- Category: Judge Karlin
- Published on 19 December 2013
- Written by Judge Karlin
SIGNED this 17th day of December, 2013.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: Case No. 04-40485
Gary Lee Robben, Chapter 7
Memorandum Opinion and Order Denying as Moot Debtor’s Motion
to Order Trustee to Abandon Debtor’s Trust Interest
The Court has heard evidence on the main issue in this case, which is
whether a debtor’s interest in a revocable trust that contains a spendthrift
clause is a part of the bankruptcy estate upon the debtor’s filing a petition in
bankruptcy. On March 10, 2004, Gary Robben (“Debtor”) filed a Chapter 7
petition. After administering other assets, the Chapter 7 Trustee filed a final
accounting1 in December 2007, and Debtor’s case was closed shortly
1 Doc. 50.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 1 of 18
thereafter.2 In his schedules and Statement of Financial Affairs, Debtor did
not disclose that he was a named beneficiary of a revocable trust, the
Restated Robben Family Trust, which (if not earlier revoked by his mother,
the settlor) would entitle him to certain property upon her death. Debtor’s
mother died—some 6 years after Debtor filed bankruptcy—and he has
reopened his bankruptcy to seek an order requiring the Chapter 7 trustee
(“Trustee”) to officially abandon whatever interest the bankruptcy estate
might have had in the Restated Robben Family Trust. Because the Court
finds the trust contains a valid spendthrift provision under Kansas law,
Debtor’s interest in the trust was not property of the estate. The Court
therefore denies Debtor’s motion as moot because the Trustee had (and has)
no interest in the Restated Robben Family Trust to abandon.
I. Findings of Fact
Debtor was named a beneficiary of the Robben Family Trust when his
parents established it in 1991. The Robben Family Trust was a revocable
trust established for the benefit of Debtor’s parents, Bertha and Norbert B.
Robben, during their lives, with the remainder to be distributed to Debtor and
his two siblings, Paul Robben and Mary Ann Ruff. He subsequently became a
trustee of the trust after his father’s death, and this trust contained no
2 Doc. 51.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 2 of 18
Debtor was also named as a beneficiary and trustee of the Bertha
Robben Trust, an irrevocable trust his mother created in 1997 for the sole
benefit of her children, grandchildren, and sons- and daughters-in-law.
Debtor’s motion to abandon does not relate to that trust.4
During his tenure as trustee, Debtor pledged assets of the Robben
Family Trust in violation of his fiduciary duties as a trustee. Debtor and his
family also took larger distributions than they were due from the Bertha
Robben Trust. In early December 2003, Debtor revealed these actions to the
other trust beneficiaries, including his mother, and also formally resigned as
co-Trustee of the Bertha Robben Trust. Debtor was also replaced as
co-Trustee of the Robben Family Trust upon its amendment the next month
(on January 22, 2004).
Debtor’s resignation and the publication of his failures as a trustee to
the rest of the beneficiaries brought on a host of trust-related activity. On
January, 12, 2004, for example, Debtor and his siblings entered into an
agreement entitled “ Robben Family Memo of Agreement,” agreeing that Paul
Robben would become the trustee of the Restated Robben Family Trust (with
3 Creditors’ Trial Ex. A.
4 See Pretrial Order, Doc. 116 and Creditors’ Trial Ex. C.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 3 of 18
his mother serving as co-trustee), among other things. In addition, the Bertha
Robben Trust was terminated, purportedly effective March 10, 2004.
Effective January 22, 2004, Bertha Robben also restated the Robben
Family Trust, creating the Restated Robben Family Trust (hereafter “Trust”).
As relevant here, the restatement changed the trustee from Debtor to Paul
Robben, retained Debtor as the beneficiary of a one-third interest in all trust
assets, and added a spendthrift provision not present in the original trust.
The Restated Robben Family Trust spendthrift provision states:
To the extent permitted by law, none of the
beneficiaries hereunder shall have any power to disposeof or to charge by way of anticipation or otherwise anyinterest given to such beneficiary; all sums payable toany beneficiary hereunder shall be free and clear ofdebts, contracts, alienations and anticipations of suchbeneficiary, and of all liabilities for levies andattachments and proceedings of any kind, at law or inequity.5
Both the original and the Restated Robben Family Trust granted Bertha
Robben the right to amend her trust until her death. The Restated Robben
Family Trust also included a second provision that could have resulted in
Debtor never receiving any Trust assets: it provided that Debtor’s share
would be divested and distributed to his siblings should he predecease his
5 Debtor’s Trial Ex. 2, at 8. Unfortunately, the copy of this Trust provided byCreditors in their Exhibit G omitted this relevant page 8, without explanation.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 4 of 18
In addition to the Robben Family Memo of Agreement and the
restatement of the Robben Family Trust, the parties executed the Robben
Family Settlement Agreement (“Settlement Agreement”). The Settlement
Agreement was ultimately signed by all interested family members, both
individually and by Paul and Bertha as trustees of the two trusts. Bertha
Robben and Debtor signed the Settlement Agreement on January 22, 2004.
