CONCLUSION
Upon ade novo review of the Bankruptcy Court’s grant of summary judgment, this court finds
the plain language of Family Trust clear, unambiguous, and intended to give the Debtor, as trustee
and beneficiary of the Trust, unbridled access to the corpus of the Trust. As a result, there is
sufficient evidence in the record such that no reasonable finder of fact could find that the Debtor a
trustee of a spendthrift trust. Accordingly, the Family Trust property properly belongs to the
bankruptcy estate and the decision of Bankruptcy Court is affirmed.

ENTER:

Cherace ?. feller

MES F. HOLDERMAN
diated States District Judge

DATE: July 19, 2002


1375, 1378 (7th Cir. 1994); In re Roberson, 999 F.2d 1132, 1134 (7th Cir. 1993). A grant of
summary judgment is a conclusion of law and the district court “will uphold the entry of summary
Judgment ‘if there is no genuine issue as to any material fact and if the moving party is entitled to

judgment as a matter of law.’” Indiana Ass’n of Homes for the Aging Inc. v. Indiana Office of

Medicaid Policy & Planning, 60 F.3d 262, 265- 66 (7th Cir. 1995) (quoting Anderson v. Liberty
Lobby. Inc., 477 U.S. 242, 250 (1986)). A party who bears the burden of proof on a particular issue

may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that

there is a genuine issue of material fact that requires trial. Celotex Corp. v. Catrett, 477 U.S. 317,
324, 106 S. Ct. 2548, 2553 (1986). Under the standard for summary judgment, there is no issue for
trial “unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict

for that party.” Anderson, 477 U.S. at 249, 106 S. Ct. at 2511. In reviewing the grant of summary

judgment, the evidence of the nonmovant must be believed and all justifiable inferences must be
drawn in the nonmovant’s favor. Anderson, 477 U.S. at 255, 106 §. Ct. at 2513.

In reviewing the facts relied upon by the Bankruptcy Court granting summary judgment, this
court will accept the factual determinations of the Bankruptcy Court unless those determinations are
cither completely devoid of minimum evidentiary support displaying some hue of credibility or they
bear no rational relationship to the supportive evidentiary data. See United States v. Greer, 53 F.3d
334 (7th Cir. 1995) (citing Krasnov v. Dinan, 465 F.2d 1298, 1302 (3rd Cir.1972)). Summary
judgment may be affirmed on any ground supported in the record, even if it was not relied upon by

the court below. Johngon y. Gudmundsson, 35 F.3d 1104, 1115 (7th Cir. 1994).

B.

Itis undisputed that the ultimate issue before this court on appeal is whether the anti-alienation


appellant has failed supply sufficient evidence in the record to create a genuine issue of material fact
that although the word “desirable” is limited to the Debtor’s “health, support and maintenance,” that
Debtor's determination of what is required or desirable for the Debtor’s health or support or
maintenance is somehow limited. In other words, where the Debtor could not withdraw from the
corpus of the Family Trust for things that were desirable for his comfort or opulence, there is nothing
in the Family Trust to prevent Debtor, as trustee of the Family Trust, from making a determination
that any particular sumptuous luxury or indulgence is required or desirable for his health maimtenance
or support and thereby withdraw from the corpus of the Family Trust accordingly. Based on this
court’s interpretation of the Family Trust, this court finds that the Bankruptcy Court was correct in
holding that the term “desirable” as it is used in the Family Trust does not constitute a sufficient
restraint on Debtor to validate the anti-alienation clause in the Family Trust. Inre McCoy, 274 B.R.
at 764 (relying on Rock Island Bank & Trust Co. v. Rhoads, 353 Ill. 131, 187 N.E. 139, 144 (IIL.
1933) for the proposition that a provision which gives a beneliciary unlimited discretion to disposed
of the corpus curtailed only by what the beneficiary deems appropriate does not constitute a sufficient
restraint on a beneficial interest to prevent the beneficiary to receive the corpus).
b.

Appellant also argues the anti-alienation clause is valid because the Deblor is bound by an
ascertainable standard under the terms of the Family Trust to limit his disposal of the trust corpus to
that which would permit him to maintain the station of life to which he had become accustomed.
Appellant continues on this protracted and circuitous argument citing Rock Island and equating the
word “comfort” from the Rock Island case to the word “desirable,” in this case concluding that the

word “desirable” as it appears in the text of the Family Trust limits the power of the Debtor because


In this case, il is undisputed that the Family Trust contained an anti-alienation clause. The

Bankruptcy Court applying the criteria set forth in Perkins granted summary judgment in favor of

Trustee holding that there was sufficient evidence in the record such that when all justifiable
inferences were taken in favor of Debtor there existed no genuine issue of material fact that Debtor,
as the trustee and a beneficiary of the Family Trust, had unregulated dominion and control over the
corpus of the Family Trust. In re McCoy, 274 B.R. at 762.

