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1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. EC-12-1537-DJuMk

)

SANTIAGO OMAR HERNANDEZ and ) Bk. No. 12-24502

MICHELLE PATRICE HERNANDEZ, )

) 

Debtors. )

______________________________)

)

SANTIAGO OMAR HERNANDEZ; )

MICHELLE PATRICE HERNANDEZ, )

)

Appellants, )

)

v. ) MEMORANDUM1

)

J. MICHAEL HOPPER, Trustee, )

)

Appellee. )

______________________________)

Argued and Submitted on March 22, 2013

at Sacramento, California

Filed - April 11, 2013

Appeal from the United States Bankruptcy Court

for the Eastern District of California

Honorable Christopher M. Klein, Bankruptcy Judge, Presiding 

Appearances: George T. Burke, Esq., argued for the Appellants 

Santiago and Michelle Hernandez; J. Luke Hendrix, 

Esq., argued for Appellee J. Michael Hopper, 

Trustee. 

Before: DUNN, JURY, and MARKELL, Bankruptcy Judges.

FILED

APR 11 2013

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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2 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037.

-2-

The debtors Santiago and Michelle Hernandez (“Debtors”)

appeal the bankruptcy court’s orders sustaining the chapter 7

trustee’s (“Trustee”) objection (“Objection”) to their exemption

claim in Ms. Hernandez’s contingent beneficial interest in her

mother’s irrevocable trust (“Trust”) and denying their Motion for

Amended Findings seeking to reverse the prior order sustaining

the Objection.2

 We AFFIRM both of the bankruptcy court’s orders.

FACTS

The background facts in this appeal are not in dispute. On

March 7, 2012, the Debtors filed their voluntary chapter 7

petition, commencing their bankruptcy case. Trustee is the duly

appointed trustee in the Debtors’ bankruptcy case. 

On the date of the Debtors’ bankruptcy filing, Ms. Hernandez

was a named beneficiary of The Patricia A. Johnson Irrevocable

Trust No. 1 (“Trust”), established by her mother as settlor under

a trust agreement (“Trust Agreement”) signed on November 26,

2001. Ms. Hernandez’s beneficial interest in the Trust was (and

is) contingent, in that under Article Three, Section B of the

Trust Agreement, Ms. Hernandez would have to survive her mother

in order to receive a mandatory distribution of Trust principal. 

Ms. Hernandez’s mother was living on the petition date and was

still living throughout the period relevant to this appeal. 

Article Two, Section A of the Trust Agreement provides that,

“Each time a gift is made by any donor to a trust governed by
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this agreement, the beneficiary of that trust shall have the

immediate right to demand and receive [sic] immediate amount that

may be withdrawn shall be the amount of the Internal Revenue Code

section 2503(b) annual gift tax exclusion remaining available to

the donor for gifts made to the distribution rights holder in the

calendar year in which the gift is made. . . .” Under Article

Two, Section C of the Trust Agreement, the right to demand

distribution expires if a written notice is not delivered to the

trustee of the Trust within forty-five days following the date of

the gift.

Article Six, Section B of the Trust Agreement states a

spendthrift trust provision (“Spendthrift Trust Provision”):

No interest in the principal or income of any trust

created under this instrument shall be voluntarily or

involuntarily anticipated, assigned, encumbered, or

subjected to creditor’s claim or legal process before

actual receipt by the beneficiary.

Debtors and the Trustee agree that the Spendthrift Trust

Provision is valid under California law. 

In their schedules filed with their bankruptcy petition, on

Schedule B, the Debtors identified a Trust interest of

Ms. Hernandez, valued at $7,000, as follows:

Future beneficiary of Mother’s Irrevocable Trust – Mrs.

Hernandez had 45 day window after November 18, 2011 to

withdraw $6,872 from annual gift to Trust but did not

withdraw, as per Mother’s indicated preference.

In their Schedule C, the Debtors claimed a corresponding

exemption in the amount of $7,000 in the $6,782 annual gift to

the Trust under California Code of Civil Procedure (“C.C.P.”)
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3 Under C.C.P. § 703.140(b)(5), California debtors can claim

an exemption in the amount of up to $925 in any property, plus

any amount up to $17,425 that is not otherwise used to exempt

value of “real property or personal property that the debtor or a

dependent of the debtor uses as a residence, in a cooperative

that owns property that the debtor or a dependent of the debtor

uses as a residence, or in a burial plot for the debtor or a

dependent of the debtor” under C.C.P. § 703.140(b)(1).

