UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 97-30847

HENRY J. READ; MICHAEL O. READ, as Trustees of

the A. Louis Read Testamentary Trust,

Plaintiffs-Appellants,

versus

UNITED STATES OF AMERICA, through the Department

of Treasury, Internal Revenue Service, ET AL.,

Defendants,

PATRICIA I. READ,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Louisiana

March 9, 1999

Before POLITZ, DAVIS, and DUHÉ, Circuit Judges.

PER CURIAM:

He nry J. Read and Michael O. Read, as trustees of a Louisiana spendthrift

trust denominated the A. Louis Read testamentary Trust, appe al the judgment

rendered in this interpleader case which originally was filed by the Trustees in2

Louisiana state court. The action was removed by the United States of America

through the Department of Treasury, Internal Revenue Service, a fter being

consolidated with three other state court cases filed by Patricia I. Read, the ex-wife

and judgment creditor of Stephen L. Read, who is another defendant a nd one of

several beneficiaries of the Trust.

Following a bench trial, the district court held that (1) Patricia is entitled to

seize Stephen’s interest in the Trust; (2) the tax lien is effective against his Trust

i nterest; (3) the privileges created by operation of law for Patricia’s judgments

prime the tax lien; (4) the Trustees are discharged from liability to, i nter alia

,

Patricia and Stephen, and the government in regard to the funds deposited into the

registry of the court; (5) the Trustees cannot recover attor neys’ fees from the

interpleaded funds but can recover from Stephen’s interest in the Trust any such

fees that are directly attributable to the interpleader, but only after other claims

have been satisfied; and (6) costs of the interpl e ader are payable from the

interpleaded funds. Additionally, the court d irected the Trustees to m ake

distributions to Patricia

– and, afte r her claims are satisfied, to the government –

“immediately upon being authorized to make a distribution to Stephen under the

term s of the Trust” but in doing so “to ensure that the stream of income of other

beneficiaries under the Trust is not impeded, impaired or negatively affected by1 Read v. United States , No. Civ. 95-4036, 1997 WL 459877, at *5, *8 (E.D.La.

Apr. 21, 1997).

2 La.Rev.Stat.Ann. § 9:2005 (West 1991).

3 La.Rev.Stat.Ann. § 9:1721, et seq. (West 1991); see § 1721 (“This Chapter shall

be known and may be cited as the Louisiana Trust Code.”).

4 26 U.S.C. § 6321.

5 Section 2005, Louisiana Trust Code.

6 “If discretion is conferred upon a trustee with respect to the exercise of a power,

its exercise shall not be subject to control by the court, except to prevent an abuse of

discretion by a trustee.” Section 2115 Louisiana Trust Code.

3 these distributions.” 1 In ruling that Patricia and the government could seize

Stephen’s interest in the Trust, and in ordering the Trustees to make distributions

to those creditors as soon as the Trustees were authorized by the Trust to make

distributions to Stephen, the court relied in large part on section 2005 2 of the

Louisiana Trust Code 3 and section 6321 of the United States Internal Revenue

Code. 4 Concluding that, in several important respects, the district court

misapprehended the nature of Stephen’s “interest in trust income and principal,” 5

particularly the extent to which the timi ng of his receipt and enjoyment of his

interests are entirely dependent on the discretion of the Trustees, and overlooked

section 2115 of the Trust Code, 6 we modify, and as modified affirm.

I.7 Michael Owings Read, Susan Louise Read Johnson, Carolyn Mary Read

Simmons, and Stephen Louis Read.

8 To minimize estate taxes and postpone their payment as long as possible, the

Trust specified two sub-trusts, designated as the Marital Deduction Sub-Trust and the

Credit Shelter Sub-Trust. Typically, the Credit Shelter Trust was funded with property

having a value equal to the maximum value in property that could be “sheltered,” i.e.,

disposed of without incurring Uniform Transfer Tax (formerly Gift Tax and Estate Tax)

by virtue of the Unified Credit. The Marital Deduction Trust was funded with the

residuum of Settlor’s estate which, by virtue of the postmortem exercise by a succession

representative of the Qualified Terminable Interest Property election, could take

advantage of the unlimited marital deduction from transfer taxes for property donated to

4 FACTS AND PROCEEDINGS

A. Background

Settlor was survived by his wife, Nathalie Owings Read, and their four

children, all majors, 7 one of whom is Stephen, and another of whom

– Michael O.

Read

– succeeded his mother as co-Tru stee and in that capacity is an appellant

herein. In his validly executed and duly probated testament Settlor created the

Trust, designating his wife and their four children as beneficiaries, and appointing

his wife and He nry J. Read as co-Trustees. With the exception of certain

automobiles, stock in Subchapter S corporations, and policies of insurance on the

widow’s life, Settlor’s entire estate was put in trust.

Settlor’s testamentary plan, as embodied in the Trust, refl e cts his manifest

determination to minimize the amounts and postpone the payment of federal estate

taxes, 8 and to control Stephen’s legitime and his rights to deal with and enjoy it. 9the surviving spouse in trust or usufruct. Settlor’s testament specifies that Nathalie is the

initial income beneficiary of the Trust for her lifetime. (She subsequently renounced her

income interest in the Credit Shelter Trust but not in the Marital Deduction Trust.)

9 Although significant only by way of background and understanding of the

Settlor’s motivation and the scheme of his testament, Stephen’s profligacy is more than

amply demonstrated in the record on appeal and in the appellate briefs, removing any

doubt as to the Settlor’s determination to leave Stephen no more than the absolute

minimum share as dictated by the Constitution and Civil Code of Louisiana at the times

of the confection of the will and Settlor’s death, and to deny him enjoyment and control

over that forced legacy to the fullest extent and for the longest time permitted by law.

