Opinion ID: 3026803
Heading Depth: 2
Heading Rank: 2

Heading: A Trust under New York Law

Text: “To create a valid trust under the law of [New York ] State four essential elements must be proved: (1) a designated beneficiary, (2) a designated trustee, who is not the same person as the beneficiary, (3) a clearly identifiable res, and (4) the delivery of the res by the settlor to the trustee with the intent of vesting legal title in the trustee.” Agudas Chasidei Chabad of U.S. v. Gourary, 833 F.2d 431, 433-34 (2d Cir. 1987). “A trust may be created orally or in writing, and no particular form of words is necessary.” Id. at 434. With respect to those requirements, Debtors claim: (1) Gannon University is the settlor of a trust that funds its basic retirement plan through the purchase of a TIAA-CREF retirement annuity, with its employees, such as the Debtor, the designated beneficiaries; (2) TIAA[-CREF] serves as the trustee by accepting premium payments that it invests within the parameters of the annuity plan; (3) the funds contributed by Gannon University and its employees, including the debtor, are the trust res; and (4) Gannon University delivers the contributions to TIAA- CREF to hold, invest, manage and distribute pursuant to the terms of the annuity contract. 25 Appellants’ Br. 24. The parties do not cite, and we have not found, a case by a New York court which states explicitly whether an annuity of this kind would be treated as a trust under New York law. Debtors rely on Alexandre v. Chase Manhattan Bank, N.A., 61 A.D.2d 537 (N.Y. App. Div. 1978), a case in which an exspouse sought “recovery of the accumulated premiums paid for the purchase of the [TIAA-CREF] annuity contracts, or in the alternative . . . appointment as receiver and to have the annuity immediately paid over to her.” Id. at 540. Debtors cite Alexandre because it held that the monies “paid under the annuity contract are neither conditional nor refundable and the judgment debtor has no ‘interest’ in them.” Id. Thus, Debtors imply, the annuitant’s interest was a trust because the annuitant had only an equitable interest in the trust estate. Despite the fact that Alexandre (and a subsequent case, Aurora G. v. Harold G., 414 N.Y.S.2d 632 (N.Y. Fam. Court 1979)) did not state explicitly that TIAA-CREF annuities were spendthrift trusts, some courts have referred to those cases and New York’s restrictions on TIAA-CREF annuity alienability in holding that TIAA-CREF annuities are trusts for purposes of § 541(c)(2). See, e.g., In re Montgomery, 104 B.R. 112, 118 n.8 (Bankr. N.D. Iowa. 1989) (“[Alexandre and Aurora G.] do not appear to actually use the term ‘spendthrift trust’ anywhere in the opinions. The substance of the decisions, however, leads the Court to conclude that the New York courts considered the 26 TIAA/CREF plans to be spendthrift trusts.”). A variety of other courts have followed this approach. See, e.g., Morter v. Farm Credit Servs., 937 F.2d 354, 357 (7th Cir. 1991) (“[I]n every decision we could find that addressed the very pointed question whether TIAA is a spendthrift trust under New York law, the answer was a resounding ‘yes.’”); In re Reynolds, 1989 Bankr. LEXIS 2719, at -12 (Bankr. W.D. Ark. 1989) (“This Court, as did the New York courts in Aurora G. and Alexandre and the bankruptcy courts in Montgomery and Braden, holds that the CREF certificate, because of the language in the New York statute, is a spendthrift trust.”); In re Woodward, 1988 Bankr. LEXIS 2683, at  (Bankr. W.D. Ky. 1988) (“Under New York law, the provisions of the TIAA-CREF documents effectively restrict the debtor/beneficiary’s ability to transfer his interest in the accounts and also preclude the beneficiary's creditors from reaching the funds. This Court finds that the contracts are valid spendthrift trusts for purposes of Section 541(c)(2).”). We join these courts in holding that under New York law an employer-mandated retirement plan such as this one constitutes a trust. Gannon has parted with the res, intending that it be held by TIAA-CREF for Laher’s benefit. TIAA-CREF has been entrusted with the res, is managing it for Laher’s benefit, and Laher will receive the funds upon retirement. The requirements of New York law have been met here and the operation of the account as an annuity does not take the account 27 out of the definition of a trust or § 541(c)(2). While Skiba contends that the annuity is best understood not as a trust but as the subject of a debtor-creditor relationship, Appellee’s Br. 6, we find that argument unpersuasive. The fact that the relationship between Laher, Gannon, and TIAA-CREF can be cast, in part, as debtor-creditor or as a contractual relationship has no bearing on the trust analysis under New York law. As noted, that analysis looks to the presence of a designated beneficiary, a trustee different from the beneficiary, a