4 Section 541(c)(2) provides that, “A restriction on the

transfer of a beneficial interest of the debtor in a trust that

is enforceable under applicable nonbankruptcy law is enforceable

in a case under this title.”

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§ 703.140(b)(5).3

On June 22, 2012, the Debtors amended their Schedule C to

claim an exemption in “100% of Fair Market Value” of the Trust

under § 541(c)(2).4 The Trustee filed a timely objection

(“Objection”) to the exemption claimed in the Trust. The Trustee

first argued that § 541(c)(2) did not provide a valid basis to

claim an exemption. The Trustee further argued that the Debtors

did not provide any description of the value of the Trust, and

there was no clear statement as to what assets were included in

the Trust. The Trustee stated that the Objection was filed “to

protect the bankruptcy estate’s interest in at least 25% of the

Debtors’ beneficial interest in the Trust.” 

The Debtors responded to the Objection that Ms. Hernandez’s

contingent interest in the Trust was excluded from the Debtors’

bankruptcy estate under § 541(c)(2) and further argued that

California Probate Code (“C.P.C.”) § 15306.5(a) did not apply to

allow the Trustee to claim up to 25% of Ms. Hernandez’s
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5 C.P.C. § 15306(a) provides that, “Notwithstanding a

restraint on transfer of the beneficiary’s interest in the trust

under Section 15300 or 15301, and subject to the limitations of

this section, upon a judgment creditor’s petition under

Section 709.010 of the Code of Civil Procedure, the court may

make an order directing the trustee to satisfy all or part of the

judgment out of the payments to which the beneficiary is entitled

under the trust instrument or that the trustee, in the exercise

of trustee’s discretion, has determined or determines in the

future to pay the beneficiary.” However, C.P.C. § 15306.5(b)

limits the scope of the preceding subsection (a), as follows: “An

order under this section may not require that the trustee pay in

satisfaction of the judgment an amount exceeding 25% of the

payment that otherwise would be made to, or for the benefit of,

the beneficiary.”

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contingent future interest in the Trust.5

The bankruptcy court held a hearing (“Objection Hearing”) on

the Objection on August 28, 2012. At the Objection Hearing, the

bankruptcy court heard argument from counsel for the Debtors and

the Trustee and, determining that there were no factual issues,

announced its conclusions of law based on the record before it,

sustaining the Objection. At the Objection Hearing, Trustee’s

counsel confirmed that the Trustee sought no more than a

conclusion that “25 percent of the [Trust] is not excluded from

the estate under 541(c)(2).” The Trustee did not seek turnover

of any Trust interest or any particular Trust assets. The

bankruptcy court entered a minute order sustaining the Objection

on September 3, 2012. 

The Debtors filed their Motion for Amended Findings on

September 10, 2012, arguing that the bankruptcy court made a

manifest error of law in determining that the Trustee could claim

25% of Ms. Hernandez’s contingent future interest in the Trust as
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an asset of the estate. The Trustee responded, arguing that the

Debtors were not entitled to the extraordinary remedy requested

in the Motion for Amended Findings in that the Debtors presented

no new authorities or facts that would justify the relief

requested. 

The bankruptcy court heard arguments on the Motion for

Amended Findings on October 9, 2012, and stated its conclusions

orally, denying the Motion for Amended Findings. The bankruptcy

court entered a minute order denying the Motion for Amended

Findings on October 9, 2012. 

The Debtors filed a timely Notice of Appeal from the order

sustaining the Objection and the order denying the Motion for

Amended Findings on October 19, 2012. 

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§§ 1334 and 157(b)(2)(A) and (B). We have jurisdiction under

28 U.S.C. § 158.

ISSUE PRESENTED

Did the bankruptcy court err as a matter of law in

determining that Ms. Hernandez’s contingent future interest in

the Trust was an asset of the bankruptcy estate and that the

Trustee could claim up to 25% of Ms. Hernandez’s contingent

future interest in the Trust for the estate?

