Case Name: IN RE Rick H. REYNOLDS, Debtor. Todd A. Frealy, Attorney, Chapter 7 Trustee of Estate of Rick Reynolds, Appellant, v. Rick H. Reynolds; John M. Carmack, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust-Survivor's Trust, as amended; John Morris, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust-Survivor's Trust, as amended, Appellees
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 2017-08-15
Citations: 867 F.3d 1119
Docket Number: No. 12-60068
Parties: IN RE Rick H. REYNOLDS, Debtor. Todd A. Frealy, Attorney, Chapter 7 Trustee of Estate of Rick Reynolds, Appellant, v. Rick H. Reynolds; John M. Carmack, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust-Survivor’s Trust, as amended; John Morris, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust-Survivor’s Trust, as amended, Appellees.
Judges: Before: ALEX KOZINSKI and SUSAN P. GRABER, Circuit Judges, and CHARLES R. BREYER, District Judge.
Reporter: West's Bankruptcy Reporter
Volume: 572
Pages: 1119–1128

Head Matter:
IN RE Rick H. REYNOLDS, Debtor. Todd A. Frealy, Attorney, Chapter 7 Trustee of Estate of Rick Reynolds, Appellant, v. Rick H. Reynolds; John M. Carmack, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust-Survivor’s Trust, as amended; John Morris, Co-Trustee of the Reynolds Family Trust and Co-Trustee of The Reynolds Family Trust-Survivor’s Trust, as amended, Appellees.
No. 12-60068
United States Court of Appeals, Ninth Circuit.
Argued and Submitted March 7, 2014 Pasadena, California
Filed August 15, 2017
Jesse S. Finlayson (argued), Finlayson Williams Toffer Roosevelt & Lilly LLP, Irvine, California, for Appellant.
David W. Meadows (argued), Law Offices of David W. Meadows, Los Angeles, California, for Appellees.
Before: ALEX KOZINSKI and SUSAN P. GRABER, Circuit Judges, and CHARLES R. BREYER, District Judge.
The Honorable Charles R. Breyer, United States District Judge for the Northern District of California, sitting by designation.

Opinion:
OPINION
PER CURIAM:
Debtor is the beneficiary of a spendthrift trust. The trust payments he receives come entirely from trust principal. The California Probate Code is unclear as to whether and to what extent his creditors may reach the trust distributions, so we certified the question to the California Supreme Court. Frealy v. Reynolds, 779 F.3d 1028, 1030 (9th Cir. 2015). That court answers us in the attached opinion.
In our order certifying the question, we recounted the facts of this case. Id. at 1031-32. Based on the California Supreme Court opinion, we now hold that a bankruptcy estate is entitled to the full amount of spendthrift trust distributions due to be paid as of the petition date. See Carmack v. Reynolds, 2 Cal.5th 844, 215 Cal.Rptr.3d 749, 391 P.3d 625, 628 (2017); Cal. Prob. Code § 15301(b). But the estate may not access any portion of that money the beneficiary needs for his support or education, as long as the trust instrument specifies that the funds are for that purpose. See Carmack, 215 Cal.Rptr.3d 749, 391 P.3d at 629; Cal. Prob. Code § 15302. The estate may also reach 25 percent of expected future payments from the spendthrift trust, reduced by the amount the beneficiary needs to support himself and his dependents. See Carmack, 215 Cal. Rptr.3d 749, 391 P.3d at 632; Cal. Prob. Code § 15306.5.
We remand so that the bankruptcy court can apply the teachings of Carmack,
REVERSED and REMANDED.
APPENDIX
CARMACK v. REYNOLDS Cal. Cite as 391 F.3d 625 (Cal. 2017)
625
215 Cal.Rptr.3d 749
John M. CARMACK, ás Trustee, etc,, et ttl,, Plaintiffs and Respondents, v. Rick H. REYNOLDS, Defendant;
Todd A. Frealy, as Trustee in Bankruptcy, etc., Claimant and Appellant.
S224985
Supreme Court of California.