10 As Settlor was survived by four children, the forced portion of his estate was

one-half, and each child’s legitime was one-fourth thereof, or one-eighth (12.5%) of the

net estate. As a result of constitutional amendments and legislative enactments postdating Settlor’s death, Louisiana’s forced heirship law has been so substantially revised

that the remaining vestiges constitute a mere alimony or support system for children who

are either under 24 years of age or handicapped. Under current law, none of Settlor’s

children would have been forced heirs. See , e.g., La. Civ. Code Ann. art. 1493 (West

1998).

5 Several testamentary provisions confirm Settlor’s intention to leave Stephen

only his bare legitime and to sub ject that legacy to the maximum restraints,

restrictions, and burdens that the law would permit. 10 In the particular legacy of the

insurance policies on Nathali e’s life, for example, Settlor left Stephen only an

undivided 13% interest (rounded up from his 12.5% share of the forced portion of

Settlor’s estate) but left the remaining 87% equally to Stephen’s thre e siblings, 29%

each. In like manner, Stephen was bequeathed only his one-eighth legitime share

o f the residue of Settlor’s estate, and even that was left in trust for Stephen’s

lifetime (the maximum allowed term), burdened by Nathalie’s life income interest,6

and as a spendthrift trust, i.e. subject to the maximum restraints on alienation, both

voluntary and involuntary, that the Trust Code allows. In contrast, Stephen’s

siblings were designated as the equal beneficiaries of the remaining seven-eighths

interest in the Trust, likewise subject to their mother’s income interest for life; but

– unlike Stephen’s

– their interests are to be delivered to them, free of trust, at their

mother’s death.

In addition to specifying that “[t]his Trust shall continue as to the interest of

S tephen . . . for his lifetime,” the Settlor continued with this directive on the

distribution of trust assets to Stephen:

Distributions to Step hen. . . . After the termination of my wife’s

inco m e interest, the remaining Trustee shall pay

, or apply the net

income of

the trust attributable to Stephen’s legitime to or for his

benefit at least annually or at such more f requent intervals as the

Trustee deems fit. Income not attributable to his legitime may be

distributed or accumulated in such amounts and at such times as the

Trus tee determines in the Trustee’s sole discretion. A fter the

termination of my wife’s income interest

, the Trustee may invade and

distribute to or apply for the benefit of Stephen such portion or

portions of his share of the accumulated incom e, if any, principal or

both, at such time and in such amounts as the Trustee deems

necessary, advisable or proper

. After the termination of my wife’s

income interest, the Trustee may terminate the trust or may distribute

any part of the prop erty held in trust if the Trustee considers such

action to be in the best interest of Stephen, considering his

demonstrated ability to handle money wisely, his judgment, prudence

and discretion, and any other factors the Trustee m ay consider

relevant. A partial termination of Stephen’s interest in the trust shall

not affect his right to receive distributions of income from the trust11 At all times relevant to this case, Louisiana gave each child the right to claim a

share – his legitime – of the forced portion of each parent’s estate but allowed the parent

to leave a child’s legitime (1) in trust, (2) for his lifetime, (3) burdened with a lifetime

usufruct or income interest in trust in favor of the surviving parent, and (4) subject to

restraints that would deprive the forced heir of the right voluntarily to dispose of or

encumber such interests or to have it seized involuntarily by his creditors; as long as

(a) the net income of the Trust that is not otherwise payable to the surviving parent is paid

at least annually to the forced heir, and (b) the principal of the Trust is distributed to the

forced heirs’ own heirs, legatees, or assignees at the death of the forced heir. See § 1841,

Louisiana Trust Code. The Settlor did this with Stephen’s one-eighth forced share.

7 attributable to his share of the principal remaining in trust. [Emphasis

added.]

Consistent with Settlor’s approach to the minimization of Stephen’s lega cy, the

Trust specifies that if Settlor is predeceased by Nathalie, seven-eighths of his estate

would pass to Stephen’s three siblings free of trust

, but Stephen would receive only

“his legitime, to be held in trust for his lifetime.”

In sum, the clearly demonstrated intent of Settlor as to Stephen was to

comply with Louisiana’ s law of forced heirship but, in essence, to restrict Stephen’s

access to that mandatory legacy for the rest of his life. 1 1 The only exceptions

permitted by the trust instrument

– distributions of income more fre quently than

once a year and invasi o n and distribution of principal prior to Stephen’s death

–

were conditioned on the exercise of discretion by the Trustees.

B. Proceedings

After her divorce from Stephen, Patri c ia obtained two Florida judgments8

against him which subsequently were made executory by the Louisiana court. She

then filed a third Louisiana suit, a garnishment proceeding, and had a notice of

seizure and interrogatories served on the Trustees. Shortly after responding to

these, the Trust e es instituted yet another proceeding in state court, a concursus

action, depositing funds which they identified as income that had a ccrued to

Stephen in the Credit Shelter Trust, and naming as defendants Ste phen, Patricia,

and

– because of a notice received by the Trustees of the filing of a federal tax lien

– the government. Patricia’s three state court actions were then consolidated with

the Trustees’ concursus proceeding, after which the government removed same to

federal court. Nathalie intervened to protect her interest in the Marital Deduction

Trust. The trial court entered the judgment as above noted, denied a motion for

new trial, and the Trustees timely appealed.

II.

ANALYSIS

A. Standard of Review

In an appeal from a judgment rendered after a bench trial, we re view the

court’s findings of fact for clear error and its determinations of questions of law de

novo . As the discrete facts of this case are essentially uncontested, our review of

the judgment is plenary. This is especially true today as our review almost12 See Farm Credit Bank of Texas v. Guidry , 110 F.3d 1147 (5 th Cir. 1997).

13 “Trusts may be authorized by law and the forced portion may be placed in

trust.” La. Const. of 1974, art. XII, § 5(B).