STANDARDS OF REVIEW

We review issues of statutory construction and conclusions

of law de novo. Ransom v. MBNA Am. Bank, N.A. (In re Ransom),

380 B.R. 799, 802 (9th Cir. BAP 2007), aff’d, 577 F.3d 1026 (9th

Cir. 2009), aff’d, 131 S. Ct. 716 (2011). 
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We may affirm on any ground supported by the record. Shanks

v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).

DISCUSSION

1. Dealing with Procedural Anomalies

Debtors have not raised any procedural irregularity as an

issue in this appeal and did not discuss any procedural issue in

their opening brief. Accordingly, any such issues are waived. 

See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 919

(9th Cir. 2001) (issues not specifically argued in opening brief

are waived). Nevertheless, there are procedural anomalies in

this case that merit discussion in order to provide a complete

understanding of the record. Accordingly, before we get to the

heart of this appeal, we take a brief stroll down a procedural

byway.

The events leading to this appeal were initiated by the

Debtors filing an amended Schedule C claiming that 100% of the

fair market value of Ms. Hernandez’s contingent future interest

in the Trust was “exempt” under § 541(c)(2). As the trustee

pointed out in the Objection, § 541(c)(2) does not provide a

valid basis for a claim of exemption. Rather, § 541(c)(2)

provides a basis for excluding certain trust assets from the

estate. In their response to the Objection, the Debtors embraced

the concept that Ms. Hernandez’s beneficial interest in the Trust

was excluded from the bankruptcy estate, and the fight was on.

An estate in bankruptcy consists of all the interests

in property, legal and equitable, possessed by the

debtor at the time of filing, as well as those

interests recovered or recoverable through transfer and

lien avoidance provisions. An exemption is an interest

withdrawn from the estate . . . for the benefit of the

debtor.
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6 Rule 7001 provides in relevant part: “The following are

adversary proceedings: (1) a proceeding to recover money or

property, other than a proceeding to compel the debtor to deliver

property to the trustee, . . . ; (2) a proceeding to determine

the validity, priority, or extent of a lien or other interest in

property, . . . ; (9) a proceeding to obtain a declaratory

judgment relating to any of the foregoing; . . . .”

-8-

Owen v. Owen, 500 U.S. 305, 308 (1991). See Gebhart v. Gaughan

(In re Gebhart), 621 F.3d 1206, 1210 (9th Cir. 2010); McLain v.

Newhouse (In re McLain), 516 F.3d 301, 315 (5th Cir. 2008)

(“‘[P]roperty that is entitled to be exempted is initially

regarded as estate property until it is claimed and distributed

as exempt.’”) (quoting Cyrak v. Poynor, 80 B.R. 75, 79 (N.D. Tex.

1987); Bronner v. Gill (In re Bronner), 135 B.R. 645, 647 (9th

Cir. BAP 1992) (“A debtor . . . may remove or acquire property of

the estate by claiming exemptions.”) (emphasis in original).

Procedurally, the Objection was handled as a contested

matter. Arguably, since the issues actually determined were

whether all or any portion of Ms. Hernandez’s contingent future

beneficial interest in the Trust was property of the estate, the

bankruptcy court could have required that the matter be resolved

in an adversary proceeding pursuant to Rule 7001(1), (2) or (9).6

Our review of the transcript of the Objection Hearing leads us to

suspect that the bankruptcy court considered sustaining the

Objection on the basis that § 541(c)(2) did not provide an

appropriate basis for an exemption claim and leaving the

“property of the estate” issue(s) for further proceedings. 

However, after confirming that the necessary evidentiary record

was complete, and there were no factual disputes between the
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parties, the bankruptcy court proceeded to rule on the legal

questions presented.

