from the outset the
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reserved right of revocation, in equity, had been a power equivalent in substance to outright and
unrestricted ownership of the entrusted property.
For some basic trust law ignored in this litigation see §5.3.3.1 of Loring and Rounds: A
Trustee’s Handbook (2022), which section is reproduced in its entirety in the Appendix A below.
The Handbook is available for purchase at https://law-
store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-
misb/01t4R00000OVWE4QAP.
For a full transcription of Judge Batchelder’s dissent, see Appendix B below.
Appendix A
§5.3.3.1 Reaching Settlor’s Reserved Beneficial Interest or Even the
Entrusted Property Itself [from Loring and Rounds: A Trustee’s Handbook (2022), available
for purchase at https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-
misb/01t4R00000OVWE4QAP].
The settlor-beneficiary’s inter vivos creditors. In the United States, for public policy
reasons, a settlor124 cannot place property in trust for the settlor's own benefit and keep it and/or
the equitable interest beyond the reach of the settlor's125 creditors.126 (It has been likewise in
England, at least as far back as the reign of Henry VII, and perhaps as far back as even the reign
of Edward III.)127 In other words, on public policy grounds, a spendthrift provision in a trust
124The beneficiary need not have made the actual transfer of the property to the trustee. See
generally §8.43 of this handbook (determining the trust’s true settlor). A beneficiary who had
paid consideration in return for which someone else made the transfer would be deemed the
settlor with the result that the beneficiary's creditors would have access to the constructively
retained interest. Restatement (Third) of Trusts §58 cmt. f. Also, “[a] life beneficiary of a
spendthrift trust created by another who pays off encumbrances on the trust property becomes to
that extent settlor of the trust.” Restatement (Third) of Trusts §58 cmt. f.
125See Restatement (Third) of Trusts §58 cmt. e (confirming that the policy would not
necessarily negate a spendthrift restraint with respect to the interests of persons other than the
settlor).
126“Such interest will pass to the settlor's trustee in bankruptcy as ‘a beneficial interest…in a
trust that’ is not subject to a restriction on transfer ‘that is enforceable under applicable
nonbankruptcy law’ under the terms of Bankruptcy Code §541(c)(2).” Restatement (Third) of
Trusts §58 cmt. e.
12773 Hen. VII, c. 4 (1487); 50 Edw. III, c. 6 (1376). See generally Erwin N. Griswold,
Spendthrift Trusts Created in Whole or in Part for the Benefit of the Settlor, 44 Harv. L. Rev.
203 (1930). See also 1 Scott & Ascher §1.1 (noting that “for six hundred years, people have
resorted to trusts to evade creditors' claims, but, until very recently, it has always been
recognized that permitting them to do so was contrary to sound policy”); 3 Scott & Ascher §15.4
(noting that these English statutes were also interpreted as “enabling the settlor's creditors to