14 As originally redacted and submitted in 1962 to the Legislature by the Louisiana

State Law Institute, and adopted by the Legislature in 1964, the Trust Code represented

not just a major, cohesive piece of legislation in Louisiana’s Civil Law and code tradition;

it represented the giant step of fitting the round peg that is the Anglo-American trust into

the square hole that is Civil Law tradition, which historically did not know the private

9 exclusively implicates the application of state law. 12

B. Framework of Applicable Law

1. Constitution of the State of Louisiana of 1974

The last sentence of section 5(B) of Article XII of Louisiana’s current

constit ution continues the pre-existing authorization for enactment of laws

establishing trus ts in Louisiana and, particularly pertinent to the instant appeal,

placing the legitime of a forced heir in trust. 13

2. Louisiana Trust Code

a. General dispositions: interpretation; definitions

Given the nature of the case at bar, implicatin g as it does the efforts of

Patricia, as an alimony judgment creditor, and the government, as the holder of a

tax lien, to force the involuntary alienation of, indeed seize, Stephen’s interests in

the Trust, a thorough review of the structure of the Trust Code and the framework

that it provides for analyzing the issues presented by this appeal is imperative. 1 4trust, and Louisiana tradition, which knew only the most rudimentary of private trusts.

Adoption of the Trust Code and the enabling amendments to Louisiana’s Constitution

was anything but an incorporation by reference of the Anglo-American system of private

trusts; rather, it was the culmination of a lengthy legal catharsis that produced a civilianlike code (albeit integrated into the Louisiana Revised Statutes) which is truly sui generis

in the field of trust law. Consequently, except to the extent some specific provisions of

the Trust Code restate particular maxims or canons of Anglo-American trust law,

common law jurisprudence and learned treatises on the subject are at best instructive by

analogy.

15 Section 1731, Louisiana Trust Code (emphasis added).

10 Judicial review of issues of Louisiana trust law, like such review of all issues of

Civil Law, begins not w i th an examination of jurisprudence but with the plain

wording of the Trust Code, read as a whole and interpreted acc ording to its own

rules of construction. Section 1724 provides:

Construction of Code

The provisions of this Code shall be accorded a liberal construction in

favor of freedom of disposition. Whenever this Code is silent, resort

shall be had to the Civil Code or other laws, but neither the Civil Code

nor any other law shall be invoked to defeat a disposition sanctioned

expressly or impliedly by this Code.

In Part II, Creation of the Trust

, the initial section contains a definition of a

trust unique to Louisiana: “A trust

. . . is the relationship resulting from the transfer

of title to property to a person [the trustee] to be administered by him as a fiduciary

for the benefit of another .” 15 In thus defining a trust, Louisiana stands apart from

common law jurisdictions. With title to trust property vested in the trustee alone,16 Even though a beneficiary’s interest in the trust, as distinct from property of the

trust (the “trust estate”), is sometimes referred to as “an interest in property,” see

, e.g.

, Reynolds v. Reynolds , 388 So.2d 1135, 1142 (La. 1980), such interest is nevertheless not

a “real right” in the Civil Law sense.

17 Sections 1841-47, Louisiana Trust Code.

18 Section 2005, Louisiana Trust Code.

11 only the truste e has a civilian “real right” in trust property. Conversely, the

beneficiary has no title to or ownership interest in trust property, but only a civilian

“personal right,” vis-a-vis the trustee, to claim w hatever interest in the trust

relationship the Settlor has chosen to bestow. 16 This personal right, as confected

by the Settlor, is further tempered by mandatory provisions of law. Among those

provisions most central to the instant appeal are the rules governing the legitime in

trust 17 and those governing the beneficiary’s right to alienate his inte r est in the

trusts. Of particular note is the section listing the only three exceptions to the

power of a settlor to restrict involuntary alienation of the beneficiary’s interest. 18

Section 1736 of the Trust Code states that “[a] trust or a disposition in trust

may be made subject to any condition not forbidden in this Code and not against

public order or good morals.” Emphasizing and supplementing this authorization

for a settlor to make conditional dispositi ons, section 1737 notes that “[a] settlor

may dispose of property in trust to the same extent that he may dispose of that

property free of trust and to any other extent authorized by this Code.” Continuing,12

section 1753 augments the liberal construction mandate of section 1724 by

acknowledging that no particular magic words are necessary to create a trust and

that “[a] trust instrument shall be give n an interpretation that will sustain the

effectiveness of its provisions if the trust instrument is susceptible of such an

interpretation.”

Section 1781's definition of the trustee as the “person to whom title to the

trust property is transferred to be administered by him as a fiduciary” confirms that

title to all trust property is vested in the trustee alone. Juxtaposed to this definition

of the trustee is section 1801's definition of the beneficiary as “a person for whose

benefit the trust is created.” Notably, no mention of title or ownership of trust

assets, either legal or beneficial, appears in the definition of the beneficiary.

Section 1805 provides that “[t]here may be one beneficiary or two or more

beneficiaries as to income or principal or both. There may be separate beneficiaries

of income and principal, or the same person may be a beneficiary of both income

and principal, or the same perso n may be a beneficiary of both income and

principal, in whole or in part.” The two succeeding sections – 1806 and 1807 –

amplify those possibilities by specifying that there ma y be several c oncurrent

beneficiaries of income or principal or both, and that several beneficiaries may be

designated to enjoy income successively

. P art II, Subpart I contains the rules19 See supra n.10.

13 governing the legitime in trust and specifies those provisions that such a trust may

contain to qualify. 19

b. Interest of the beneficiary

Central to the disposition of this appeal is an understanding of the nature and

extent of Stephen’s interest in the trust, for that is what Patricia and the government

seek to alienate involuntarily, and obviously that is the most that either can cause

to be alienated. P art III of the Trust Code addresses the interest of the beneficiary.

As Stephen is both an income and principal beneficiary, we must perforce examine

the Trust Code’s treatment of each of these interests.