The bankruptcy court did not err in so proceeding. “[A]

bankruptcy court’s decision not to require an adversary

proceeding is subject to a harmless error analysis, and under

that standard, if the failure to commence an adversary proceeding

did not cause prejudice, form should not be elevated over

substance.” Stasz v. Gonzalez (In re Stasz), 2011 WL 3299162

(9th Cir. BAP 2011), citing Austein v. Schwartz (In re Gerwer),

898 F.2d 730, 734 (9th Cir. 1990); and Korneff v. Downey Reg’l

Med. Ctr.-Hosp., Inc. (In re Downey Reg’l Med. Ctr.-Hosp., Inc.),

441 B.R. 120, 127-28 (9th Cir. BAP 2010).

The Debtors did not raise any objection to the bankruptcy

court handling the Objection as a contested matter in their

response to the Objection or in any of their papers filed in

support of the Motion for Amended Findings, nor did they raise

any such objection at the Objection Hearing. At the hearing on

the Motion for Amended Findings, the following colloquy between

the court and counsel took place:

MR. BURKE: Your Honor, it’s my understanding that a

party can object to jurisdiction at any time in the

proceedings. At this point, we’d like to move to

vacate the judgment based on a lack of subject matter

jurisdiction. The Trustee –

THE COURT: A lack of subject matter jurisdiction?

MR. BURKE: The Trustee objected to an exemption. We’re

claiming that the [T]rust is excluded. It’s not an

exemption. And they should have to file an adversary

proceeding, Your Honor, to determine the ownership of

the [T]rust. 

THE COURT: Mr. Hendrix, is this the first you heard of

that?
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MR. HENDRIX: It is, Your Honor.

Tr. Of October 9, 2012 hr’g, 9:9-22. Debtors’ counsel did not

allege that the Debtors had suffered any prejudice from the

bankruptcy court’s handling of the Objection as a contested

matter. The bankruptcy court went on to explain why Debtors’

counsel was not raising any legitimate question as to the

bankruptcy court’s subject matter jurisdiction and proceeded to

deny the Motion for Amended Findings based on its conclusion that

it had not erred as a matter of law in its prior decision. As

noted above, Debtors have not raised any question as to the

bankruptcy court’s handling of the Objection as a procedural

matter in this appeal. 

2. Contingent Trust Interests as Property of the Estate

The primary problem for Debtors in this appeal is we are not

writing on a clean slate. The Debtors concede that under

§ 541(a), “contingent interests are part of the bankruptcy

estate.” Appellants’ Opening Brief at 13. The Debtors also

concede that the relevant date for determining whether an asset

is property of the estate is the petition date. Id. at 34. See

Cisneros v. Kim (In re Kim), 257 B.R. 680, 687 (9th Cir. BAP

2000). However, Debtors insist that Ms. Hernandez’s entire

contingent future interest in the Trust is excluded from the

estate under § 541(c)(2) based on the Spendthrift Trust Provision

“that is enforceable under applicable nonbankruptcy law.”

The Trustee concedes the existence of the Spendthrift Trust

Provision and that such provisions are valid under California

law. See Appellee’s Opening Brief at 6. However, the Trustee

further argues that the Spendthrift Trust Provision is subject to
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the restrictions on such restraints on alienation set forth in

C.P.C. § 15306.5. Accordingly, § 541(c)(2) only operates “to

exclude 75% of the Debtors’ interest in the Trust from property

of the bankruptcy estate.” Id. at 7. 

The Debtors respond that the issue as to whether the

bankruptcy estate has an interest in the remaining 25% of

Ms. Hernandez’s contingent beneficial interest in the Trust is an

issue of first impression that requires a detailed analysis of

the provisions of C.P.C. § 15306.5. In essence, Debtors ask us

to make a prediction as to how the California Supreme Court would

rule if confronted with the issues before us. However, we

decline that invitation because that prediction already

effectively has been made in binding prior decisions of the Ninth

Circuit and this Panel. 

In Neuton v. Danning (In re Neuton), 922 F.2d 1379 (9th Cir.

1990), the Ninth Circuit was confronted with the following

situation: The debtor-appellant (“Neuton”) had filed a chapter 7

bankruptcy petition on November 12, 1987. At the time of his

bankruptcy filing, Neuton had a contingent future interest in a

spendthrift trust established by his mother (the “Neuton Trust”). 

