O'Rourke v. 2017 Mark Lamb Tr. (In re Edwin)

In re: DANIEL EDWIN & COLETTE OPAL BRAMLETT, Debtors.

KEVIN D. O'ROURKE, Chapter 7 Trustee, Plaintiff, v. THE 2017 MARK LAMB TRUST;

JULIANNE (SARA) WILLIAMS-HESSEMAN, TRUSTEE;

AND JOHN DOE WILLIAMS-HESSEMAN, husband and wife,

and DANIEL EDWIN

and COLETTE OPAL BRAMLETT, husband and wife, Defendants.

Case No. 20-00029-FPC7

Adversary No. 20-80012-FPC

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF WASHINGTON

Filed: November 23, 2020

November 20, 2020

NOT FOR PUBLICATION

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND TURNOVER ORDER

SUMMARY

Under California law, after an amount of trust principal has become due and payable (but has not yet been distributed), a creditor can petition to have the trustee pay directly to the creditor a sum up to the full amount of that distribution unless the trust instrument specifies the distribution is for the beneficiary's support or education and the beneficiary needs the distribution for those purposes. Carmack v. Reynolds, 391 P.3d 625, 215 Cal. Rptr. 3d 749 (2017). Where the trust provides for, and the beneficiary needs, the distribution for support or education, the creditor may petition for up to twenty-five percent of the payments expected to be made to the beneficiary. Id. In this case, the controlling issues are whether the Mark Lamb Trust principal distribution meant for the Debtor Colette Bramlett is "due and payable" and if so, whether the Trust provides for the support and education of Ms. Bramlett.

While it is widely recognized that the California Probate Code provisions relating to spendthrift trust provisions are "opaque,"¹ and "anything other than crystal clear,"² the California State Supreme Court has provided guidance in the Carmack decision. Applying Carmack, this Court concludes that Debtor Colette Bramlett's distribution from the Trust is presently "due and payable," and because the spendthrift provision explicitly provides for Ms. Bramlett's support and education, the Chapter 7 Trustee is entitled to collect twenty-five percent of the total Trust payments expected to be made to Ms. Bramlett.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

This adversary case was commenced on April 28, 2020 by Chapter 7 Trustee Kevin O'Rourke. (Adv. Case No. 20-80012, ECF No. 1). At a hearing on July 14, 2020, the parties agreed that the Court should decide this case based upon declarations and stipulated facts. (ECF No. 34) The Court considered the related pleadings, declarations, exhibits, and the statements of material facts submitted by the parties. Based on the foregoing, the Court enters the following findings of fact, conclusions of law, and order:

FINDINGS OF FACT³

1. On February 7, 2017, Mark Lamb executed a Last Will and Testament of Mark Lamb and a Declaration for Trust for the 2017 Mark Lamb Trust ("the Trust"). (Adv. Case No. 20-80026, ECF No. 36) Both the Trust and Mark Lamb's Last Will and Testament were signed in Sonora, California.

2. Mark Lamb died on March 4, 2018.

3. Mark Lamb was the father of Debtor Colette Bramlett, who was one of four named beneficiaries of the Trust. Another daughter, Julianne (Sara) Williams-Hesseman, was named the trustee of the Mark Lamb Trust.

4. Trust Article IV governs distributions from the Trust during the Settlor's life.

5. Trust Article VII instructs the trustee to distribute the estate upon the Settlor's death:

A. On the Settlor's death, the Trustee shall distribute any remaining balance of the trust estate, including principal and accrued undistributed income, to whomever the Settlor shall appoint by Will or Codicil specifically referring to and exercising this power of appointment.

* * *

B. On the Settlor's death, if and to the extent that the Settlor shall not have effectively disposed of all of the trust estate through a valid and effective exercise power of appointment, the Trustee shall hold, administer, and distribute the remaining trust estate as follows:

* * *

(4) I give, devise and bequeath all of the rest and residue of my property, whether personal or real, as follows:

* * *

b. One-fourth (1/4) thereof to my daughter, Collette Bramlett.

6. Trust Article VIII addresses the powers of the Trustee. The introduction states:

To carry out the provisions of the trust created under this instrument and subject to any limitations stated elsewhere in this instrument, the Trustees shall have all of the following powers, in addition to all of the powers now or hereafter conferred on Trustees by the law.

7. Trust Article VIII(A)(30) authorizes the Trustee to defer distribution of the estate:

The Trustee may, in the Trustee's discretion, defer actual division or distribution for such reasonable period of time as is needed to effectively identify, take possession of, value, divide and distribute the assets of the trust. The ability of the Trustee to delay division or distribution shall not affect the vesting interests, which shall be as of the date of death.