In Subpart A of Part III , section 1961 speaks to the nature of the interest of

an income beneficiary. The first paragraph acknowledges that an income interest

in trust may be absolute or conditional and may be for the life of a beneficiary or

for a lesser term, c ertain or uncertain. The second paragraph acknowledges the

authority of the settlor to allocate a portion of trust income to an income

beneficiary. Section 1964 specifies that an interest in trust income terminates at the

death of the income beneficiary unless the trust instrument calls for an earlier

termination. In S ubpart B of Part III

, addressing the interest of the principal

beneficiary, section 1972 provides that such a be neficiary’s interest vests in his20 Section 2001, Louisiana Trust Code (emphasis added).

14 heirs or legatees at his death.

c. Alienation of the interest of the beneficiary

Subpart D of Part III is composed of seven sections and addresses another

matter central to the instant appeal: alienation of the beneficiary’s interest. In

keeping with the structural recognition that a Louisiana trust is a relationship, and

that the trustee, and not the beneficiary, is the sole owner of trust property, section

2001 speaks to alienation of the beneficiary’s interest in the trust

, not alienation of

trust property. It states the general rule of voluntary alienation: the beneficiary may

“transfer or encumber” all or part of his interest in the trust “ unless the trust

instrument provides to th e contrary

. ” 20 Section 2002 follows with the express

identification of that which is implicit in the “unless” clause of section 2001, i.e.,

a stipulation “to the contrary.” Section 2002 authorizes a settlor to prohibit both

voluntary and involuntary alienation of the benef iciary’s interest in the trust. Under

this section, the settlor is free to impose restraints on voluntary alienation, but his

ability to restrict involuntary alienation is subject to limitations as specified in the

remai ning sections of S ubpart D

. Section 2004 limits the settlor’s authority to

prohibit involuntary alienation, that is, seizure of the beneficiary’s interest by his

creditors, to those instances in which the settlor also prohibits voluntary alienation.15

Subpart D clearly reflect s the overall public policy of the Trust Code

favoring freedom of disposition by the settlor. Together, the seven sections of

Subpart D give the settlor the option either to remain silent and thereby allow

unfettered alienati on by the beneficiary, thus exposing the interest of the

beneficiary to transfer, encumbrance, or seizure; or specify that the beneficiary’s

interest shall not be transferred or encumbered or seized by cred itors, that is,

neither voluntarily nor i nvoluntarily alienated. To proscribe a ll alienation the

settlor may either spell out such restraints in the trust instr ument or employ the

shorthand method authorized in section 2007 and simply declare that the interest

of the beneficiary shall be held subject to a “spendthrift trust.” For purposes of the

Trust Code, either method is sufficient to restrain alienation to the maximum extent

permitted by Subpart D

.

As made manifestly clear by section 2005, however, maximum extent is not

synonymous with unlimited . This section provides, in pertinent part:

Notwithstanding any stipulation in the trust instrument to the contrary,

the proper court, in summary proceedings to which the trustee, the

beneficiary, and the beneficiary’s creditor shall be parties, may permit

sei zure of a portion of the beneficiary’s interest in trust income and

principal in its discretion and as may be just under the circumstances

if the claim is based upon a judgment for:

(1) alimony, or mai ntenance of a person whom the21 Section 2005, Louisiana Trust Code. Subsections (2) and (3) of section 2005,

neither of which is implicated in this case, allow seizure of a beneficiary’s interest,

notwithstanding stipulations in the trust instrument that restrain involuntary alienation,

when a creditor holds a judgment for necessary services rendered or otherwise furnished

to the beneficiary or a person whom the beneficiary is obligated to support, or for torts

committed by the beneficiary or by one for whom the beneficiary is responsible.

16 beneficiary is obligated to support; . . . . 21

Within the structure of the Trust Code, section 2005 specifies three exceptions to

the settlor’s broad freedom to innoculate the interest of the beneficiary against both

voluntary and involuntary alienation. Section 2005 must be narrowly construed.

Thus, in parsing its l anguage to determine what appropriately may be seized by,

inter alia

, an alimony judgment creditor – notwithstanding any “contrary”

“stipulation in the trust instrument”

– two determinations are key: (1) just what is

it that may be seized and (2) just what i s it that the stipulation in the trust

instrument is contrary to?

The answer to the first inquiry is clear from the p lain and unambiguous

wording of section 2005: that which may be seized is “the beneficiary’s interest in

trust income and principal.” The court may not permit direct seizure of trust

property, of which, as noted, the trustee is the sole owner. The only thing the court

m ay authorize one of the specially favored creditors to seize is the be neficiary’s

personal right

– his interest in the trust relationship. When that is done, the creditor22 Section 2005, Louisiana Trust Code.

23 Section 2002, Louisiana Trust Code.

24 Section 2005, Louisiana Trust Code.

17 steps into the shoes of the beneficiary – whatever size and shape they may be, as

dictated by the trust instrument.

The answer to the second question (what is it that the “stipulation in the trust

instrument” 22 is contrary to?) ca n be nothing other than “a restraint upon

involuntary alienation by a beneficiary,” 23 i.e., a section 2002 st i pulation

prohibiting involuntary alienation

– seizure

– of “the beneficiary’s interest in trust

income and principal.” 24 Clearly then, the court is not authorized by section 2005

to disregard any other provision or stipulation, whether in the trust instrument or

in law, to permit seizure of the interest of the beneficiary.

d. Duties and powers of the trustee

With this construction of Subpart D on antialienation firmly in mind, we now

address PART V. DUTIES AND POWERS OF THE TRUSTEE . In keeping with

section 1724's funda mental policy favoring freedom of disposition, section 2061

prescribes:

The nature and extent of the duties and powers of a trustee are

determined from the provisions of the trust instrument, except as

otherwise expre ssly provided in this Code [mandatory provisions],

and, in the absence of any provisions of the t rust instrument, by the25 Section 2062, Louisiana Trust Code.