The Neuton Trust provided that its trustee would pay a portion of

trust income to Neuton’s mother during her lifetime and a portion

of trust income to her children, including Neuton, after her

death. Neuton’s mother died on December 28, 1987, “at which

point [Neuton’s] interest in the trust vested.” Id. at 1381. On

January 25, 1988, the trustee objected to Neuton’s claim of

exemption in the Neuton Trust beyond a value of $1,135 claimed as

exempt in Neuton’s schedules. On April 7, 1988, the bankruptcy
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court issued a Memorandum Decision and Order, essentially

recognizing that 75% of Neuton’s interest in the Neuton Trust was

excluded from the estate under § 541(c)(2), but holding that 25%

of Neuton’s interest in the trust belonged to the estate. Id.

On appeal, this Panel affirmed those holdings but remanded for

valuation purposes. 

On further appeal, the Ninth Circuit held that in light of

the expansive definition of property of the estate under the

Bankruptcy Code, “contingent interests of the type at issue in

this case” constitute property of the estate, citing the Supreme

Court decision in Segal v. Rochelle, 382 U.S. 375 (1966). Neuton

made the same argument to the Ninth Circuit that the Debtors make

before us: Since the Neuton Trust had a valid spendthrift trust

provision under California law, Neuton’s entire interest in the

Neuton Trust was excluded from the estate by § 541(c)(2). 

The Ninth Circuit agreed with him as to 75% of his interest

in the Neuton Trust, but after considering the provisions of

C.P.C. §§ 15301-15307, rejected Neuton’s claim as to up to 25% of

his interest in the trust.

[T]he Probate Code provides that despite such

restraints a creditor may obtain an “order directing

the trustee to satisfy all or part of the judgment out

of the payment to which the beneficiary is entitled

under the trust instrument,” so long as the payment

does not “exceed[ ] 25% of the payment that otherwise

would by made to . . . the beneficiary.” [C.P.C.]

§ 15306.5. In other words, the spendthrift restriction

fully protects only 75% of the interest in the trust. Because the trustee enjoys the power of a hypothetical

judgment creditor, [§ ] 544(a)(1), we agree with the

BAP that the remaining one-fourth is not excluded from

the estate pursuant to [§ ] 541(c)(2). In short, the

bankruptcy estate possesses an income interest in onefourth of the payments due to Neuton . . . The

relevance of § 15306.5 is that it removes 25% of

[Neuton’s] interest in the trust from traditional
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spendthrift status.

Id. at 1383 (emphasis added).

The Debtors argue that the Neuton decision is

distinguishable from this appeal in that the Ninth Circuit did

not engage in “statutory construction” with respect to

§ 15306.5(a) and “did not even analyze C.P.C. 15306.5(a).” 

Appellants’ Opening Brief at 7 and 9. To make that argument in

light of the extensive analysis of the application of C.P.C.

§ 15306.5, as a matter of first impression, set forth in the

Ninth Circuit’s Neuton decision is nonsense. However, whatever

level of analysis the Ninth Circuit applied in considering the

application of C.P.C. § 15306.5 in Neuton, its decision has never

been overruled, and the bankruptcy court correctly determined,

and we concur, that to the extent Neuton applies in this appeal,

we are bound by it. 

In one significant respect, Neuton is distinguishable from

the appeal before us, as the contingent trust interest in Neuton

was an interest in future income only and did not involve trust

principal. Id. at 1381 and 1382 n.2. That distinction possibly

would have more traction if the issue had not been dealt with

directly in two subsequent published opinions of this Panel. 

In Cisneros v. Kim (In re Kim), 257 B.R. 680 (9th Cir. BAP

2000), this Panel considered a different form of California

“trust.” At the time of his chapter 7 bankruptcy filing, the

debtor (“Kim”) was employed as a bus driver for the Los Angeles

Metropolitan Transit Authority and was a beneficiary of the Los

Angeles County Metropolitan Transportation Authority Retirement

Income Plan (the “MTA Plan”). Kim claimed an exemption in his
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7 C.C.P. § 704.110 provides an exemption for “all amounts

held, controlled or in process of distribution” as retirement

benefits from a “public entity” such as a state, city or county

government or a public corporation or board.

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“retirement funds” under the MTA Plan pursuant to C.C.P.

§ 704.110.7

 Subsequent to his bankruptcy filing, Kim withdrew

his retirement funds from the MTA Plan and rolled them over into

an IRA account. 