Mary Ann Ruff signed the Settlement Agreement February 20, 2004, and
Paul Robben signed March 1, 2004. The exact date the remaining
beneficiaries signed the agreement is unclear, but that date is not relevant to
Under the Settlement Agreement, all parties acknowledged that Debtor
had performed actions inconsistent with the trust terms. Notwithstanding
those action, however, the parties agreed:
[t]hat all Parties to this Family Settlement Agreementhereby relinquish any claim in any capacity they mighthave against Gary L. Robben individually and/or asTrustee and/or otherwise regarding any and all matters
6 Whether or not the Settlement Agreement was signed by all the partiesbefore Debtor entered bankruptcy does not affect the Court’s reasoning on the keyissue before it, which deals exclusively with the Restated Robben Family Trust. Noone disputes that Trust was executed before he filed bankruptcy.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 5 of 18
Finally, Bertha Robben also amended her will, executing a new Last Will and
Testament, also dated January 22, 2004. This will essentially poured her
assets over to the restated trust and incorporated that trust’s provisions.
When Debtor filed his Chapter 7 petition on March 10, 2004, he did not
disclose on Schedule B his future or contingent interest in the Trust. The
Trustee now claims he should have revealed his interest in the Trust by
affirmatively describing the Trust in response to Question 18 [“equitable or
future interests, life estates, and rights or powers exercisable for the benefit
of the debtor other than those listed in Schedule of Real Property”] and
Question 19 [“contingent and noncontingent interests in estate or a decedent,
death benefit plan, life insurance policy, or trust”]. In addition, he did not list
his mother or the Trust as creditors, although he did list his siblings and the
other adult beneficiaries as possible unsecured creditors in Schedule F, all on
advice of bankruptcy counsel.8
Although Debtor received his discharge on August 6, 2004, the Trustee
kept the estate open and administered assets unrelated to the Trust until late
2007. The only asset in question here—Debtor's interest in the Restated
7 Debtor Trial Ex. 3, at 8.
8 The only description of their claim was “Consideration: Trust Deficiency.”
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 6 of 18
Robben Family Trust— was specifically noted as Ref. # 21 in the Trustee's
final (and interim) accounting, and the Trustee testified at trial that she was
generally aware of the existence of both trusts throughout her administration
of the estate. When she sought to be discharged of her responsibilities, she
certified that "this estate has been fully administered pursuant to the
Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the
District of Kansas Bankruptcy Rules. A Trustee's Final Report has been filed
and proper disbursements completed. No funds or assets of the estate
remain."9 Previously, on July 8, 2004, the Trustee had also approved an order
finding that the "Trustee's interest or right to the collateral [pledged to Gold
Bank, which included certain interests of Gary Robben in the Robben Family
Trust] is abandoned."10
The present controversy began after Bertha Robben died on January
28, 2010, almost 6 full years after Debtor filed his bankruptcy petition and 3
years after the Trustee had elected not to seek additional information to help
her decide whether to pursue Debtor’s interest in the identified trusts, if any.
Bertha never revoked the Trust, and after she died, Paul Robben, as trustee,
agreed with his sister, Mary Ann, to divide the remaining Restated Robben
9 Doc. 50.
10 Doc. 18, p.7.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 7 of 18
Family Trust assets between themselves, making no distribution to Debtor.
Paul Robben testified he, as trustee, based this action on his understanding of
the terms of the Trust, although Debtor argues the Trust instead required
distribution of one-third of Trust assets to each of the three siblings.
In 2011, Debtor asked his siblings for an accounting of the Trust assets.
When they did not provide it, he filed suit in state court seeking to remove
them as co-trustees of the Trust. The state court dismissed his action on his
siblings’ motion to dismiss, finding that because he had not disclosed the
Trust as an asset in his bankruptcy, the bankruptcy trustee had not expressly
abandoned her interest in the Trust and thus Debtor lacked standing to bring
the action. The decision noted that the case was “not about the argument that
eventually will prevail in bankruptcy court, but allowing that forum the first
opportunity to consider whether the equitable right to property first comes
within the bankruptcy estate.”11 The decision ended with the prediction that
some party would likely seek to reopen the bankruptcy case so this Court
could make that determination.