26 Section 2063, Louisiana Trust Code.

27 Sections 2064 and 2066, Louisiana Trust Code.

28 Section 2066, Louisiana Trust Code.

18 provisions of this Part and by law [suppletive provisions].

As with the i nterest of the beneficiary, and the rights and limitations on the

beneficiary’s use and enjoyment of his interest in the trust, the powers and duties

of the trustee are determined by the settlor. With the sole exception of a provision

that would dispense with the duty of loyalty to the beneficiary, 25 the latitude of the

settlor in vesting the trustee with powers and duties is virtually boundless. Indeed,

to deviate from duties imposed by the settlor, the trustee must obtain consent from

the beneficiary, which cannot be prospective and cannot limit the duty of loyalty. 26

To deviate from administrative and investment provisions of the trust instrument 27

or from the administrative provisions of the Trust Code, 28 the trustee must obtain

judicial authority.

In contrast to the Trust Code’s admittedly scant provision controlling

deviation from the duties of the trustee, it contains no parallel provisions regarding

powers . Lawful powers given to the trustee by the settlor are immutable; indeed,

not even a court can control the trustee’s exercise of discretionary powers or force29 See § 2115, Louisiana Trust Code.

30 See §§ 2067 and 2069, Louisiana Trust Code. “Invasion of principal,” a term of

art in trust law, refers to the act of a trustee in removing assets from the trust and

expending them for purposes of the trust or distributing them to a beneficiary or for his

benefit, in advance of the time that property of the trust would ordinarily be removed and

distributed according to the general provisions of the trust instrument or suppletive

provisions of law

.

31 Section 2067, Louisiana Trust Code.

19 their exercise. 29

e. Invasion of principal

Pertinent to this appeal are th e two sections of S ubpart A of Part V of the

Trust Code that address invasion of principal. 3 0 The first of these, section 2067,

contains the limited list of occasions when the court may direct or permit a trustee

to pay income or principal from the trust propert y. 31 This list allows for court

directed invasion of principal for the necessary support, maintenance, education,

medical expenses, or the welfare of a beneficiary before the time he is entitled to

such distributions. We must note two important observations. First, the finite list

warranting invasion of principal is limited to those instances involving the

objective needs of the beneficiary only

, not the needs of an y creditors, even a

former spouse or other dependent, and then only if such invasion will not impair

the interest of any other beneficiary. A comparison of section 2067 and section

2005 reveals that, whereas the court may authorize seizure of the beneficiary’s32 See § 2115, Louisiana Trust Code.

20

interest by an alimony judgment creditor, the court is not authorized to direct the

trustee to invade principal and distribute trust property to such a judgment creditor

unless the beneficiary himsel f would be entitled to enjoy such trust property. It

appears indisput able that the authority of the court to disregard restrictions on

alienation, and to permit seizure of the interest of the be neficiary by an alimony

judgment creditor, does not include the authority to order a trustee to invade and

distribute principal to a judgment creditor when, as here, the trust instrument leaves

invasion of principal to the unfettered discretion of the trustee. 32 Second, invasion

cannot be ordered by the court for any reason, even those on section 2067's

p ermitted list, before such time as the beneficiary would be entitled to demand

distribution of trust property

– and never if invasion would impair the interest of

another beneficiary.

f. Attorneys’ fees and costs

A number of T rust Code provisions bear on the issue of recovery of

attorneys’ fees and costs incurred by the Trustees in this litigation. Within

Subpart B of Part V

, outlining the duties of the trustee, are found (1) section 2090,

w hich contains the well-known “prudent man” rule of trustee administration;21

(2) section 2091, which expresses the duty of the trustee to take, keep control of,

and preserve trust property; and (3) section 2093, which commands the trustee to

defend actions that may result in a loss to the trust estate, unless so doing would not

be reasonable. Subpart C addresses the powers of the trustee and includes, inter

alia

, the aforementioned section 2115 which exempts the exercise of discretionary

powers of the trustee from court control except to prevent an abuse of discretion by

a trustee, and section 2117 which, as a complement to section 2093's command to

defend actions, authorizes the trustee to incur expenses necessary to carry out the

purposes of the trust. Then, in S ubpart D of Part VI

, section 2191 gives the trustee

the right to be indemnified from trust property for all properly incurred expenses;

and, in Part X

, section 2241 authorizes the trustee to select an attorney to represent

the trust if the trust instrument fails to do so or if the lawyer named fails or ceases

to serve. When read i n pari materia

, these provisions form the matrix for judicial

determination of the trustees’ right of reimbursement for attorneys’ fees.

3. Internal Revenue Code

Section 6321 is the principal section of the I.R.C. implicated in this appeal.

It provides that the amount of unpaid taxes constitutes a lien in favor of the

government on all property and rights to property belonging to the tax debtor. To

affect movable (per sonal) property, such as the interest of a beneficiary of a33 26 U.S.C. § 6323(f)(A)(ii) & (f)(2)(B).

34 United States v. City of New Britain , 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520

(1954).

35 See United States v. National Bank of Commerce , 472 U.S. 713, 105 S.Ct.

2919, 86 L.Ed.2d 565 (1985).

22 Louisia na trust, a notice must be filed in the political subdivision in which the

residence of the taxpayer is located. 33 As a general rule, competition for priority

between tax liens and other encumbrances is determined on the basis of first in

time, first in right. 34 The district court made the conclusional statement that the

federal tax liens attached to Stephen’s right to receive income and principal from

the Trust, presen tly and in the future. The court recognized Patricia’s ability to

avoid the spendthrift pro visions of the Trust by qualifying under section 2005 of

the Trust Code because she is a member of one of the favored classes of creditors

that the court may permit to seize the interests of the beneficiary, notwithstanding

stipulations in the trust instrument prohibiting involuntary alienation. The federal

government, however, is not a member of any of the favored c lasses of creditors

identified in section 2005. The district court did not enforce the spendthrift

provisions of the Trust against the federal tax lien. Rather, the court finessed the

determination of a legal basis for doing so by citing the truism which allows that

such a lien can reach every interest in prope rty that a taxpayer may have. 3 5 This36 See §§ 1841-47, Louisiana Trust Code.