Piled 3/23/2017
Background: Chapter 7 trustee brought adversary proceeding, seeking to compel turnover of the undistributed principal to which debtor was entitled under spendthrift trust established by his late father. The United States Bankruptcy Court for the. Central District of California, Meredith A, Jury, J,, granted debtor's motion for summary judgment, and trustee appealed, The Bankruptcy Appellate Panel (BAP), Hollowell, J., 479 B.R. 67, affirmed, and trustee appealed, and the Court of Appeals, 2017 WL 1131882, certified question to the California Supreme Court as to the extent to which a bankruptcy estate may. reach a beneficiary's interest in spendthrift trust.
Holding: The Supreme Court, Liu, J,, held that creditor may petition for pending distribution of principal as well as up to 25 percent of future payments.
Question answered.
1. Trusts «=141
•A "spendthrift trust" is a trust that provides that tho beneficiary's interest cannot be alienated before it is distributed to the beneficiary.
See publication Words and Phrases for other judicial constructions and definitions.
2.'Trusts «=152
Creditors of the beneficiary of a spendthrift trust generally cannot reach trust assets while those assets are in the hands of the trustee, even if they have secured a judgment against tho beneficiary; rather, creditors must wait until the trustee makes distributions to the beneficiary.
3. Trusts «=12
The law permits spendthrift trusts because donors have the right to choose the object of them bounty and to protect their gifts from the donees' creditors.
4, Statutes @=1076
Court interpreting a statute seeks to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute.
5. Statutes «=1079
Court interpreting a statute begins by looking to the statutory language.
6. Statutes «=1091,1151
Court interpreting a statute must give the language its usual, ordinary import and accord significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose.
7, Statutes «=1156
A construction of a statute making some words surplusage is to be avoided.
8. Statutes @=1153, 1155, 1216(2)
The words of the statute must be construed in context, keeping in mind the statutory purpose, and statutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extent possible.
9, Statutes «=1105,1183, 1242
If tho statutory language is susceptible of more than one reasonable interpretation, court must look to additional canons of statutory construction to determine the Legista tore's purpose; both tho legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the legislative intent.
10, Trusts ©=152
The general rule is that principal hold in a spendthrift trust may not be touched by creditors until it is paid to tho beneficiary. Cal. Prob. Code § 15801(a).
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391 PACIFIC REPORTER, 3d SERIES Cal.
11. Trusts ®=152
Where trust assets are not protected by a spendthrift provision, tho default rulo is that creditors may reach those assets. Cal. Civ. Proc. Coda § 709.010(b).
12. Trusts ®=»152
After an amount of principal of a spendthrift trust has become due and payable, but has not yet been distributed, a creditor can petition to havo tho trustee pay directly to the creditor a sum up to the full amount of that distribution unless the trust instrument specifies that the distribution is for the beneficiary's support or education and the beneficiary needs the distribution for those purposes; if no such distribution is pending or if the distribution is not adequate to satisfy a judgment, a general creditor can petition to levy up to 25 percent of tho payments expected to bo made to tho beneficiary, reduced by the amount other creditors have already obtained and subject to the support needs of the beneficiary and any dependents. Cal. Prob. Code § 15301(b), 15306.5,15307.
See 13 Wilkin, Summary of Cal. Law (10th ed. 2005) Trusts, § 151 et seq.
9th Cir. No. 12-60068, BAP No. CC-11-1483-HPaD, C.D. Cal. Bankr. Nos. 09-14039-MJ, 09-01205-MJ
Finlayson Toffer Roosevelt & Lilly, Jesse S. Finlayson and Matthew E. Lilly, Irvino, for Claimant and Appellant.
Law Offices of David W. Meadows and David W. Meadows, Los Angeles, for Defendant.
Tho Eroon Law Firm and Robert C. Er-oen for Plaintiffs and Respondents.
Liu, J.