Construing a trust, similar to construing a will is a question of law. Harris Trust and Sav.
Bank v. Donovan, 145 Ill.2d 166, 172, 582 N.E.2d 120 (111.1991). The first purpose in construing a
trust is to discover the settlor’s intent from the trust as a whole, which the court will effectuate if it
is not contrary to public policy. Id. (citations omitted). The intention of the settlor is to be
ascertained by examining the entire trust and by giving to the words employed their plain and ordinary
meaning. Id. If possible, the court should construe the will or trust so that no language used by the
testator is treated as surplusage or rendered void or insignificant. Id. Every word, phrasc and clause
in the trust should be given effect, if possible, and where one construction of a will would render a
portion of it meaningless and another construction would give effect to all provisions and all
language, the construction giving effect to the latter construction will be adopted. Id.

Accordingly, upon review of the record, the Bankruptcy Court correctly held that when all
clauses of the Family Trust are given effect, the only reasonable interpretation of the instrument as
a whole is that Judith McCoy intended Debtor to have complete dominion and control over the
corpus. Judith McCoy, in her will, created different discretionary standards for Debtor to follow in

determining when to invade the corpus of the Family Trust to make payments to the beneficiaries.


clause in the Family Trust is valid and enforceable under Illinois law. Pursuant to 11 U.S.C.
§541(a)(1) when a bankruptcy case is commenced, an estate is created to accept all legal and equitable
property interests of the debtor wherever located and by whomever held, subject to limited
exceptions, including 11 U.S.C. §541(¢)(2). Section 541(c)(2) excludes property from the bankruptcy
estate within a valid spendthrift trust. When, as in this case, a bankruptcy debtor is a beneficiary of
a trust containing a spendthrift or anti-alienation provision, whether that debtor’s interest in that trust
is property of the bankruptcy estate turns on whether the spendthrift or anti-alienation provision is
enforecable under applicable law, In re Goldberg, 98 B.R, 353, 357-8 (Bankr. N.D.II1.1989)(holding
that valid spendthrift trusts are excluded from the debtor’s bankruptcy estate). In this case, Illinois
law is the applicable law.
1.

Under Illinois law, no special language is required to create a spendthrift trust, therefore, a
trust containing an anti-alienation or spendthrift provisions docs not automatically qualify as
spendthrift trust. In re Balay, 113 B.R. 429, 438 (Bankr. N.D.III.1990), Accordingly, when
confronted with a spendthrift provision in a trust, a court must make a detcrmination of whether the
trust to qualifies as a valid spendthrift trust. In re Balay, 113 B.R. at 438; In re Rolfe, 34 B.R. 159,

161 (Bankr. N.D.IIL1983); accord In re McCullough, 259 B.R. 509, 517 (Bankr. R.I. 2001). The

criteria for determining whether a valid spendthrift trust exists is set forth in Matter of Perkins, 902
F.2d 1254, 1257 (7th Cir,1990) which provides:

To determine whether a trust qualifies asa spendthrifl trust under Illinois law, courts examine
the following characteristics: (1) whether the trust restricts the beneficiary’ s ability to alienate
and the beneficiary’s creditors’ ability to attach the trust corpus; (2) whether the beneficiary
settled and retained the right to revoke the trust; and (3) whether the beneficiary has exclusive
and effective dominion and control over the trust corpus, distribution of the trust corpus and
termination of the trust.


time determines to be required or desirable for his health, maintenance and support” somehow limits
Debtor’s dominion and control over the corpus of the Family ‘Trust. This proposition leaves
unresolved the follow questions: what amount of control over the Family Trust is remaining and how
much limitation is left after the Debtor has made his determination, free from review, as the trustee
of the Family Trust, what is “desirable” for his health, maintenance and support?

First, to be clear, it is undisputed that the Debtor is the same person as the person referred to
in the Family Trust as “the trustee” and “my spouse.” With that in mind, in looking at the language
of the Family Trust, Debtor is the only income beneficiary of the Trust and the terms of the Family
Trust require Debtor to make installment payments of the net income of the Family Trust to himself
at least quarter-annually. In addition, Debtor, by his exclusive determination, could not only
withdraw from the corpus of the Family Trust what was “required” for his health, maintenance and
support, but also could withdraw from the corpus of the Family Trust what was “desirable” for his
health maintenance and support, with Debtor and Debtor alone left to determine what is required and
what is desirable. Upon review of the plain language of the will and trust, there is absolutely no
question that Debtor held unfettered control and dominion over the corpus of the Family ‘Trust.

