Introduction
Lawson & Weitzen attorneys J. Mark Dickison and Ryan Ciporkin recently clarified Massachusetts trust law after obtaining a successful decision from the Massachusetts Supreme Court. In De Prins v. Michaeles, decided on October 20, 2020, the Massachusetts Supreme Judicial Court held the assets of a self-settled spendthrift irrevocable trust that allowed unlimited distributions to the settlor during his lifetime can be reached by the settlor’s creditors after the settlor’s death.
Procedural and Factual Background
In 2000, Donald and Ellen Belanger moved from Massachusetts to Arizona. The Belangers disagreed with their neighbors, Armand and Simone De Prins, about shared water rights. In 2005, the De Prins filed a lawsuit against the Belangers over the shared water rights, and the Belangers lost the lawsuit.
In June 2008, the Belangers moved from Arizona to California. On October 4, 2008, as a result, at least in part, of losing the shared water rights lawsuit, Ellen Belanger committed suicide. Immediately after Ms. Belanger’s death, Donald Belanger moved back to Arizona to live with his daughter, Christina Clark.
Only one week after Ms. Belanger’s death, Mr. Belanger contacted his attorney, Michael J. Michaeles, about creating an irrevocable trust. On October 28, 2008, Mr. Michaeles prepared the Donald A. Belanger Irrevocable Trust Dated October 28, 2008, and on November 3, 2008, Mr. Belanger signed the Trust. The Trust was a self-settled trust that named Mr. Michaeles as its sole trustee, Mr. Belanger as its sole beneficiary during his life, and Ms. Clark as the sole beneficiary after Mr. Belanger’s death. Additionally, the Trust contained a spendthrift clause and provided that Mr. Belanger could not alter, amend, revoke, or terminate the Trust. Mr. Belanger conveyed substantially all his assets to Mr. Michaeles as trustee.
On March 2, 2009, Mr. Belanger shot and killed the De Prins in Arizona. The next morning, on March 3, 2009, the police pulled Mr. Belanger over in New Mexico, but Mr. Belanger shot and killed himself before the officer got to his car. As a result, Mr. Michaeles became the personal representative of the Estate of Donald Belanger (“the Estate”), which was probated in Arizona.
On June 10, 2010, the plaintiff – the De Prins’s son, Harry De Prins – brought a wrongful death suit against, among others, Mr. Michaeles, as personal representative of the Estate in Arizona state court. On July 26, 2010, one of the defendants removed the case to the United States District Court for the District of Arizona.
On November 28, 2014, after learning of the Trust through the wrongful death litigation, Mr. De Prins brought an action to reach and apply the assets of the Trust in the United States District Court for the District of Arizona against the Trust and Michaeles as its trustee.
In June of 2015, Mr. De Prins, as Creditor in the probate action for the Estate and Plaintiff in both the wrongful death and the reach and apply actions, entered into a stipulation with Mr. Michaeles. In that stipulation, the parties agreed that: (1) Plaintiff’s claim against the Estate shall be settled by entry of an agreement for judgment for the Plaintiff against the Estate in the amount of $750,000 in the wrongful death action; (2) collection of the judgment will be exclusively against the Trust in the enforcement action; and (3) the enforcement action, which was originally filed in the United States District Court for the District of Arizona, would be transferred to the United States District Court for the District of Massachusetts. Accordingly, the parties filed a Joint Motion for Entry of Judgment, and on July 8, 2015, the United States District Court for the District of Arizona entered a final judgment in the wrongful death action in favor of Mr. De Prins in the amount of $750,000.
Thereafter, the reach and apply action was transferred to the United States District Court for the District of Massachusetts, where attorneys Mark Dickison and Ryan Ciporkin were retained as counsel by Harry De Prins. The operative amended complaint stated a single claim to reach and apply the Trust’s assets to satisfy Mr. De Prins’s $750,000 wrongful death judgment against the Estate. Mr. De Prins filed a Motion for Partial Summary Judgment. On September 26, 2018, the district court granted Mr. De Prins’s Motion for Partial Summary Judgment and entered judgment for Mr. De Prins. The Court held that Mr. De Prins had satisfied the three elements for a reach and apply action required by Massachusetts law and 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. See De Prins v. Michaeles, 342 F. Supp. 3d 199, 205-206 (D. Mass. 2018).
On appeal, the United States Court of Appeals for the First Circuit held that “the crux of Mr. Michaeles’s argument . . . was that the district court erred in its core legal holding that Mr. De Prins is entitled under Massachusetts law to reach and apply the irrevocable trust assets to satisfy the wrongful death judgment,” and that “Massachusetts law has not resolved this question.”See De Prins v. Michaeles, 942 F.3d 521 (1st Cir. 2019).