37 See § 1841(3), Louisiana Trust Code.

38 See § 1841(4), Louisiana Trust Code.

39 See § 1844, Louisiana Trust Code.

23 observation begs the question whether Stephen’s beneficial interest in the Trust,

subject as it is to antialienation provisions, can be seized under a federal tax lien

in disregard of such stipulations. As we note below, however, this aspect of the

district court’s judgment is not challenged on appeal and we opt not to address it

sua sponte

.

C. The Trust Instrument

Within the framework of relevant provisions of the Louisiana Constitution,

Louisiana Trust Code, and applicable I.R.C. provisions, we examine the overall

structure and the applicable provisions of the trust instr ument itself, here, the

Settlor’s testament. In broad overview, to the extent relevant to Stephen and this

appeal, the Trust expressly includes all mandated requirements to qualify as a

legitime trust, 36 for the longest permissible term, 37 with principal retained in trust

for the longest permissible time, 38 burdened with an initial income interest for the

lifetime of his mother, Nathalie, 39 and

– after her death or any earlier termination40 See § 1841(1), Louisiana Trust Code.

41 See § 1843, Louisiana Trust Code; see also §§ 2001-07. The Trustees have

stipulated that the entirety of Stephen’s interest in the Trust is legitime.

42 Cf . § 2068(B), Louisiana Trust Code.

43 See id

.

24 of her income interest

– with income distributed at least annually, 40 and subject to

the maximum permitted restraints on alienation of his legitime interest in trust. 41

Also pertinent here is the provision in the trust instrument that, after the termination

of Nathalie’s income interest (which alrea dy has occurred in the Credit Shelter

Trust by virtue of Nat halie’s renunciation of her income interest therein), the

Trustees may invade principal on Stephen’s behalf to the extent the Trustees deem

same necessary, advisable , or proper. 4 2 By electing not to specify any objective

s tandards to guide or restrict the exercise of the Trustees’ discretion to invade

principal, and instead conditionin g invasion on nothing more than the

determination of necessity, advisa bility, and propriety, Settlor fully vested the

Trustees with complete discretion to determine when and whether to remove trust

property from the Trust and distribute it to the beneficiary or for his well-being. 43

In the trust instrument the Settlor restricted the rights of all beneficiaries by

restraining their legal right to alienate their respective interests, either voluntarily44 See § 2002, Louisiana Trust Code.

45 See § 2007, Louisiana Trust Code; see also § 1725(7) (“‘Spendthrift trust,’ when

used without other qualifying words, means a trust under which alienation by a

beneficiary of an interest in income or principal is restricted to the full extent permitted

by this Code.”).

46 See § 1807, Louisiana Trust Code (“Several beneficiaries may be designated to

enjoy income successively.”); see also § 1725(2) (“‘Income beneficiary’ means a

beneficiary to whom income is payable . . . conditionally, or in the future. . . .”).

25 or invo luntarily, to the fullest extent possible. 4 4 The Settlor did so by taking

advantage of the Trust Code’s shorthand provision, simply stating that the “interest

of the beneficiary shall be subject to the spendthrift provisions of Louisiana law.” 45

Stephen’s interest in income and in principal of the Trust are: (1) entitlement

of his heirs, legatees, and assignees to receive his interest in trust principal at his

death (unless his mother is still living at that time, in which case such principal

distribution is postponed until her death or the termination of her income interest

in the Trust, or when some or all of his share of trust principal is invaded during his

lifetime but after his mother’s death); (2) present enjoyment of his interest i n

income of the Credit Shelter Trust but only to the extent of the mandatory single

distribution per year (unless the Trustees in their discretion elect to distribute more

frequently); and (3) a successor income beneficiary’s interest in the Marital

Deduction Trust, devoid of any enjoyment until the death of his mother as initial

income beneficiary (or her earlier renunciation of such interest). 4626

D. Interplay of Operable Facts, Provisions of the Trust Instrument,

and Applicable Law

With this framework fo r our appellate review, we may now appropriately

address the rulings of the trial court.

1. Patricia I. Read is recognized as an alimony judgment creditor under

La. Rev. St at. 9:2005, and as such entitled to seizure of Stephen L.

Read’s beneficiary interest in the A. Louis Read Testamentary Trust

.

This ruling is not contested on appeal.

2. Seizure of the entire amount of the alimony judgments is found to be

just under the circumstances

.

This ruling is not contested on appeal.

3. The seizure of the beneficial interest of Stephen L. Read by Patricia I.

Read is effective as of August 4, 1995

.

This ruling is not contested on appeal.

4. The tax lien of the United States of America . . . is effective as to

Stephen L. Read’s entire interest in the A. Louis Read Testamentary

Trust, effective January 21, 1997

.

This ruling is not contested on appeal.

5. Patricia I. Read’s cla im is entitled to priority over the Internal

Revenue Service’s claim

.

This ruling is not contested on appeal.

6. The Trustees are hereby discharged fr om any liability to the named27 defendants as to the funds on deposit in the Court’s registry

.

This ruling is not contested on appeal.

7. The Trustees are to make distributions directly to Patricia and the

government, immediately upon being authorized to make a

distribution under the terms of the Trust, from income and principal,

until the respective claims are satisfied

.

This is the key contested issue we consider today. The word authorized in

the phrase “immediately upon being a uthorized to make a distribution under the

terms of the Trust,” is at the heart of this preeminent issue.