clearly identifiable res, and the delivery of the res by the trustor to the trustee with the requisite intent. All of those elements are present here. All trusts can be described as contractual relationships insofar as the obligations of all the parties are set forth in an agreement, and the trustee can be described as a debtor to the beneficiary creditor under a trust. However, describing them as such does not mean they are not trusts. See RESTATEMENT (SECOND) OF TRUSTS, § 197 cmt. b (“The creation of a trust is conceived of as a conveyance of the beneficial interest in the trust property rather than as a contract.”). We do not view the framing of the relationship as “debtor-creditor” to be helpful to the inquiry at hand. Two additional factors inform our interpretation of New York law and § 541(c)(2). The first is that Patterson analyzed § 541(c)(2) in a manner that presumed a “natural reading” of § 541(c)(2), not limiting the universe of excluded funds to those explicitly labeled “trusts.” New York law looks to the features 28 of the fund and its creation–the existence of a beneficiary, a designated trustee, a clearly identifiable res, and the donative intent–not merely the label affixed to the fund. See Gourary, 833 F.2d at 433-34. Similarly, Patterson’s emphasis on the nature of the restrictions on the fund reflects a textured interpretation of § 541(c)(2). The inquiry Patterson conceives of focuses on the nature of the fund, not the label, and we adhere to that approach. The second factor which convinces us that the annuity at issue here is excluded from the estate is that the newly enacted legislation referred to above–legislation that does not apply to Laher’s case–excludes annuities such as these from the bankruptcy estate. As noted, the 2005 Bankruptcy Act Amendments did not amend § 541(c)(2) but did add § 541(b)(7) which created protection for annuities. That provision states that the property of the estate does not include “any amount . . . withheld by an employer from the wages of employees for payment as contributions . . . to . . . a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986,” as well as “any amount . . . received by an employer from employees for payment as contributions . . . to . . . a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986.” § 541(b)(7)(A)-(B). While we acknowledge that reasonable minds could differ as to the inference to be drawn from this amendment, we see no reason why we should hold that the 29 annuity interest held by this debtor is included in his estate, when we know that the very same annuity, held by an annuitant who files after October 17, 2005, is not. As we find that this is a trust under New York law, we need not reach the question of whether § 541(c)(2) includes trust-like accounts tantamount or analogous to a trust.13 We note that some courts (including the Bankruptcy Court in the instant case) have held that § 541(c)(2) does not require a trust, but rather simply requires a fund be tantamount to a trust or be encumbered by restrictions analogous to those imposed on a trust. See, e.g., Morter v. Farm Credit Servs., 937 F.2d 354, 357 (7th Cir. 1991) (“Even in cases in which courts have included retirement plans within the bankruptcy estate, there has been a willingness to exclude the plan if it is employer-created and controlled and, therefore, analogous to a spendthrift trust.”) (citing cases); In re Quinn, 327 B.R. 818, 829 (Bankr. W.D. Mich. 2005) (listing features that render annuity “functionally indistinguishable from a spendthrift trust” and excluding it from the estate under § 541(c)(2)). 13 We also note that some courts have held that the CREF account constitutes a trust but the TIAA account did not. For example, the Court in Barnes excluded the CREF account from the bankruptcy estate but not the TIAA account. 264 B.R. at 434. We eschew this approach because it fails to properly focus on the trustor’s intent, which was the same for both funding vehicles. 30 Meanwhile, other courts have rejected this approach. See, e.g., In re Adams, 302 B.R. 535, 539 (B.A.P. 6th Cir. 2003) (“[O]nly an interest in a trust can be the subject of an enforceable transfer restriction within the meaning of 11 U.S.C. § 541(c)(2).”); Barnes, 264 B.R. at 428 (rejecting Morter’s “[apparent] proposition that an employee benefit plan need not be a trust at all: So long as the plan has an enforceable transfer restriction and is designed to function in a manner ‘analogous’ to a spendthrift trust, the debtor’s interest therein will be excluded from the bankruptcy estate pursuant to § 541(c)(2).”). The annuity here clearly fits within the concept of “trust” in § 541(c)(2). We necessarily leave for another day the question of whether the word “trust” as used in § 541(c)(2) may be read in light of Patterson to include a category of funds tantamount or analogous to trusts.