On Thursday March 5, 2020, the Massachusetts Supreme Judicial Court will hear oral argument on the following question, certified to it by the U.S. First Circuit Court of Appeals: whether a self-settled spendthrift irrevocable trust that is governed by Massachusetts law and allowed unlimited distributions to the settlor during his lifetime protects assets in such trust from a reach and apply action by the settlor’s creditors after the settlor’s death (docket and briefs available here). The Massachusetts Uniform Trust Code addresses what the result would be in the case of a revocable trust and in the case of an irrevocable trust before a settlor’s death; however, there appears to be no statutory authority as to the result with the facts here: an irrevocable trust after a settlor’s death.
The facts begin in Arizona with the age-old tale of neighbors suing each other, here, over shared water rights. They then quickly turn darker and end with suicide and double homicide.
Donald and Ellen Belanger were one set of neighbors in the lawsuit who had moved to Arizona from Massachusetts. Armand and Simonne De Prins were the other set of neighbors, who eventually prevailed on the water rights suit and obtained a monetary judgment against the Belangers. Mrs. Belanger, distressed at least in part about the loss of the lawsuit, committed suicide.
Four weeks after his wife’s suicide, Mr. Belanger contacted his attorney and created an irrevocable trust (the “Trust”). The Trust was a self-settled trust that named his attorney as sole trustee, named himself as sole beneficiary during life, and his daughter as sole beneficiary after his death. The Trust also contained a spendthrift clause and stated that Mr. Belanger could not “alter, amend, revoke, or terminate” the Trust. After signing the Trust, Mr. Belanger transferred substantially all of his assets to the Trust. Four months after signing the Trust, Mr. Belanger shot and killed the De Prinses. Mr. Belanger then killed himself.
The De Prinses’ son filed a wrongful death action in Arizona against Mr. Belanger’s estate and settled the wrongful death action with the personal representative of Mr. Belanger’s estate (who was also the trustee of the Trust). Such settlement stipulated that collection of the judgment against the estate would be exclusively against the Trust and that a reach and apply action against the Trust would be transferred to the U.S. District Court of Massachusetts, where the trustee resides. At issue was a single claim to reach and apply the Trust’s assets to satisfy the $750,000 wrongful death judgment against Mr. Belanger’s estate.
After cross-motions for summary judgment, the District Court entered judgment for the De Prinses’ son holding that, under Massachusetts law, a self-settled trust cannot be used to shield one’s assets from creditors, even where the trust has a spendthrift provision and the trustee had made no distributions to the settlor prior to his death. This is the question that the Court of Appeals then looked at.
The Court of Appeals looked to Massachusetts case law and statutory law. MUTC § 505(a)(3) provides that “[a]fter the death of a settlor, . . . the property of a trust that was revocable at the settlor’s death shall be subject to claims of the settlor’s creditors,” even despite a spendthrift clause. This statute and Massachusetts case law make clear that the assets of a trust that was revocable during a decedent’s life would be reachable by his creditors at death.
MUTC § 505(a)(2) states that, “[w]ith respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit.” Thus, during Mr. Belanger’s life, a creditor could have reached all of the Trust assets, as such trust assets could have been distributed to Mr. Belanger. The statute leaves open whether an irrevocable trust is reachable by creditors after a settlor’s death.
It will be interesting to see what the Supreme Judicial Court rules. In either event, it will be good to have certainty on this issue. Stay tuned to this blog for the result.