The trustee objected to Kim’s exemption claim on three

grounds: 1) the retirement funds were not being used for

retirement purposes; 2) the MTA Plan was not a spendthrift trust

subject to exclusion from the estate; and 3) Kim was not

otherwise entitled to an exemption under California law. The

bankruptcy court ultimately determined that the retirement funds

held in the MTA Plan on the petition date were fully exempt under

California law. It also held that the MTA Plan was a valid

spendthrift trust under California law, which excluded the

retirement funds from the bankruptcy estate, except for 25% of

the funds, which remained subject to creditor claims under

California law. Id. at 683. 

On appeal, this Panel held that “[t]he bankruptcy court did

not err in holding that the relevant date for determining the

status of the exemptions was the petition date.” Id. at 685. 

The Panel also noted that the holdings of the bankruptcy court

were correct in concluding that the MTA Plan was a valid

spendthrift trust under California law and that Kim’s interest in

the MTA Plan was excluded from the estate “except for 25%.” Id.

at 688. 
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[T]he [C.P.C.] has limited the scope of the spendthrift

protection. [C.P.C.] section 15306.5 provides that a

judgment creditor may obtain an “order directing the

trustee to satisfy all or part of the judgment out of

the payment to which the beneficiary is entitled under

the [spendthrift] trust instrument, . . .” as long as

the payment does not exceed 25 percent of the funds

otherwise available to the beneficiary. See [C.P.C.]

§ 15306.5 (West 1991). The bankruptcy court, applying

section 15306.5 and following [Neuton], held that only

75% of the spendthrift trust was excluded from the

estate.

Id. at 683 n.4. Accordingly, in Kim, this Panel followed the

Neuton interpretation of C.P.C. § 15306.5 in a context involving

the principal, rather than income, of a spendthrift trust.

Finally, in Bendon v. Reynolds (In re Reynolds), 479 B.R. 67

(9th Cir. BAP 2012), this Panel was confronted with a spendthrift

trust situation similar to what we face in this appeal. The

debtor (“Reynolds”) was a named beneficiary in three family

trusts, the Bypass Trust, the Marital Trust and the Survivor’s

Trust. (Hereafter, the Bypass Trust and the Marital Trust are

referred to collectively as the “Family Trust.”) If Reynolds

survived his father by thirty days, he would be entitled to

receive distributions from both the Family Trust and the

Survivor’s Trust. 

From the Family Trust, [Reynolds] was entitled to

$250,000. Additionally, [Reynolds] was a one-third

beneficiary of the Survivor’s Trust, along with his

sisters, entitled to receive $100,000 per year for ten

years.

Id. at 70. However, the assets in the Survivor’s Trust were

interests in undeveloped real property that did not generate any

income. Id. No income distributions were expected from any of

the trusts.

Reynolds’ father passed away on March 3, 2009. Reynolds,
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apparently unaware of the trusts or that he was a beneficiary of

the trusts, filed a chapter 7 bankruptcy petition one day later

on March 4, 2009. Reynolds’ interests in the trusts consequently

were either vested on the petition date or shortly thereafter. 

On April 28, 2009, one of the trustees of the Family Trust

and the Survivor’s Trust, filed an adversary proceeding seeking a

declaratory judgment to determine whether and to what extent the

bankruptcy estate held an interest in the trusts. Id. The

trusts both included spendthrift trust provisions to protect

their beneficiaries. On January 14, 2010, Reynolds filed a

motion for partial summary judgment in the adversary proceeding,

requesting a declaration that “pursuant to [C.P.C.] §§ 15300 et

seq. . . ., particularly § 15306.5, a maximum 25% of a

beneficiary’s interest in a spendthrift trust is property of a

bankruptcy estate.” Accordingly, Reynolds sought a determination

that the estate and his trustee could reach no more than 25% of

his interests in the Family Trust and the Survivor’s Trust. Id.

The trustee opposed the motion, acknowledging that C.P.C.

§ 15306.5 capped the estates’s potential recovery at 25% of the

beneficiary’s interest in a spendthrift trust, but argued that

distributions of principal from such trusts are not protected

under C.P.C. § 15301(b). At the hearing on the motion for

partial summary judgment, the bankruptcy court ruled against the

trustee, interpreting the California Probate Code as allowing as

an estate asset “a maximum of 25% of a debtor’s interest in a

spendthrift trust, less any amount the debtor needed for his

support or support of his dependents.” Id. at 71.