Under the terms of a spendthrift trust established by his parents, defendant Rick H. Reynolds is entitled to receive over a million dollars, all to be paid out of trust principal. Reynolds filed for bankruptcy before the trust's first payment, and the bankruptcy trustee seeks to determine what interest the bankruptcy estate has in the trust. The trust is governed by California law, and as tho United States Court of Appeals for the Ninth Circuit observed, the relevant statutory provisions aro "opaque." (Frealy v. Reynolds (9th Cir. 2015) 779 F.3d 1028, 1029 (Frealy).) Probate Code section 15306.5 appeal's to limit the bankruptcy estate to 25 percent of the heneficiary's interest; other provisions of the Probate Code suggest no such limitation. The Ninth Circuit asked us whether the Probate Codo limits a bankruptcy estate's access to a spendthrift trust to 26 percent of the beneficiary's interest, where the trust pays the beneficiary entirely out of principal. We hold that the Probate Code does not impose such an absolute limit on a general creditor's access to the trust. With limited exceptions for distributions explicitly intended or actually required for the beneficiary's support, a general creditor may reach a sum up to the full amount of any distributions that are currently due and payable to the beneficiary even though they are still in the trustee's hands, and separately may roach a sum up to 26 percent of any payments that arc anticipated to be made to the beneficiary.
I.
Reynolds's parents established the Reynolds Family Trust in 2005. The trust contains a spendthrift clause, providing that "no interest in the Income or principal of any trust created under this instrument shall be voluntarily or involuntarily anticipated, assigned, encumbered, or subjected to creditors |⅛] claim or legal process before actual receipt by the beneficiary." Reynolds'? mother Patsy died in 2007. Following her death, Reynolds's father Freddie received all the trust's distributions until Freddie died in 2009.
The trust provides that at Freddie's death, Reynolds is entitled to S260,000 from the trust if ho survives Freddie by 30 days. In addition, Reynolds is entitled to receive $100,000 a year for 10 years and then une-third of the remainder. All payments are expected to be made from principal; the trust's assets are in undeveloped real estate that do not produce income, Those assets are estimated to be worth several million dollars, ' although their exact value will not be known until the trust assets are liquidated.
The day after' his father died, Reynolds filed for voluntary bankruptcy under chapter 7 of the United States Bankruptcy Code. The trustees of the Reynolds Family Trust sought a declaratory judgment on the extent of tho bankruptcy trustee's interest in the trust. The bankruptcy court held that under tho California Probate Codo, tho bankruptcy trustee standing as a hypothetical lien creditor could reach 25 percent of Reynolds's interest in the trust. The bankruptcy appellate panel affirmed, The bankruptcy trustee appealed to the Ninth' Circuit, which asked us to clarify if Probate Code section 15306,5 caps a bankruptcy estate's access to a spendthrift trust at 26 percent of the benefidaiy's interest where the trust pays entirely from principal. We granted the Ninth Circuit's request.
CARMACK v. Cite as 391 F.3d REYNOLDS Cal. 625 (Cal. 2017)
627
II.
L1-3J A spendthrift trust is a trust that provides that the beneficiary's interest cannot be alienated before it is distributed to the beneficiary. Creditors of the beneficiary generally cannot reach trust assets while those assets aro in tho hands of tho trustee, oven if they have secured a judgment against the beneficiary. Rather, creditors mu3t wait until the trustee makes distributions to the beneficiary. The law permits such trusts because donors have "the right to choose the object of [their] bounty" and to protect their gifts from tho donoos' creditors. (Canfield v. Security-First Nat. Bank (1989) 18 Cal.2d 1, 11, 87 P.2d 830 (Canfield).) Providing donors some measure of control over their gifts encourages donors to make those gifts, to the benefit of the donor, the beneficiary, and ultimately the beneficiary's creditors.
Under the Probate Code, spendthrift provisions are generally valid as to both trust income and trust principal. (Prob. Code, § 15300 [trust income], 16301, subd, (a) Llrust principal]; all statutory references are to the Probate Code unless otherwise noted.) Yet creditors need not always wait for distributions to reach the debtor's hands. Spendthrift provisions are invalid when grantors name thomsclvos beneficiarios. (§ 15304, subd. (a).) When a trust includes a valid spendthrift provision, certain creditors may reach into the trust. Such creditors include those with claims for spousal or child support (§ 15305) and those with restitution judgments (§ 15305.5). In additiun, a state or local public entity can reach trust assets when the beneficiary owes'money for public support (§ 1530R, subd. (a)) unless distributions from the trust are required to care for a disabled beneficiary (§ 15306, subd. (b)).