Appellant argues, nevertheless, both here and previously before the Bankruptcy Court that the
word “desirable” is limited to the Debtor’s “health, support and maintenance,” and that his
discretionary right to take from the corpus is not unfettered, but is restricted to what is reasonably
related to payments for his health, maintenance, and support. The words “reasonable related” are not
found anywhere in the text of the Family Trust. So appellant’s argument that Debtor’s dominion is
somehow fettered to that which is reasonably related to his health, maintenance and support is

unsupported by the factual record and was properly rejected by the Bankruptcy Court. Furthermore,


‘MinulesOrder Furin (06°97)

R27

United States District Court, Northern District of Illinois

ame te idee James F, Holderman “nan Asiued swage

CASE NUMBER 02 C 3258 DATE 7/19/2002
CASE MC COY vs. JOHNSON 00B 2630 00 A 1052
TITLE

[it the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state brietly the nature

MOTION: of the motion being presented.)

DOCKET ENTRY;

aM a Filed motion of | use listing in “Motion” box above.]

(2) oO Brief in support of motion due

(3) oO Answer briefto motion duc____,. Reply to answer bricfduc____.

(4) im Ruling/Hearingon_ set for at

(5) oO Status hearing[held/continued to] {set for/re-set for] on

(6) oO Pretrial conference[held/continued to] [set for/re-set for] on __

(7) Q Trial[sct for/re-set for] on _____at

(8) oO [Bench/Jury trial] [Hearing] held/continuedto at.

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OORRCP4(m) (Cl General Rule21 OFRCP41(a)(1) CO FRCP41(a)(2).
qo) =f [Other docket entry] Pursuant to Memorandum Opinion and Order entered this day, the decision
of the Bankruptcy Court is affirmed.

(dl) @f [For further detail see order attached to the original minute order.]
No notices required, advised in open court,
No notices required, numberof vies

| Notices mailed by judge's staff.

Notified counsel by telephone.
Docketing to mail notices.
Mail AQ 480 form

Copy to judge/magistrute jude.

22 2002

dare doskered

JUL

7ng/2002

IS

‘gvstsoom 22 ul 20 due aed ice
“deputy"s -
initials Boe as

SO puldtttie received in

central Clerk’s Olfice

ailing depuny initinls



no ascertainable standard according to the terms of the Family Trust to limit his disposition of the
Trust corpus.

Appellant argues, however, that the limitation “health, maintenance and support” means for
the purpose of maintaining himself in the station of life to which he had become accustomed. The
text of the Family Trust, however, is silent as to what the limitation health, maintenance and support
encompasses. Instead, the text of the Family Trust leaves it to the trustee to determine not only what
is required and what is desirable, but also what encompasses his health, maintenance and support.

c.

Finally, appellant argues that the Debtor as trustee owed a fiduciary duty to the other
beneficiaries which works to limit the distribution of the corpus to himself to that whichis reasonable
for his health, maintenance and support. The text creating the Family Trust, however, belies this
argument. The relevant text reads as follows: “The Trustec necd not consider the interests of any
other beneficiary in making distributions to my spouse for his benefit.” (Family Trust Art. IV, 2(b))
and also reads:

(c) Upon the death of my spouse after my death, or upon my death if my spouse does not

survive me, the trustee shall divide the Family Trust, as then constituted, into separate shares,
as follows:

(i) 37.5% for my son, ROBERT, if then living;

(ii) 37.5% for my daughter, MARION, if then living;

(iii) 37.5% for my granddaughter LARA GWIN McCoy, if then living. (family Trust Art. IV,

12)

The law imposes on trustees a high standard of loyalty and care encapsulated in the term
“fiduciary duty.” Matter of Marchiando, 13 F.3d 1111, 1115 (7th Cir. 1994). The Debtor, as trustee,
owed a fiduciary duty to Robert McCoy, Marion McCoy and Lara Gwin McCoy. In re Estate of

Halas, 209 Ill. App.3d 333,344, 568 N.E.2d 170 (1st Dist 1991)(citations omitted). Accordingly, the

11


the Debtor cannot take so much of the corpus as he determines to be desirable in life, but instead,
merely what he determines (o be desirable for his health, maintenance and support.