As noted above, even though the claims of Stephen’s two creditors herein are

unaffected by the spendthrift provision of the Trust, their seizures affect only

Stephen’s interest in the Trust an d do not attach directly to the trust estate. For

emphasis we repeat, Stephen has both income and principal interests in the Trust:

(1 ) an undivided one-eighth c urrent income interest in the Credit Shelter Trust;

(2) an und ivided one-eighth s uccessive income interest in the Marital Deduction

Trust, under which Nat halie is the initial income beneficiary for life; (3) an

undivided one-eighth lifetime principal interest in the Credit Shelter Trust, i.e., an

interest that subsists but is not distributable until his death, unless the Trustees in

their sole discretion elect to invade and distribute such principal in whole or in part,

prior to his death; and (4) an undivided one-eighth lifetime principal interest in the28

Marital Deduction Trust, identical to his principal interest in the Credit Shelter

Trust, except that the Trustees do not have even discretionary authority to invade

his principal inte rest in that subtrust prior to Nathalie’s death. Therefore, even

disregarding the spendthrift provisions, S tephen’s only interest in the Trust –

income or principal

– that, prior to his death, is not subject to Trustee discretion is

one-eighth of the net income from the Credit Shelter Trust, and even that is subject

to Trustee discretion as to distributions more frequently than once annually, and

one-eighth of the income of the Marital Deduction Trust, but only after Nathalie’s

death. On the other hand, the Trustees are authorized under the terms of the Trust

to make discretionary distribution s to Stephen of his entire one-eighth principal

interest in the Cre dit Shelter Trust and, after Nathalie’s death, of his entire oneeighth principal interest in the Marital Deduction Trust as well. That authorization

is solidly grounded in the unfettered discretion that Settlor vested in the Trustees

through express provisions of the Trust.

In the careful words of the trust instrument, the power of the Trustees to

invade and distribute principa l is to be exercised “at such times and in such

amounts as th e Trustee deems necessary, advisable or proper” and, after the

termination of Nathalie’s income interest, only “if the Trustee considers such action

to be in the best interest of Stephen, considering his demonstrated ability to handle47 Section 2067, Louisiana Trust Code.

29 money wisely, his judgment, pru dence and discretion, and any other factors the

Trustee may consider relevant.”

At the heart of this issue, then, is the critical inquiry whether any court can

substitute its discretion for that which a settlor has vested exclusively in the trustee,

and thereby force the premature distribution of trust property by distributing same

not to the beneficiary but to his seizing creditors. We are persuaded that question

must be answered in the negative.

We conclude that the district court abused its discretion when it ordered the

Trustees to make distributions, whether of income or principal, “immediately upon

being authorized” under the terms of the Trust to do so. This aspect of the

judgment must therefore be modified t o command the making of distributions

directly to Patricia

– and subsequently to the government – only at times when,

under the terms of the Trust, Stephen becomes “entitled to the enjoyment of that

income or principal, if the interest of no other beneficiary of the trust is impaired

thereby.” 47

8. The Trustees are to ensure that the strea m of income of other

beneficiaries under the Trust is n ot impeded, impaired or negatively

affected by these distributions

.

This ruling is not contested on appeal.48 George Gleason Bogert et al

, Trust & Trustees § 975 (2d ed. rev. 1983).

49 § 2191, Louisiana Trust Code.

30 9. The Trustees’ request for attorneys’ fees is denied as to the

interpleaded funds

.

This ruling is not contested on appeal.

10. Those attorneys’ fees directly attributable to this interpleader are to be

paid out of Stephen L. Read’s interest in the Trust after the satisfaction

of the creditors herein

.

Given our reversal of the di strict court’s ruling that the Trustees distribute

Trust principal “upon being authorized” to do so, it i s likely to be an extended

period, if ever, before the claims of Patricia and the government are satisfied from

Stephen’s interest in the Trust. Further, the court’s relegation of the claim for

attorneys’ fees to a rank junior to the claims of Patricia and the government, and

its limitation o f the source of funds to Stephen’s interest, are without legal

foundation and must be reversed.

Generally, “[a] trustee is entitled to reimbursement for his necessary and

reasonable expenses incurred in the administration of his trust.” 48 “A trustee is

entitle d to indemnity from the trust estate for expenses properly incurred by him

in the administration of the trust, unless the trust instrument provides otherwise.” 49

There is no contrary provision in the trust instrument at bar. We previously have50 Section 2156, Louisiana Trust Code.

31 noted those provisions of section 2093 of the Trust Code that command the trustee

to defend actions that may result in a loss of the trust estate. The judicial assertion

of claims by Patricia and the government clearly qualify as such. In addition to the

provisions of section 2117 of the Trust Code, which authorize the trustee to incur

expense s necessary to carry out the purposes of the Trust, several provisions of

section 2156 of the Trust Code are applicable. For example, subsection A,

addressing charges that shall be made again st income, includes “(4) Court costs,

attorney’s fees, and other fees on other accountings or judicial proceedings if the

matter primarily concerns the income interest, unless the court directs otherwise.”

Similarly, subsection C, addressin g charges that s hall be made against principal,

includes “(5) Court costs, attorney’s fees, and other fees on other accountings or

judicial proceedings if the matter primarily concerns the principal interest, unless

the court directs otherwise,” and (6) Expenses incurred in maintaining or defending

an action to construe the trust or to protect the trust or the trust property.” 50 Patricia

maintains tha t the phrase “unless the court directs otherwise” gives the court

discretion to order payment of creditors ahead of payment of the Trustees’

attorneys’ fees. Assuming without deciding that this provision gives the district

court discretion, in extraordinary or exceptional circumstances, to refuse to order32

recovery by the Trustees of their attorneys’ fees until the seizing creditors have

been paid in full, the court à quo made no findings or conclusions to justify this

exercise of such discretion in contravention of the well-established ge neral rule that

the Trustees are entitled to reimbursement. We must conclude as a matter of law

that the Trustees are entitled to recover their reasonable attorneys’ fees, including

those associated with this appeal, from the trust est ate, ahead of Stephen’s

judgment creditors.