Even general creditors, including a bankruptcy trustee standing as a hypothetical lien creditor, have some rocourse undor throo provisions: section 16301, subdivision (b) (section 15301(b)), section 15306.5, and section 15307. The question here is how much access Lo Lrust principal a general creditor has under these provisions.
14-91 This is a question of statutory construction. We seek to "ascertain the intent of the lawmakers so as to effectuate the purpose of the statute." (Day v. City of Fontana (2001) 25 Cal.4th 268, 272, 105 Cal.Rptr.2d 457, 19 P,3d 1196.) "[W]e begin by looking to the statutory language. [Citation.] We must give 'the language its usual, ordinary import and accordf ] significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose. A construction making some words surplusage is to be avoided. The words of the statute must be construed in context, keeping in mind the statutory purpose, and statutes or statutory sections relating to the same subject must be harmunized, buth internally and with each other, to the extent possible.' [Citation.] If the statutory language is susceptible of more than one reasonable interpretation, we must look to additional canons of statutory construction to determine the Legislature's purpose. [Citation.] 'Both the legislative history of the statute and the wider hisloiical circumstances of its enactment may be considered in ascertaining the legislative intent.' " (McCarther v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110, 105 Cal.Rptr.3d 404, 225 P.3d 538.)
In construing' the provisions at issue, we are mindful that the Reynolds Family Trust is distinctive in directing all disbursements te bo made from principal. In other trusts, productive assets produce periodic income payments during the life of the trust, and preserving principal is one of the trustee's paramount duties. (See 76 Am.Jur.2d (2016) Trusts, § 429.) It is common for trusts to specify that tho principal may not bo distributed for many years, and liquidating principal may signal that the trusts purpose has bean fulfilled. We are alan mindful that this caso arises out of a bankruptcy proceeding. Ordinarily, a judgment creditor who is unable to satisfy all of the judgment out of the beneficiary's trust interest may continue to attempt Lo collect on the balance of the judgment from whatever other assets the beneficiary may have. Here, however, the amount Reynolds's creditors will receive depends on the reach of the bankruptcy trustee. Any remaining debts after the bankruptcy process will be extinguished, and any further distributions will be unencumbered. (11 U.S.C; § 541(e)(2).) That spendthrift provisions can work to beneficiaries' advantage in bankruptcy in this way has long been recognized as a characteristic of such provisions, (See Residid Trusts, § 58, com. a |"An important byproduct of the limited spendthrift protection, however, is the again limited but nevertheless important insulation that may result from a discharge in bankruptcy."].)
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A.
We begin with section 15301(b), which provides in pertinent part: "Alter an amount of principal has become due and payable to the beneficiary under the trust instrument, upon petition to the court under Section 709.010 of the Code of Civil Procedure by a judgment creditor, the court may make an order directing the trustee to satisfy the money judgment out of that principal amount." Section 709.010 of the Code of Civil Procedure (section 709.010) sets forth the procedure for ⅞ judgment creditor to petition a court to satisfy the judgmeftl out of the debtor's bust interests.
As the Ninth Circuit observed, the statute does not define "due and payable." (Frealy, supra, 779 F.3d at p. 1033.) The phrase is used in other provisions such , as section 15805, which prorides that creditors with judgments for child or spousal support may potition a court to satisfy their judgments out of disbursements of either income or principal "as they become due and payable, presently or in the futuro." (§ 15306, subd. (b),) Any disbursement from the trust would appear to bo duo and payable in tho sonso the phrase is used in section 15306. But, as the Ninth Circuit recognized, applying such a reading to section 15301(b) could mean that creditors have "immediate access to all of a beneficiary's trust principal," which would eliminate spendthrift protections as to principal entirely, (Frealy, at p. 1033.)
