Opinion ID: 220042
Heading Depth: 2
Heading Rank: 3

Heading: Mary Was the Sole Settlor

Text: As Mary, the only named Settlor, had died before Hoff filed for bankruptcy but Peggy was (and is) still living, Hoff would still have no right of withdrawal 3 See In re Bradley, 501 F.3d 421, 428 (5th Cir. 2007). 4 See Goldin v. Bartholow, 166 F.3d 710, 715 (5th Cir. 1999). 5 See Aubris Res. LP v. St. Paul Fire and Marine Ins. Co., 566 F.3d 483, 486 (5th Cir. 2009). 6 See Kern v. Sitel Corp., 517 F.3d 306, 309 (5th Cir. 2008). 7 Goldin, 166 F.3d at 716. 8 11 U.S.C. § 541(a)(1), (c)(2). 5 No. 10-50462 if Peggy too is a settlor. We agree with the district court that she is not. In the first sentence of the trust agreement, Mary is identified as the “Settlor.” She is referred to as Settlor throughout the trust agreement, and no one else is referred to as a settlor therein. The trust agreement does not define “Settlor,” and there is no provision in it that either specifies the process by which a person other than Mary could become a settlor or even that anyone besides Mary could ever become a settlor. There are myriad places throughout the trust agreement at which its drafter could easily have specified that a post-creation contributor to the Trust would become a settlor. Yet that does not appear anywhere in the trust agreement. For example, as noted, the agreement declares that “Settlor or any other person, trust, or entity may add property of any character to this Trust.” There, the trust agreement obviously contemplates that persons in addition to Mary might contribute to the Trust — as has Peggy — yet it refers to them only as “person[s],” never implying, much less stating, that anyone would ipso facto become a settlor by virtue of contributing to the Trust. Likewise, the trust agreement provides for Hoff to withdraw non-testamentary contributions “made by any person” without requiring that the Settlor has died. Again, the trust agreement gives no indication that any person who makes such an inter vivos contribution to the Trust would be deemed a settlor, referring to them merely as “person[s].” And, the trust agreement refers to non-testamentary transfers to the Trust as being “made by each contributor.” If the drafter of the trust agreement and the Settlor of the Trust had intended for each such contributor to become a settlor, they could easily have stated as much in one or more of these instances or elsewhere in the agreement. Additional light is shed on this question by the version of the Texas Property Code (“the Code”) that was in effect at the time the Trust was created. At that time, the Code provided that “[i]f the provisions of this subtitle and the 6 No. 10-50462 terms of a trust conflict, the terms of the trust control . . . .”9 The definitions in the Code, therefore, are default rules that become applicable only if the trust document is silent on the point at issue.10 And, the Code states that its definitions are to operate only “[i]n this subtitle.”11 Thus, in the absence of controlling language in the instant trust agreement, the applicable Texas law in force when the Trust was created supplies the answer. At that time, as well as years later when Hoff filed for bankruptcy, the Code specified that “‘Settlor’ means the person who creates the trust.”12 The term did not include subsequent contributors in the set of “settlors.” We are aware that in its present iteration, the Code states that a “Settlor” is “a person who creates a trust or contributes property to a trustee of a trust.”13 This version of the Code was enacted after Hoff declared bankruptcy, however, and long after the Trust was created. As our inquiry concerns Mary’s intent as of the time that she settled the Trust, the Code’s default provision in effect at that time (and at the time Hoff filed for bankruptcy as well) supports our conclusion that, as drafted and executed, the trust agreement does not make settlors of future contributors.14 9 Tex. Prop. Code § 111.002(a) (2004). 10 See Goldin, 166 F.3d at 716. 11 Tex. Prop. Code § 111.004 (2004). 12 Id. § 111.004(14). 13 Tex. Prop. Code § 111.004(14) (2007). 14 Appellants cite to cases that they contend stand for the proposition that those who contribute to a trust are settlors of that trust. See, e.g., In re Brooks, 844 F.2d 258 (5th Cir. 1988); In re Bradley, 501 F.3d at 421. These cases are inapposite. In re Brooks involved a situation in which debtor was a member of the association that settled the trust. We determined that the trust was self-settled. In re Brooks, 844 F.2d at 262. This opinion mentioned that “[t]he person who provides the consideration for a trust is the settlor even if another person or entity nominally creates the trust,” id. at 263, but this statement was clearly made in reference to self-settled trusts and cites Restatement (Second) of Trusts § 156, cmt. 7 No. 10-50462 Undeterred, Peggy and Hoff rely on the phrase, “if the Settlor of this trust (or each Settlor if more than one) is then deceased,” as support for their contention that Peggy became a settlor by virtue of contributing to the Trust. This phrase, they contend, unambiguously demonstrates that the trust agreement contemplates the addition of new settlors. They advance for support the presumption that words of contracts