The First Circuit held that neither state common law nor state statutes clearly answer the question. Under Massachusetts case law, a self-settled spendthrift trust does not protect assets from the settlor’s creditors to the extent that the settlor retains use and control of the funds. See Ware v. Gulda, 331 Mass. 68, 70 (1954). The First Circuit reasoned that the self-settled discretionary trust for the benefit of the settlor during her lifetime violated “the established policy of this Commonwealth [which] long has been that a settlor cannot place property in trust for his own benefit and keep it beyond the reach of creditors.” Id. However, the decision rested on the fact that the trust was self-settled, and thus, does not resolve whether self-settled irrevocable trusts protect assets from the settlor’s creditors after the settlor’s death.
Additionally, under Massachusetts case law, “where a person places property in trust and reserves the right to amend and revoke, or to direct disposition of principal and income, the settlor's creditors may, following the death of the settlor, reach in satisfaction of the settlor's debts to them, to the extent not satisfied by the settlor's estate, those assets owned by the trust over which the settlor had such control at the time of his death as would have enabled the settlor to use the trust assets for his own benefit.” See State Street Bank and Trust Co. v. Reiser, 7 Mass. App. Ct. 633, 638-39 (1979). However, the First Circuit held that State Street Bank and Trust Co. v. Reiser left open the question of whether a creditor can reach a self-settled irrevocable spendthrift trust after the settlor’s death.
Furthermore, the First Circuit ruled thatMassachusetts General Laws c. 203E, § 505(a), which governs creditor’s rights to reach the debtor settlor’s beneficial interest in the assets of a covered trust, does not resolve the question. The decision held that section 505(a)(2), which provides 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 . . .”, “does not, by its terms, expressly address the question.” This section only provides that creditors can reach the assets of an irrevocable trust during the settlor’s life, but it does not address whether creditors can reach the assets of an irrevocable trust after the settlor’s death. Further, the First Circuit held that section 505(a)(3), which 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. . .”, “does not resolve the question as to an irrevocable spendthrift trust.” Rather, this section only provides that a revocable trust can be reached by the settlor’s creditors at the settlor’s death.
Therefore, since “Massachusetts law does not clearly answer the question upon which the disposition of this case depends,” the Court concluded that the Massachusetts Supreme Judicial Court should answer the question. The Court certified to the SJC the question: “does 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 the irrevocable trust from a reach and apply action by the settlor's creditors after the settlor's death?”
On October 20, 2020, inDe Prins v. Michaeles, the Massachusetts Supreme Judicial Court answered the First Circuit’s Certified question in favor of Mr. De Prins by stating, “The well-established legal maxim that one must be just before being generous compels us to conclude that it does not.” That is, the Court held “that a self-settled spendthrift irrevocable trust that is governed by Massachusetts law and that allowed unlimited distributions to the settlor during his lifetime does not protect assets in the irrevocable trust from a reach and apply action by the settlor's creditors after the settlor’s death.”
Legal Significance
De Prins v. Michaeles, is an important decision that clarifies Massachusetts trust law. While many trust lawyers already presumed that a settlor cannot use a self-settled trust to protect his assets from his creditors, this case provides certainty on the issue. This case clarifies trust law and establishes that a self-settled spendthrift irrevocable trust that was governed by Massachusetts law and allowed unlimited distributions to the settlor during his lifetime cannot protect the settlor’s assets from a reach and apply action by the settlor's creditors after the settlor’s death. This case will serve as an important precedent for lawyers as it imposes restrictions on the use of a trust to protect assets from creditors.
The Court recognized that the answer to the certified question depended on whether Massachusetts common law or the relatively recently enacted Massachusetts Uniform Trust Code (“MUTC”) applied. After reviewing the plain meaning of Section 505(a)(2) of the MUTC, which addresses the creditor’s ability to reach the assets of an irrevocable trust, the Court determined that the MUTC did not specify whether it applied only during a settlor’s lifetime or after the settlor’s death and was therefore unclear. After then looking to other sections of the MUTC and the legislative intent and determining that the MUTC is to be supplemented by the “common law of trusts and the principles of equity,” the Court surveyed Massachusetts common law cases concerning a creditors ability to reach and apply the assets of a self-settled trust. Ultimately, the Court concluded that Massachusetts common law generally prohibited against using a self-settled trust to protect one’s assets against current and future creditors. Applying this principal to the facts of the De Prins case, the Court held that “[t]he facts here lean even more compelling in favor of the creditor” and that “[t]he equities here simply do not allow Belanger to murder the plaintiff’s parents and then leave the plaintiff with no recovery in the subsequent wrongful death action, despite Belanger’s possessing substantial assets during his lifetime.”
In short, this case further solidifies the policy rationale underlying Massachusetts trust law. The Supreme Judicial Court’s decision is consistent with public policy and adopts “the established policy of this Commonwealth . . . that a settlor cannot place property in trust for his own benefit and keep it beyond the reach of creditors.” Ware v. Gulda, 331 Mass. at 70.
Conclusion
Lawson & Weitzen attorneys regularly represent individuals involved in trust law disputes and other civil litigation matters. If we can help you, please do not hesitate to contact Mark Dickison or Ryan Ciporkin.