We do riot think the Legislature .intended to remove all protections from trust principal immediately after specifying that spendthrift provisions are generally valid as applied to principal. (§ 10301, subd. (a).) Instead, the Legislature provided the limiting principle in the introductory clause uf section 15301(b): "After an amount of principal has become due and payable...." (Italics addod.) This clause indicates that timing is critical: section 15301(b) roaches only thoso amounts winch, are presently set to be paid to the benefieia-xy. The provision thus requires an amount of principal to "ha[ve] become" due to the beneficiary, at which point upon a creditor's petition the court may enter an order "directing tho trustee to satisfy tho money judgment out of that principal, amomt" (§ 15301(b), italics added.) In other words, under this provision creditors may reach the principal already set to be distributed and only-up to the extent of that distribution. Such principal has served its trust purposes, and in "many (but not all) caso3, the distribution may signal that the trust is ending. Section 15301(b) makes these assets, and these assets only, fair game to creditors.
[10] In this light, section 15301(b) is properly viewed not as an exception to the general spendthrift protections but as a corollary. The general rule ⅛ that principal hold in a spendthrift trust may not be touched by creditors until it is paid to tho beneficiary, (§ 15301, subd. (a).) Section 15301(b) adds that once an amount uf principal has become due and payable, the court can order the trustee to pay that amount directly to the beneficiary's creditors instead. A distribution of principal is reasonably understood to signify that the amount distributed has satisfied its trust purposes, Because the beneficiary's interest in those assots has offoctively vested, the law no longer has any interest in protect ing thorn (except as providod in section 15302, as explained bolow).
CARMACK v. REYNOLDS Cal. Cite as 391 P.3d 625 (Cal. 2017)
629
Tho legislativo history' points tho samo way. The provisions at issue date from the Law Revisiun Commission's 1986 prupused revisions to the Probate Code. (See Selected 1986 Trust and Probate Legislation (Sep. 1986) 18 Cal. Law Revision Com. Rep. (1986) pp. 1821-1479 (1986 Report); Stats. 1986, ch. 820, § 40, as reenacted by Stats 1990, ch. 79, § 14.) The revisions were designed to remedy the patchwork nature of tho prior statutory framework whilo largely continuing existing law, (1986 Report, supra, at pp, 1221-1222, 1302-1306.) Prior California statutes hod not made blear that spendthrift provisions ware valid tut applied to principal, though case law generally suggested they were. (Id. at p. 1802; see Seymour v. MaAvoy (1898) 121 Cal. 438, 444, 53 P. 946; San Diego Trust etc. Bank v. Heustis (1932) 121 Cal. App. 675, 683-684, 10 P.2d 158.) The Commission's report, to which wo give "substantial weight" (Van Arsdale v. Hollinger (1968) 68 Cal.2d 245, 249, 66 Cal.Rptr. 20, 437 P.2d 608, overruled on other gruunds in Privette v. Superior Court (1993) 5 Cal.Rptr. 689, 21 Cal. Rptr.2d 72, 854 P.2d 721), notes that the drafters sought to codify the validity of Bpondthrift provisions as applied to trust principal in section 16301, subdivision (a) (section 16801(a)). (1986 Report, supra, at p. 1302.) But tbe drafters also sought to clarify that once principal was due and payable, creditors could reach it both "in the hands of the trustee ancl after payment to the beneficiary." (Id. at pp. 1302-1308.) In other words, spendthrift protections do not apply to section 15301(b) assets.
Importantly, creditors' access under section 15301(b) is not unlimited. Section 15302 explains that where the trust instrument specifies -that a distribution, whether from income or -principal, is for tho bonoficiary's support or education, tbe amount the beneficiary actually needs for either purpuse may not be reached by creditors until in the hands of the beneficiary. Section 15302 explicitly provides that it does not apply where creditors sook accoss under sections 15304 through 15807, but section 15302 does not exclude orders under section 15801(b). Section 15802 thus provides limited continued protection to former trust assets where the donor specifically intended the distribution to support the beneficiary. This protection encourages donofR to provide for beneficiaries' support and helps to prevent beneficiaries from becoming public charges. (See Canfield, supra, 13 Cal.2d at p. 11, 87 P.2d 830.)
B.