On appeal, after discussing principles of statutory
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construction, this Panel analyzed the relevant provisions of the

California Probate Code, C.P.C. §§ 15300-15307. See id. at 72-

77. Citing Neuton, this Panel concluded that under § 15306.5,

the estate could claim up to 25% of the debtor beneficiary’s

interest in a spendthrift trust.

“The relevance of § 15306.5 is that it removes 25% of

the debtor’s interest in the trust from traditional

spendthrift status.” [In re Neuton, 922 F.2d at 1383.]

Even though a bankruptcy trustee may reach 25% of what

the debtor/beneficiary is entitled to receive, that

amount may be reduced by whatever amount the court

determines is necessary for the beneficiary’s (and his

dependents’) support. [C.P.C.] § 15306.5(c); In re

Neuton, 922 F.2d at 1384.

In re Reynolds, 479 B.R. at 75. The Panel further rejected the

trustee’s argument that C.P.C. § 15307 gave the trustee a means

beyond the 25% limitation of C.P.C. § 15306.5 to reach any amount

to which the debtor/beneficiary of a spendthrift trust was

entitled in excess of what he needed for education and support. 

“[T]hat reading is inconsistent with § 15306.5, which limits a

money judgment creditor to 25% of the beneficiary’s interest in a

spendthrift trust.” Id. at 75-76. Ultimately, the Panel

determined that it was more consistent with legislative intent to

interpret C.P.C. § 15307 as applicable only with respect to

income distributions from spendthrift trusts, and since Reynolds’

potential future “distributions are only from principal and not

income, under our interpretation of the [C.P.C.], § 15307 does

not apply in this case.” Id. at 76-77.

In reviewing the foregoing authorities, we recognize that in

Kim, since the Panel affirmed the bankruptcy court’s initial

conclusion that Kim’s retirement funds were fully exempt, its

subsequent conclusions regarding the application of C.P.C.
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§ 15306.5 could be characterized as dicta. However, in Reynolds,

this Panel’s conclusion in interpreting the California Probate

Code that under C.P.C. § 15306.5, the bankruptcy estate had an

interest in up to 25% in a debtor/beneficiary’s interest in a

spendthrift trust was central to its decision.

Both Kim and Reynolds are published opinions of this Panel

that have not been reversed or limited on appeal. Absent a

change in the law, we are bound by our prior precedential

opinions. Gaughan v. The Edward Dittlof Revocable Trust (In re

Costas), 346 B.R. 198, 201 (9th Cir. BAP 2006); Ball v. PaycoGen’l Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir.

BAP 1995):

[W]e have recognized that the BAP was created in part

to provide a uniform and consistent body of bankruptcy

law throughout the Ninth Circuit. In re Proudfoot,

III, 144 B.R. 876, 878 (9th Cir. BAP 1992). Plainly,

compliance with precedent encourages uniformity of

result.

The Debtors assert that Ms. Hernandez’s entire interest in

the Trust should be excluded from the estate based on an

elaborate statutory construction argument focusing on C.P.C.

§ 15306.5(a). They argue that the California Supreme Court would

never apply the terms “payments to which the beneficiary is

entitled under the trust instrument” to a contingent future

interest in principal of a spendthrift trust. We are not

convinced. If the California Supreme Court had issued a decision

consistent with the Debtors’ position, that is something we could

(and would) consider. However, the California Supreme Court has

issued no such decision, and in the absence of such a definitive

opinion from the California Supreme Court, we are bound by the
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line of authority running from Neuton through Kim and Reynolds

interpreting C.P.C. § 15306.5 as allowing the bankruptcy estate

of a contingent future trust beneficiary debtor to claim up to

25% of the debtor’s interest in a California spendthrift trust. 

Based on that line of authority, we find no error in the

bankruptcy court’s decisions to sustain the Objection and deny

the Motion for Amended Findings. What, if anything, the Trustee

can collect from the Trust for the benefit of the Debtors’ estate

is an unresolved matter that is left for determination in future

proceedings.

CONCLUSION

For the foregoing reasons, we AFFIRM both orders of the

bankruptcy court.