In Rock Island, the testator granted a life estate to his widow adding a provision granting her
as life tenant “‘with full authority to use and dispose of so much of the same as may in her judgment
be necessary for her comfort and satisfaction in life.” Rock Island, 187 N-F, at 141-142. The Hlinois
Supreme Court held that this provision gave the life tenant “unlimited discretion to disposed of the
corpus” curtailed only by what she deems within “contentment, gratification.” Id. The Illinois
Supreme Court explained that the word ‘comfort’ must be construed as relating to her support and
case, whereas the word ‘satisfaction’ must be construed as intending more than support and comfort.
The court further explained that had the clause only provided for her comfort, then the clause would
have been a limitation on her power to disposal of the corpus. Since, however, the clause provided
for her comfort and satisfaction, the court ruled that the clause provided her unlimited discretion to
dispose of the corpus as she shall determined necessary. Rock Island, 353 Ill. 131, 141-142 (111.1933).

In this case, the limitation “health, maintenance, and support” of the Family Trust is analogous
to the word “comfort” in Rock Island, and the word “desirable” in this casc is analogous to the word
“satisfaction” in Rock Island because within the portion of the Family Trust at issue, Debtor has
complete unfettered discretion to determine: (1) what is required for the Debtor's health, maintenance
and support; (2) what is desirable for the Debtor’s health, maintenance and support.; and (3) what
constitutes health, maintenance and support. The text of the Family Trust expressly gives complete
discretion immune from review to the Debtor to pay himself that what he determines he desires to
maintain what he determines is his particular station in life is and for what he determincs what he is

accustom, Accordingly, the Bankruptcy Court was correct when it held that the Debtor is bound by

10


Under one discretionary standard, Debtor is permitted to invade the corpus and make payments for
health, maintenance, and support as “required or desirable” for himself as primary life beneficiary
without regard to “the interests of any other beneficiary.” Under the second standard, Debtor “may
in his discretion” pay out as “required” for the health, education, maintenance, and support of other
beneficiarics. In light of the difference between the discretionary standard granted to the trustee for
the different classes of beneficiaries, it is clear that Judith MeCoy’s intent was to confer an unfettered
discretion upon Debtor’s power to invade the corpus for payments to himself.
2.

Appellant argues that in granting Trustee’s motion for summary judgment the Bankruptcy
Court erred: (1) in finding Debtor to have unfettered dominion and control over the corpus of the
Family Trust; (2) in finding Debtor bound by no ascertainable standard under the terms of the Family
Trust to limit his disposal of the trust corpus: and (3) in failing to find by virtue of there being other
beneficiaries of the Family ‘lrust in addition to himself, Debtor, as trustee, owed a fiduciary duty to
the other bencficiarics to limit the distribution of the corpus to himself to that which was reasonable
for his health, maintenance and support. This court finds each of these arguments to be without merit.

a.

Tn arguing that the Bankruptcy Court erred in finding the Debtor to have unfettered dominion
and control over the corpus of the Family Trust, appellant relies on the text of the will and trust which
provides:

The trustee may in its discretion pay to my spouse, or for his benefit, so much or all of the

principal of the Family Trust as the trustee from time to time determines to be required or

desirable for his health, maintenance and support. (Family Trust Art. IV, { 2(b)).

From this passage of the Family Trust, appellant argues that the phrase “as the trustee from time to


(a) The trustee shall pay all the net income of the Family Trust to my spouse in convenient
installments at least as often as quarter-annually during his life.
(b) The trustee may in its discretion pay to my spouse, or for his benefit, so much or all of the
principal of the Family Trust as the trustee from time to time determines to be required or
desirable for his health, maintenance and support. The Trustee need not consider the interests
of any other beneficiary in making distributions to my spousc or for his benefit, Although my
primary concern is for my spouse's health, maintenance and support, the trustee may in its
discretion during the life of my spouse pay to, or use for the benefit of, one or more of my
descendants (o the exclusion of one or more of them so much of the principal of the Family
‘Trust as the trustee from time to time determines to be required for their health, education,
maintenance and support.
(c) Upon the death of my spouse after my death, or upon my death if my spouse does not
survive me, the trustee shall divide the Family Trust, as then constituted, into separate shares,
as follows:

(i) 37.5% for my son, ROBERT, if then living;

Gi) 37.5% for my daughter, MARION, if then living;

(iii) 37.5% for my granddaughter LARA GWIJN McCoy, if then living.