We now ten to sections 15306.5 and 15807. Both provisions arc exceptions to tho general validity of spendthrift provisions as applied, to trust principal established by section 15301(a). Section 15306.5, subdivision (a) (section 16306.5(a)) provides that any judgment creditor can petition a court to order tho trustoo to satisfy tho judgmont out of payments to which the beneficiary is entitled. But those orders are limited to "26 percent of the payment that otherwise would be made to, or for the benefit of, the beneficiary" (§ 15306.5, subd. (b)), and they cannot cut into any amount required to support the beneficiary or the beneficiary's dependents (§ 15806.5, subd. (c)). Section 15307, for its part, provides: "Notwithstanding a restraint on transfer of a beneficiary's interest in the ti'ust under Section 15300 or 15301, any amount to which the beneficiary is entitled under the trust instrument . in excess of tho amount that is or will bo necessary for the education and support pf the beneficiary may bo applied to the satisfaction of a money judgment against tbe beneficiary. Upon the 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 tho judgment out of the beneficiary's interest in the trust,"
Section 15307 thus appears to allow any creditor to access all of a beneficiary's interest in a spendthrift trust besides what is necessary for the beneficiary's education and support, -whereas section 15306.5 limits creditors to only 25 percent of the same interest. How ar'e these two provisions to be reconciled?
One possibility is that section 15307 is only meant to apply to income, not principal. It is truo that the Law Revision Commission titled this provision "Income in excess of amount for education and support subject to creditors' claims." (1986 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 1340; see also Cal. Law Revision Com. com., 64 West's Ann. Prob. Code (1991 ed.) foil. § 15307, p. 662 (West's Annotated Code) Fraction 16307 permits an ordinary creditor to reach income under limited circumstances,".]; 13 Witkin, Summary of Cal. Law (10th ed. 2006) Trusts, § 156 1" Under the Trust Law, surplus income may be reached to satisfy creditors' claims."].) But this title was not part of the official legislative enactments (see Stats. 1986, eh. 820, § 40) and therefore cannot have any bearing on the interpretation of the statute (58 Cal.Jur.3d (2017) Statutes, § 177). Moreover, section 16301(a), which applies only to principal, specifically refers to section 16307, and section 16307 provides that it applies "[n]otwithstanding ., [section] 16301." Both references would be unnecessary if section 15S07 only applied to income. (See also 1986 Report, supra, at p. 1306 [§ 16307 applies "notwithstanding a restraint on transfer of income or principal in the trust instrument" (italics added)].) In any event, excluding jrrincipal from section 16307 would not resolve the tension between-sections 16306.5 and 15307 for income. We thus conclude that section 16307 applies to both incomo and principal, as its text plainly says.
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Tho bankruptcy trustee suggests that section 16307 serves a different purpose from section 16306.6 by setting a higher bar for creditors than section 16306.6. Under this theory, general creditors have "automatic'' access to 26 percent of beneficiaries' trust interest under section 15S06.6, with the burden on the beneficiaries to prove that this should be reduced in light of their support needs and those of their dependents. But in exceptional circumstances, the argument goes, general creditors can turn to section 15307 to reach beyond the 25 percent cap if they can show that exceeding tho cap would be equitable and would not cut into the beneficiaries' suppurt or education needs.
The bankruptcy trustee's theory might reflect sensible policy and may find some support in the Law Revision Commission's une-laborated comment that section 15307 applies "under limited circumstances." (West's Ann. Prob. Code, mpm, at p. 562.) However, nothing in the statutes suggests that obtaining an order under section 15307 involves any different burden or standard of proof than obtaining an order under any other section. On the contrary, section 16307 contains the same reference to section 709.010 of the Code of Civil Procedure as does sectiun 15306.5(a). Section 709.010, for its part, does not specify any special burdens or procedures for orders under section 15307. The bankruptcy trustee does not cite any authority in support of its theory.