Soon thereafter, Debtor moved to reopen the Chapter 7 case pursuant
to 11 U.S.C. § 350(b), which motion was granted.12 After the case was
11 Trustee Ex. KK, p.8.
12 Doc. 56.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 8 of 18
reopened, Debtor filed a motion seeking an order directing the Trustee to
abandon any interest in the Trust pursuant to § 554(b)13 “to the extent such
interest may constitute an asset of the estate.”14 He further argues the
interest was never part of his bankruptcy estate. Both the Trustee and Mary
Ann Ruff and Paul Robben objected to his motion for abandonment.15
II. Conclusions of Law
Debtor argues his interest in the Restated Robben Family Trust did not
constitute property of his bankruptcy estate created when he filed his
Chapter 7 Petition because the Trust contained a spendthrift provision,
preventing its inclusion in the estate under 11 U.S.C. § 541(c)(2).16 Under §
541(a)(1), a bankruptcy estate is created upon a debtor’s filing for bankruptcy,
and the bankruptcy estate includes, “[e]xcept as provided in . . . (c)(2) of this
section, all legal or equitable interests of the debtor in property as of the
commencement of the case.” Section 541(c)(2) provides “a restriction on the
transfer of a beneficial interest of the debtor in a trust that is enforceable
13 Doc. 61.
15 Doc. 68.
16 Debtor also argues that his interest was of inconsequential value andshould therefore be abandoned by the Trustee; because the Court agrees withDebtor’s first argument, it does not reach his alternative argument.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 9 of 18
under applicable nonbankruptcy law is enforceable in a case under this title,”
and the Tenth Circuit BAP has interpreted § 541(c)(2) to mean that a debtor’s
beneficial interest in a spendthrift trust is entirely excluded from the
The Sixth Circuit BAP has held that “[d]ebtors bear the burden of
demonstrating that all the requirements of § 541(c)(2) have been met before
the property in question can be effectively excluded from the estate.”18 This
Court adopted the same standard in In re McDonald, 19 stating that
[t]o exclude property from the bankruptcy estate under
§ 541(c)(2), Debtors must satisfy three criteria. First,
they must show that they have a beneficial interest ina trust. Second, they must show that there is arestriction on the transfer of that interest. Third, theymust show that the restriction is enforceable under
This Court has previously had the opportunity to consider the parameters of
the § 541(c)(2) exclusion for spendthrift trusts in In re Roth. 21 In Roth, the
17 See Case v. Hilgers (In re Hilgers), 371 B.R. 465, 468 (10th Cir. BAP 2007)
(“Section 541(c)(2) of the Bankruptcy Code excludes from property of the estate adebtor’s beneficial interest in a spendthrift trust.”).
18 Rhiel v. Adams (In re Adams), 302 B.R. 535, 540 (6th Cir. BAP 2003).
19 In re McDonald, 353 B.R. 287, 293 (Bankr. D. Kan. 2006).
20 Id. (citing In re Adams, 302 B.R. at 540).
21 289 B.R. 161, 165 (Bankr. D. Kan. 2003).
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 10 of 18
debtor contended that because the trust contained language preventing the
voluntary or involuntary alienation by a beneficiary of the trust assets, that it
was a spendthrift trust, and that such trusts are excluded from the
bankruptcy estate under § 541(c)(2).
Roth noted that spendthrift trusts have long been held valid under
Kansas law. In addition, the decision noted that “[a]n examination of the
legislative history of § 541(c)(2) indicates that Congress meant to exclude
from the estate those assets of “spendthrift trusts” traditionally beyond the
reach of creditors under State trust law.
Thus, as it was in Roth, a resolution of this initial issue turns on
whether the Trust qualifies as a “spendthrift trust.” If so, the Debtor’s
interest in the trust is immune from creditors’ claims as an asset of the estate
under § 541(a)(1). Whether an asset is estate property is determined by
examining the nature of the asset on the date the bankruptcy petition was
filed.22 Although federal law identifies the property interests that are to be
included in a debtor’s bankruptcy estate, such property interests themselves
are created and defined by state law.23 Thus, in this case, if the Trust was a
22 In re Hilgers, 371 B.R. at 468 (holding “to determine whether the Debtor'sinterests in the Trusts were excluded from his estate, we must analyze the natureof that interest, under applicable state law, as of the time of his bankruptcy filing.”