B. Bankruptcy Proceedings
On January 28, 2000, Debtor filed a voluntary petition for relicf under Chapter 7 ofthe U.S.
Bankruptcy Code. Trustee filed an adversary procceding against the Debtor both individually and in
his capacity as trustee for the Family Trust pursuant to 11 U.S.C. § 541(a) sceking an accounting of
the Family Trust and secking the value and assets of the Family Trust be considered part of Debtor’s
bankruptcy estate. The Bankruptcy Court granted Trustee’s motion for summary judgment holding
that the Family Trust was an invalid spendthrift trust, and thus property of the bankruptcy estate
pursuant to 11 U.S.C. § 541(a) and ordered an accounting of the Family Trust assets and income
pursuant to 11 U.S.C, § 541(a)(5)(A) and § 542(a).
IL.
A.
On appeal, a district court reviews the factual findings of the Bankruptcy Court under a

“clearly erroneous” standard, but reviews conclusions of law de novo. Meyer v. Rigdon, 36 F.3d


A. Facts’

Debtor was married to Judith McCoy from 1944 to 1991, During the marriage, Judith McCoy
was not employed, did not own a business and did not own substantial assets prior to marriage.
During the years of the marriage, Debtor’s occupation included estate planning. Debtor and Judith
McCoy owned real estate located in the Beverly area of Chicago. This real estate was acquired with
assets initially owned or controlled by Debtor. In 1976, Debtor and Judith McCoy jointly owned a
cooperative apartment located at 4950 South Chicago Beach Drive in Chicago, Illinois. The mortgage
and maintenance payments for the apartment derived from assets initially owned and controlled by
Debtor.

Ultimately Debtor transferred all of his interests in real estate and property to Judith McCoy
on March 14, 1980. Judith McCoy signed her last will and testament before witnesses on April 19,
1989, Judith McCoy died on January 10,1991, Judith McCoy’s will created a trust (“Family I'rust”)
naming Debtor, Marion Leslie McCoy, Robert Stewart McCoy, and Lara McCoy as bencficiarics.
‘The will also named Debtor the trustee of the Family Trust and designated Debtor as the executor for
her will. The relevant portions of Judith MeCoy’s will which established the Family Trust provides:

ARTICLE TV
Trust Dispositive Provisions

2. The Family Trust shall be held, administered and distributed in accordance with the
following provisions:

'The following facts are taken from the Bankruptcy Court’s Memorandum Opinion and
Order of March 12, 2002.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
) BACKETED
IN RE:
} JUL 2 2 2002
GEORGE R. MC Coy, )
Debtor. ) No. 02 C 3258
a )
)
GEORGE R. MC COY, et al., ) (Appeal From an Order of the United States
Appellants, ) Bankruptcy Court for the Northern District
) of Illinois in No. 00 A 01052
ve ) (Case No. 00 B 02630))
)
DONALD E. JOHNSON )
Appellee. )

MEMORANDUM OPINION AND ORDER
JAMES F. HOLDERMAN, District Judge:
‘This is an appcal from a decision of the Bankruptcy Court for the Northern District of Illinois,
Jack B. Schmetterer, J., In re McCoy, 274 B.R, 751 (Bankr. N.D.IH. 2002). The Bankruptcy Court
granted summary judgment in favor of Donald E. Johnson as the Chapter 7 Trustcc (“Trustee”) of the
estate of debtor George R. McCoy, (“Debtor”). This court has jurisdiction pursuant to 28 U.S.C. §
158(a) and Federal Rulcs of Bankruptcy Procedure 8001 and 8002. For all the following reasons, the

decision of the Bankruptcy Court is affirmed.

lo


Debtor was obligated to carry out the trust according to its terms and to act with the highest degree
of fidelity and utmost good faith excluding all self-interest, prohibited from dealing with the trust
property for his individual benefit. Id. This rule is not, however, without exception. It is well
established that a trustee may occupy conflicting positions in handling the trust where the trust
instrument contemplates, creates, or sanctions the conflict of interest. Id.

In this case, Debtor occupies conflicting positions in handling the trust because the trust
instrument contemplates, creates, and sanctions the conflict of interest, Debtor's fiduciary duty,
therefore, is limited by the trust instrument itself. In looking at the Family Trust, the text is tailored
to teach that the Debtor, as trustee, can completely dispose of the corpus of the trust without regard
to Robert McCoy, Marion McCoy and Lara Gwin McCoy. The text is also tailored to ieach that
Robert McCoy, Marion McCoy and Lara Gwin McCoy can only receive anything from the trust if
Debtor determines in his discretion at a time he chooses that any one of the three beneficiaries needs
something that is required for their health, education, maintenance and support or if Debtor expires
without having completely disposed of the trust. Accordingly, by virtue of the language used in the
trust instrument, any fiduciary duty owed by Debtor to the other beneficiaries does not limit Debtor’s

ability to completely dispose of the trust.