Instead, the more likely answer is that section 16307 reflects a drafting error. Before the 1086 revisions, spendthrift trusts were governed by three key provisions. The first was former section 867 of the Civil Code, which generally permitted spendthrift provisions as applied to income. (Recommendation Proposing the Trust Law (Dec. 1985) 18 Cal. Law Revision Com. Rep. (1986) p. 596 (1986 Report).) The second provision was former section 859 of tho Civil Codo, which allowed creditors to reach the '"surplus'" haynnd the heneficiary's education and support in the limited instances where the trust instrument did not specify what to do with accumulating income. (1985 Report, supra, at p. 597, fn. 390, quoting Civ. Code, former § 859; see Estate of Lawrence (1968) 267 Cal.App.2d 77, 82, 72 Cal.Rptr. 851 [trust provision specifying that " '[a]ll unexpended portions of the net income . shail be accumulated, added tu, and beeume a part of the principal' " is valid direction for the accumulation of income].) Moreover, former section 859 said it applied " 'as provided in Section 709.010 of the Code of Civil Procedure,' " the third key provision governing spendthrift trusts. (1986 Repeat, supra,, at p. 597, fn. 390.) At the time, former section 709.010 applied by reference the principles of the wage garnishment statute to periodic trust payments, capping payments at 25 percent for general creditors and 60 percent for support creditors. (1985 Report, supra, at pp. 597-599, in. 392, quoting former § 709.010.) So, where former section 869 applied, general creditors were capped at 25 percent of periodic payments lo beneficiarios,
CARMACK v. REYNOLDS Cal. Cite as 391 P.3d 623 (Cal. 2017)
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The Commission's original proposal reworked those provisions into the current framework. Former section 867 of the Civil Codo was tho basis for proposed section 15300. (1985 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 625.) Former section 869 of the Civil Code formed the basis for proposed section 15307, though section 15807's scope is much broader as it seemingly applies to all trust assets and not just undirected accumulations of income. (See 1985 Report, supra, at p. 633.) And although section 10307, like former section 859, retained a reference to section 709.010 of the Code of Civil Procedure, that reference would have been to a much changed provision, for the proposal also contemplated amending former section 709.010 to remove its references to the wage garnishment statute. (1985 Report, supra, at p. 766.) Some of the removed provisions were given new homes; for example, the provision giving preferred access to support creditors became proposed section 15305, which also removed tho 50 percent cap. (1986 Report, supra, at pp. 630-031.) The 25 percent cap that had applied to general creditors was not retained anywhere; if the 1985 proposal had been enacted as written, the- new law would have dramatically increased the reach of general creditors.
But the revised draft of the Trust Law in 1986, which was ultimately enacted, included for tiro first time section 16306.5. (1986 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 1389; see Stats. 1980, ch. 820, § 40.) This new section drew on former section 709.010 and the wage garnishment statute to create an explicit 25 percent cap on trust interests comparable to the cap protecting wages. (1986 Report, supra, at p. 1339.) In the process, the Commission did not meaningfully revise its proposal for section 15307 (compare 1985 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 638, with 1986 Report, supra, at p. 1340), nor did the Commission clarify tho role of section 15307 in light of section 15306.5. The result is that unlike Civil Code former section 859, which it purportedly replaced, section 15307 refers to a version of section 709.010 that no longer imposes a cap on general creditors, even as it follows a new provision, section 15306.5, that reestablishes that samo cap. In light of this history, we decline, to adopt an interpretation of section 15307 that simply undoes the limitations on general creditors that, section 15306.5 sets forth in a set of specific and carefully calibrated provisions. We conclude instead that the ultimate enactment of section 15807 without apparent limitations on tho reach of general creditors was inadvertent. The Legislature plainly intended general creditors to be limited to 25 percent of distributions from the trust.
C.
The final issue we must address is whether the 25 percent limitation of section 15306.5 applies to section 15301(b). Section 15306.5, subdivision (f) (section 15306.5(f)) provides: "Subject to subdivision (d), tho aggregate of all orders for satisfaction of money judgments against the .beneficiary's interest in the trust may not exceed 26 percent of the payment that otherwise would be made to, or for the benefit of, the beneficiary." Unlike section 15306,5(b)'s reference 'to "[a]n order under this section," tire language of section 15306.6(0—"all orders for satisfaction of money judgments"—fe not limited to orders under section 15306.5. One possibility, therefore, is that section 15306A(O's cap extends to all orders under any provision of the Probate Code.