23 In re Roth 289 B.R. at 165 (internal citations omitted).
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 11 of 18
valid spendthrift trust under Kansas law, then the Trust never became part
of the bankruptcy estate.
Under Kansas law, a spendthrift trust is a trust with a provision that
“secure[s] the fund against [a beneficiary’s] improvidence or incapacity.
Provisions against alienation of the trust fund by the voluntary act of the
beneficiary or by his creditors are its usual incidents.”24 As noted in Roth,
“because of the provisions of this . . . spendthrift clause, neither [the debtor’s]
creditors nor transferees had any right to rely upon the Trust for satisfaction
of their claims.”25
There are no magic words required to create a spendthrift trust under
Kansas law; “a spendthrift trust is created when ‘the trustor clearly
manifest[s] the intention not only to create a trust, but to create it with the
spendthrift effect.’”26 “The intent need not be stated in express terms but may
come from construction of the trust instrument as a whole.”27 A court’s
inference of such intent need only be made with reasonable certainty.28
24 Matter of Sowers’ Estate,1 Kan.App.2d 675, 680 (Kan. Ct. App. 1977).
25 In re Roth, 289 B.R. at 165.
26 In re Semmel, Case No. 01–14433, 2003 WL 23838130, at *3 (Bankr. D
Kan. Feb. 27, 2003) (quoting Matter of Sowers’ Estate, 1 Kan.App.2d at 680).
27 Matter of Sowers’ Estate, 1 Kan.App.2d at 680.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 12 of 18
The spendthrift provision in the instant Trust unequivocally strips “the
beneficiaries [of] any power to dispose of or to charge by way of anticipation or
otherwise any interest given to such beneficiary” and requires that “all sums
payable to any beneficiary hereunder shall be free and clear of debts,
contracts, alienations and anticipations of such beneficiary.”29 This language
contains the usual incidents of a spendthrift trust and requires a finding that
the Restated Robben Family Trust was intended to be a spendthrift trust. No
party seriously argues otherwise.
The Trustee nevertheless makes four counter arguments why the
spendthrift provision should not be enforced.30 First, she argues that,
because the Trust provides for Debtor’s one third interest to pass to him in
trust upon his mother’s death, the trust effectively contains a provision that
allows a beneficiary to control and withdraw the entire principal for his own
benefit while serving as his own trustee, rendering the restraint on the
29 Debtor’s Trial Ex. 2, at 8.
30 At oral argument, Trustee suggested that, absent a spendthrift provision, a debtor’s
equitable interest in a revocable trust is part of the bankruptcy estate and must be disclosed. For
this argument, Trustee relies on Redmond v. Kester, 284 Kan. 209 (2007), wherein the Kansas
Supreme Court held that a trust beneficiary possesses an equitable interest in the real estate held
by the trust. Likewise, she argued that if a debtor happens to know he or she is listed as a
beneficiary in a will, that the debtor is also required to list that interest in question 18 or 19 of
Schedule B. Because the Court determines that the Restated Robben Family Trust contained a
valid spendthrift provision, the Court does not address what property interests thedebtor held that the bankruptcy estate might have possessed or that the Debtorwould be required to disclose, absent the spendthrift provision.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 13 of 18
transfer invalid. While the Trustee is correct that, after the interest passed to
Debtor, it would no longer be protected by the spendthrift provision, this fact
has no effect on the validity of the spendthrift provision while Debtor’s
mother was alive, as she was when Debtor filed his bankruptcy petition (and
for six more years).
Second, the Trustee highlights certain provisions of the Trust related to
age-based restrictions on transfer that would only become effective after
Debtor’s mother died and argues that these provisions rendered the
spendthrift provisions unenforceable. This argument shares the same defect
as the Trustee’s first argument, and further fails because the provision
applies only to the children of Debtor, Mary Ann Ruff, and Paul Robben, not
to the siblings or Debtor, himself.
Third, the Trustee agues that the spendthrift provision does not apply
because the assets have now been dispersed, again, over 6 years after the
bankruptcy was filed. This argument similarly fails because—as the Tenth
Circuit BAP has confirmed—whether an asset is estate property is
determined by examining the nature of the asset on the date the bankruptcy
petition was filed, not at some later time.31
31 In re Roth, 289 B.R. at 165 (holding that “[w]hether an asset is estateproperty is determined by examining the nature of the asset on the date thebankruptcy petition was filed”) (internal citations omitted), cited favorably for this
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 14 of 18
The Trustee’s fourth argument is that Debtor invalidated the
spendthrift provisions when he exercised control over then existing trust
assets by pledging some of those assets to secure a personal loan to Gold
Bank in 2003, prior to filing bankruptcy. But this argument overlooks an
important fact—there was no spendthrift provision in the original Robben
Family Trust from which he pledged assets. As a result, Debtor’s actions in
pledging trust assets as trustee, before the spendthrift provision was added
and before Debtor was concomitantly removed as trustee, do not invalidate
the later-added spendthrift provision.