Also problematic is the court’s limitation of the source of recovery of

attorneys’ fees to Stephen’s interest in the Trust. Even though Stephen’s creditors

may seize no greater interest in t he Trust than his, the Trustees’ entitlement to

reimbursement of attorneys’ fees is not necessarily so limited. Although the Settlor

could have cr eated separate trusts for each beneficiary, he did not. Indeed, as

noted, he did not create separate credit shelter and marital deduction trusts. Rather,

Settlor created a single trust. Moreover, even though he decreed that the Trust be

separated int o two subtrusts, within each subtrust he merely assigned separate

undivided interests in the single corpus.

We modify the ju dgment of the district court to the extent that it limits

satisfaction of the Trustees’ attorneys’ fees to Stephen’s interest in the Trust, and

then only after satisfaction of the claims of Patricia and the government; and hold33

that (1) such attorneys’ fees may be recovered without regard to satisfaction of the

claims of Patricia and the government, and (2) although recovery should be made

first from Stephen’s interest in the Credit Shelter Trust, if that should prove

insufficient, the Trustees may complete such recovery next from the remaining

assets of the Credit Shelter Trust, and finally from any remaining Trust assets;

provided that, to the extent the Trustees shall have recovered any portion of their

attorneys’ fees from Stephen’s siblings’ interests in the Credit Shelter Trust, his

interests in the Marital Deduction Trust shall be available for reimbursing the

interests of his siblings. We leave to the fiduciary discretion of the Trustees the

timing of any recovery of attorneys’ fees from the assets of the Marital Deduction

Trust.

11. Costs of these proceedings are to be paid out of the interpleaded funds

.

We agree with thi s ruling of the district court. In doing so, however, we

emphasize that th is ruling should not be interpreted as a limitation; if the

interpleaded funds should prove insufficient to cover all costs incurred at both the

trial and appeals levels, the remainder may be recovered from future accruals of

income to Stephen and, if that be insufficient, from his principal interest in the

Trust, beginning with the Credit Shelter Trust.

III.34 CONCLUSION

For the foregoing reasons, we affirm the judgment of the district court to the

extent it recognizes that (1) Patricia I. Read is an alimony judgment creditor

entitled to seizure of Stephen L. Read’s income and principal intere st in the

A. Louis Read Trust, free of restraints on involuntary alienation; (2) seizure of the

en tire amount of her alimony judgments is just under the circumstances; (3) her

seizure became effective as of August 4, 1995; (4) the government’s tax lien is

effective as to Stephen’s income and principal interests in the A. Louis Read Trust,

free of restraints on involuntary alienation, as of January 21, 1997; (5) Patri cia’s

rights as a seizing creditor of Stephen’s inter est in the Trust primes the

government’s lien thereon; (6) the Trustees are discharged from any liability to the

named defendants as to the funds on deposit in the registry of the district court;

(7) the Trustee s are not entitled to recover attorneys’ fees from the interpleaded

funds; and (8) the costs of these proceedings are to be paid out of the interpleaded

funds.

We modify the judgment of the district court regarding (a) distributions from

the Trustees to Pat r icia and the government and (b) recovery by the Trustees of

their attorneys’ fees, as follows:

1. After deductions for costs of those proceedings, all remaining funds held35

in the registry of the district court representing distributions of income from

Stephen’s one-eighth income interest in the Credit Shelter Trust are to be delivered

to Patricia and credited to satisfaction of her alimony judgments against Stephen.

2. Until Patricia’s alimony judgments are satisfied, the Trustees shall pay

directly to Patricia, her succe ssors and assigns, all distributable net trust income

allocable to Stephen’s income interest in the Credit Shelter Trust, at least once per

calendar year.

3. After Stephen becomes entitled to receive income distributions from the

Marital Deduction Trust, the Trustees shall pay directly to Patricia, her successors

and a ssigns, all distributable net trust income allocable to Stephen’s income interest

in said Trust, at least once per calendar year, until her alimony judgments are paid

in full.

4. If, during the continuation of the Credit Shelter Trust, Patricia’s alimony

judgments should be satisfied, the Trustees shall pay to the government such

distributable net trust income as would have been paid to Patricia, at least once per

calendar year, until its tax lien is paid in full.

5. During the continuation of the Marital Deduction Trust following the

demise of Nathalie, all distributable net trust income allocable to Stephen and not

payable to Patricia under the foregoing provisions shall be paid to the government36

until its tax lien is paid in full.

6. If, at Stephen’s death, Patricia’s alimony judgments shall not have been

paid in full, the Trustees shall pay directly to Patricia, her successors and assigns,

any remaining interest of Stephen in the p rincipal of the Credit Shelter Trust;

provided, however, that if Patricia’s alimony judgment shall have been satisfied,

then the Trustees shall pay directly to the government Stephen’s remaining interest

in the principal of that subtrust, until the government’s tax lien is paid in full.

7. After the death of the second to die of Nathalie and Stephen, any interest

of Stephen in the Marital Deduction Trust s hall be paid first to Patricia, her

successors and assigns, until her alimony judgments are paid in full; and then to the

government until its tax lien is satisfied.

8. Anything in the foregoing to the contrary notwithstanding, the Trustees

are authorized to recover the attorney’s fees they have incurred in connection with

the instant litigation, including this appeal, first from Stephen’s principal interest

in the Credit Shelter Trust , then, if necessary, from remaining principal of the

Credit Shelter Trust, and finally, if still necessar y, from the Marital Deduction

Trust; in such amounts and at such time or times as the Trustees in their sole

discretion deem appropriate.

MODIFIED IN PART and, as modified, AFFIRMED.