We need not decide the full reach of the 25 percent cap under 16306.5(f) as this case involves only tho scope of sections 15301(b) and 15306.5. Whatever other orders may be subject to section 15306.5(f)'s cap, we conclude that the cap does not apply to orders under section 15301(1)). As explained above, section 16306.6 was modeled' on the wage garnishment statute then in force (Code Civ. Proc., former § 706.050 et seq., as enacted by Stats. 1982, ch. 1364, § 2) and provides creditors a limited exception to spendthrift protections on the beneficiary's continuing interest in the trust As the use of the conditional in section 15306.5(f) suggests, "the payment that otherwise would bo made to" tho beneficiary is best understood as referring to ongoing payments the beneficiary stands to receive. (Italics added.) The cap thus operates to limit the sum of orders subject to section 15306.5(f)'s cap to 25 percent of any individual expected distribution,
632
391 PACIFIC REPORTER, 3d SERIES Cal.
[11] By contrast, section 15301(b) makes clear togt spendthrift protections do not apply to distributions of principal that have become due and payable. Where trust RBsets are not.protected by a spendthrift provision, the default rule is that creditors may reach those assets. (See § 709.010, subd. (b),) By crafting a specific rule for this narrow class of assets, the Legislature indicated its intent that those assets be treated differently. (See Miller v. Superior Court (1999) 21 Cal.4th 883, 895, 89 Cal.Rptr.2d 834, 986 P.2d 170 ["1 "A specific provision relating to a particular subject will govern in ro3pecl to that subject, as against a general provision, although tho lattor, standing alono, would bo broad enough lo ineludo tho subject to which the more particular provision relatos." ' [Citation.]1'].) Applying section 15806.5(f)'s cap to section 15301(b) assets would defeat the Legislature's specific intent to treat due and payable principal "in the hands of the trustee" on par with such principal "after payment to the beneficiary." (See 1986 Report, supra, 18 Cal. Law Revision Com. Rep. at pp. 1302-1303.)
In sum, after an amount of principal has become due and payable (but has not yet been distributed), a creditor can petition Lo have the trustee pay directly to the creditor a sum up to the full amount of that distribution (§ 15301(b)) unless the trust instrument specifies that the distribution is for the bRne: fidary's support or education and the beneficiary needs the distribution for those'purposes (§ 15302). If no such distribution Is ponding or if tho distribution is not adequate' to satisfy a judgment, a general creditor can petition to levy up to 25 percent of the payments expected to be made to the beneficiary, reduced by the amount other creditors have already obtained and subject to tho support needs of the beneficiary and any dependents. (§ 15306.5.)
As an illustration, suppose a trust instrument specified that a beneficiary was to receive distributions of principal of $10,000 on March 1 of each year for 10 years. Suppose further that a general creditor had a money judgment of $50,000 against the beneficiaiy and that tho trust distributions are neither specifically intended nor required for the beneficiary's support. On March 1 of the first year, upon the creditor's petition a court could order the trustee to remit the full distribution of $10,000 for that year to the creditor directly if it has nol already been paid to the beneficiary, as wall as $2,500 from each of the nine anticipated payments (a total of $22,500) as they are paid out. If the creditor wore not otherwise able to satisfy tho remaining $17,500 bataneo on the judgment, then on March 1 of the following years, upon the general creditor's petition the court could order the trustee to pay directly to the creditor a sum up to tho remainder of that year's principal distribution (87,500), as the court in its discretion finds appropriate, until the judgment is satisfied.
f Conclusion
We conclude that a bankruptcy trustee, standing os o hypothetical judgment creditor, can roach a beneficiary's interest in a trust that pays entirely out of principal in two ways, It may roach up to tho full amount of any distributions of principal that are currently due and payable to the beneficiary, unless the trust instrument specifies that those distributions are for the benefioiaiy's support or education and the beneficiary needs those distributions for either purpose. Separately, the bankruptcy,trustee can reach up to 25 percent of any anticipated payments made to, or for tho.bonofit of, tho bonoficiary, reduced, to toe extent nocessary by.the support needs of the beneficiary and any dependents.
We Concur:
Cantil-Sakauye, C.J,
Werdegar, J,
Chin, J.
Corrigan, J.'
Cuéllar,, J.
Kruger, J. •