The Trustee appears to allege that because Debtor earlier abused his
discretion as trustee and failed to comply with any standard for distribution,
he should not now be able to use as a shield the spendthrift provision his
mother apparently intentionally inserted into the Restated Trust in 2004. But
as noted, this argument overlooks the sequence of events in this case. Here,
the spendthrift provision that the Trustee argues was invalidated by pre-
bankruptcy dealings with Gold Bank was added in 2004 at the same time
Debtor was removed as trustee of the Restated Robben Family Trust. As a
result, Debtor’s actions pledging trust assets as trustee did not violate any
spendthrift provision. Those actions, therefore, do not invalidate the later-
proposition in In re Hillgers, 371 B.R. at 468 n.8.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 15 of 18
added spendthrift provision, and there was no evidence at trial that Debtor
ever pledged assets of the Restated Robben Family Trust after he was
removed as trustee. It was the apparent intent of the settlor, Bertha Robben,
that from January 22, 2004 forward, Debtor no longer be able to use her
assets to pay his creditors. It is her intention that this Court is now required
Finally, the Trustee argues that, regardless of the spendthrift
provision, Debtor is judicially estopped from now claiming an interest in the
Restated Robben Family Trust assets. This argument is based on her
contention that Debtor’s decision not to clearly disclose his interest in this
Trust somehow proves that he believed he had no interest in the Trust. She
argues that his “denial” of an interest in the Trust contradicts his later state
court action against his siblings where he sought an accounting and inventory
of the Restated Robben Family Trust assets.
Three factors typically inform a court’s decision whether to apply the
doctrine of judicial estoppel: (1) whether the party’s subsequent position is
clearly inconsistent with its former position; (2) whether the suspect party
succeeded in persuading a court to accept that party’s former position, so that
judicial acceptance of an inconsistent position in a later proceeding would
create the perception that either the first or the second court was misled; and
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 16 of 18
(3) whether the party seeking to assert an inconsistent position would gain an
unfair advantage in the litigation if not estopped.32 But Debtor does not meet
even the first criteria; Debtor’s position that the interest now has value is not
inconsistent with his argument that it was not part of the estate, or had no
value to the estate in 2004 when Debtor entered bankruptcy (some six years
before his mother died and his interest became choate).
In addition to echoing the theories advanced by the Trustee, Mary Ann
Ruff and Paul Robben also contend that § 541(c)(2) does not exclude Debtor’s
interest in the Trust from the bankruptcy estate, but rather only prevents the
Trustee from forcing distributions from the estate to pay creditors. They cite
no case law in support of this position, and such interpretation contravenes
both Tenth Circuit BAP precedent33 and this Court’s holding in In re Roth. 34
These counter arguments are unavailing. Having reviewed the
language in the Trust and the facts of the case at the time Debtor filed his
bankruptcy petition, the Court finds that Debtor had a beneficial interest in
the Restated Robben Family Trust when he filed bankruptcy, the Restated
32 Queen v. TA Operating, LLC, ___ F.3d ___, 2013 WL 4419322, at *4 (10thCir. Aug. 20, 2013).
33 In re Hilgers, 371 B.R. at 468 (“Section 541(c)(2) of the Bankruptcy Codeexcludes from property of the estate a debtor’s beneficial interest in a spendthriftTrust.”).
34 289 B.R. at 165.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 17 of 18
Robben Family Trust restricts him from transferring that beneficial interest,
and the restriction is a facially valid spendthrift provision under Kansas law.
As a result, Debtor satisfies the three criteria required to exclude property
from the bankruptcy estate under § 541(c)(2). The parties cannot successfully
contest these criteria, and the Court finds no other fact in this case that
differentiates it from In re Roth. Debtor’s interest in the Restated Robben
Family Trust was never a part of the bankruptcy estate.
Because Debtor’s interest in the Restated Robben Family Trust did not
become part of the bankruptcy estate, Debtor’s motion seeking for the Trustee
to abandon that asset is denied, as moot.
It is so ordered.
Case 04-40485 Doc# 126-1 Filed 12/17/13 Page 18 of 18
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