8. Trust Article XIV is a spendthrift clause that states in full:

[T]he interests of the beneficiaries are not transferable by voluntary or involuntary assignment or by operation of law, and shall be free from the claims of creditors and from attachment, execution, bankruptcy and other legal process, to the maximum extent permitted by law. If any such transfer is made or attempted by or against any beneficiary, all further trust payments of income or principal or both to that beneficiary (and any right of that beneficiary to such payments) shall be suspended for a period of time or indefinitely (and any right of that beneficiary to such payments) shall be suspended for a brief period of time or indefinitely (but in no case for longer than the term of the trust) as the trustee determines. In lieu of payments to that beneficiary, the trustee may apply so much of the trust income or principal or both to which the beneficiary would otherwise be entitled as the trustee deems necessary for the beneficiary's education and support. All trust income (to which the beneficiary would otherwise be entitled) not so applied shall in the discretion of the trustee be accumulated and added to trust principal at such time or times as the trustee deems proper.

(Emphasis added.)

9. Absent court authorization, Article VIII(A)(31) prohibits the trustee from terminating the Trust before the Trust term expires. The Trust term expires "twenty-one (21) years after the death of the last to die of the group consisting of the Settlor and all living issue of the Settlor on the date of the Settlor's death." Article IX(I).

10. Trust Article IX(D) states "the use of the word 'shall' indicates a mandatory direction, while the use of the word 'may' indicates a permissive, but not mandatory, grant of authority."

11. Debtors Daniel Edwin Bramlett and Colette Opal Bramlett filed a Chapter 7 bankruptcy petition on January 8, 2020. Plaintiff was appointed as the Chapter 7 Trustee in the Debtors' bankruptcy on the same day.

12. Schedule B, line 25 of Debtor's bankruptcy schedules lists an asset "Beneficiary of the 2017 Mark Lamb Trust" with an unknown value. Debtors claimed a beneficial interest in the Trust as an exempt asset under 11 U.S.C § 541(c)(2) on Schedule C.

13. On February 21, 2020, the Chapter 7 Trustee filed an Objection to Debtor's claimed exemption related to the Mark Lamb Trust. (ECF No. 28). On March 19, 2020, after no objections were filed, the Court entered an Order Disallowing Claim of Exemptions. (ECF No. 33).

14. The only property in the Mark Lamb Trust was real property commonly known as 5425 Dogtown Road, Coulterville, California (the "Coulterville Property").

15. On April 1, 2020, the Trust sold the Coulterville Property for $185,870.78. The proceeds of the sale were disbursed to the Mark Lamb Trust trustee, Ms. Williams-Hesseman.

16. The Chapter 7 Trustee initiated this lawsuit on April 28, 2020. The Chapter 7 Trustee requested the Court direct Ms. Williams-Hesseman to turn over $46,467.70, representing Ms. Bramlett's one-fourth proportional share of the proceeds from the sale of the sole asset of the Trust, the Coulterville Property.

17. Trustee/Defendant Julianne Williams-Hesseman's pro se Answer asserted several legal theories to support her defense that Ms. Bramlett's beneficial interest in the Trust is not property of Ms. Bramlett's estate, based on specific Trust provisions. One of the arguments Ms. Bramlett raised was that the Trust is a spendthrift trust with an anti-alienation provision, and therefore the trustee has the power to retain the property in the Trust and withhold distributions. Additionally, Ms. Bramlett argued that the exact dollar amount representing her one-quarter interest in the Trust could not yet be determined.

18. Debtor/Defendant Collette Bramlett's pro se Answer raised identical legal theories to support the defense that Trust property is not properly deemed property of her the bankruptcy estate.

19. Pending trial, the Court granted the Chapter 7 Trustee's motion for a restraining order, requiring the Trust to retain at least $46,467.70 until the Court decided this issue.

20. At a hearing on July 14, 2020, both parties agreed to forgo a trial, and stipulated that the Court should decide the case based on declarations and stipulated facts.

21. Ms. Williams-Hesseman, as trustee, made partial distributions of the proceeds from the Coulterville Property sale to two of the four Trust beneficiaries.

22. The parties to this dispute agree the sole issue is whether Ms. Bramlett's bankruptcy estate has a full one-quarter interest in the proceeds from the sale of the Coulterville Property.

23. The primary purpose of the Trust was to distribute the remaining balance of assets upon Mr. Lamb's death, in the proportional amounts as indicated in the Trust.

24. Because Mark Lamb died and subsequently the sole asset of the Trust was liquidated, Ms. Bramlett's share of the Trust has become due to her.

25. Under the terms of the Trust, Ms. Bramlett has no power or authority over the Trust: she...