are not to be read as meaningless, asserting that we would be reading the quoted parenthetical phrase as meaningless if there could not be “more than one” settlor.15 Again, we agree with the district court that this phrase does not make Peggy (or any other contributor) an additional settlor. As we have noted, the trust agreement identifies only Mary as the “Settlor”; it supplies no basis to conclude that there are, or could be, additional settlors. Whether read in a vacuum or in the context of the entire trust agreement, the referenced phrase alone is not sufficient to make settlors of future contributors. Even if, arguendo, it reflects the possibility of more than one settlor, it supplies no answer to how anyone besides Mary might become an additional settlor: There is no hint that contributions to the Trust could make that happen. This phrase indicates, at most, that it was likely boilerplate language inadvertently lifted (or not deleted) from some form book or previous trust agreement used by drafters from time to time in varying situations, including some in which there would be more than one settlor.16 We cannot imagine that if Mary (or Peggy, or both) had made f (1959), which deals with such situations. In re Bradley similarly was decided in the context of a self-settled trust. See 501 F.3d at 428. The Appellants’ citation to Restatement (Third) of Trusts § 58, cmt. f (2003), is likewise inapplicable because that section, again, deals with self-settled trusts. The far more relevant section is Restatement (Second) of Trusts § 3, which unambiguously states that “[t]he person who creates a trust is the settlor.” 15 See, e.g., Aubris Res., 566 F.3d at 486. 16 This phrase tells us nothing about whether there is in fact (or might ever be) more than one settlor of this particular trust. It may well illustrate, however, the risk attendant on 8 No. 10-50462 known to the drafter of the instant trust agreement that they wanted subsequent contributors to be settlors, the drafter would not have included an express provision to that effect. Because the instant trust agreement is reasonably read to admit only Mary as the “Settlor,” Appellants’ reliance on the subject phrase is ineffectual.17 The parties spill much ink arguing over which interpretation of the Trust better serves the purposes for which Mary created it. We see little fruit in this inquiry, both because the totality of the circumstances confirms that Mary is the sole settlor and because this line of inquiry provides no solid guidance. A driving force behind the creation of the trust was the determination by Mary (or Peggy, or both) to have the Trust’s assets shielded from Hoff’s creditors: She stated in the trust agreement that it should be interpreted to afford greater protection to Hoff than to his creditors. But, by diluting the otherwise solid spendthrift nature of the Trust with a detailed method by which Hoff could withdraw portions of the principal at various future times, Mary also exhibited the determination that her grandson be able to obtain some of the assets of the Trust incrementally, between ages 30 and 40, during which period she presumably anticipated (or at least hoped) that he would learn by experience to manage his own finances without risking all trust property at once. As the Appellee correctly points out, were Peggy as trustee able to add living settlors to the Trust by the simple expedient of accepting contributions from them, the withdrawal rights that Mary had intended for Hoff to enjoy would be at risk. The trustee, whether intentionally or inadvertently, could prevent Hoff from ever the use of cut-and-paste or do-it-yourself legal forms in lieu of precisely drafted, tailor-made documents. 17 We similarly discount the reference that the Appellants make to the single instance when the trust agreement refers to “a” settlor. Rather than indicating that the Trust contemplates more than one settlor, this only shows that this language was not as carefully tailored to the provisions of this specific trust as it might have been. 9 No. 10-50462 withdrawing any principal during the existence of the Trust by accepting contributions from younger persons with longer life expectancies. The competing goals of spendthrift protection and withdrawal rights embodied in the Trust lead us to minimize the effect of this inquiry on our conclusion. In fact, we would expect Hoff to be arguing for the opposite construction of the Trust if, absent his bankruptcy filing, the trustee were to contend that he could not now draw down portions of trust principal. Appellants cannot have it both ways: Any putative ambiguity fails to cut decisively either way. Finally, none of the parties have addressed the purpose, if any, for Mary’s creating the Trust with a one-time nominal contribution instead of Peggy’s doing so as the only real benefactor of the trust for her son. But, they chose to do it that way — and chose not to require Peggy’s death as a condition precedent to Hoff’s withdrawals. These omissions add support to our conviction that Mary is the only settlor of the Trust. In sum, we are satisfied, as a matter of law, that Mary was the sole settlor of the Trust, and that her death after Hoff attained age 30 put the Trust’s remaining withdrawal provisions in play.