- Category: Judge Somers
- Published on 22 January 2014
- Written by Judge Somers
SIGNED this 21st day of January, 2014.
Opinion Designated for Electronic Use, But Not for Print Publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
BETTY MAYHEW SKUBITZ, CASE NO. 12-11544-7
OPINION AND JUDGMENT GRANTING DEBTOR’S MOTION
FOR SUMMARY JUDGMENT
This contested matter comes before the Court on the Debtor’s motion for summary
judgment on the question whether any part of her interest in a trust established by her
husband’s last will and testament is subject to the claims of her creditors, represented by
the Chapter 7 Trustee. The Debtor appears by counsel Boyd W. Howard. J. Michael
Morris appears as counsel for himself as the Chapter 7 Trustee in this case. The Court
has reviewed the relevant materials and is now ready to rule.
The Trustee concedes the trust contains a provision that would ordinarily make it a
spendthrift trust and therefore not property of the Debtor’s bankruptcy estate. However,
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he contends the Debtor’s power as the trustee of the trust to make distributions to herself
is a “power of withdrawal” under the Kansas Uniform Trust Code, which makes her
interest in the trust subject to the claims of her creditors to the extent of the power. After
considering the relevant materials and the parties’ arguments, the Court concludes the
Trustee is wrong for two reasons: (1) he has overlooked a provision in the Kansas UTC
that would prevent the Debtor’s creditors from attaching her interest in the trust even if
the trust contained no spendthrift provision; and (2) the Debtor’s power to distribute trust
property to herself is not a power of withdrawal under the Kansas UTC. As explained
below, the Court will therefore grant the Debtor’s motion for summary judgment.
The Debtor’s husband signed his last will and testament in 1994, and it was filed in
Sedgwick County in February 2003. The will identified the Debtor as his wife and said
he had three children, who were also identified.1 The will made specific provisions for
the disposition of certain assets, and gave the rest of the husband’s property to the Debtor
as the trustee of two trusts. Because the Debtor survived her husband, the first trust
(“Trust A”) was established with so much of his residuary estate as was needed to take
full advantage of the federal estate tax unified credit and state death tax credit available to
the estate. The other trust (“Trust B”) was terminated in 2005.
Two paragraphs of the will directed how Trust A was to be held and managed:
1The Debtor’s brief in support of summary judgment indicates these are also her children.
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6.01 During the lifetime of my wife the Trustee shall pay to my said
wife as much of the net income and principal as the Trustee, in the
Trustee’s absolute discretion, determines to be required to provide
adequately for her reasonable support, maintenance and health, taking into
consideration the other sources of funds available to my said wife from all
sources known to the Trustee. The judgment of the Trustee as to the
propriety and amount of such discretionary distributions shall be binding
upon all persons.
6.02 Upon the death of my wife, . . . the Trustee shall divide the
property in Trust A into a sufficient number of equal shares to create one
separate Trust for each child of mine who is then living and one Trust for
each child of mine who is then deceased, but who has issue then living.2
Paragraph 8.03 of the will provided: “Discretionary powers are exercisable in the
discretion of the Trustee and no beneficiary shall have any right or power to enforce or
object to the reasonable exercise of such powers.”3
The will also contained a provision called “Prohibition Against Anticipatory
Assignment”4 that the Trustee concedes would ordinarily make Trust A a spendthrift trust
so that the Debtor’s interest in it would be excluded from her bankruptcy estate by
§ 541(c)(2) of the Bankruptcy Code. However, he contends the Debtor’s power as the
trustee of Trust A to make distributions to herself as a beneficiary of the trust constitutes a
“power of withdrawal” under the Kansas UTC that, despite the spendthrift provision,
authorizes her creditors to reach trust property to the extent she could distribute it to
herself in the exercise of that power. The Trustee claims that the maximum amount the
2Dkt. no. 73-2 at 5-6.
3Id. at 11.
4Id. at 16.
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Debtor could distribute to herself under that power belongs to her bankruptcy estate, and
that the Court will have to determine what that amount is. The Debtor has moved for
summary judgment, asking the Court to reject the Trustee’s theory.
1. Summary judgment rules.
Under the applicable rules of procedure, the Court is to grant summary judgment if
the moving party demonstrates that there is “no genuine issue of material fact” and that
the party “is entitled to a judgment as a matter of law.”5 The substantive law identifies
which facts are material.6 A dispute over a material fact is genuine when the evidence is
such that a reasonable factfinder could resolve the dispute in favor of the party opposing
the motion.7 In adjudicating disputes, bankruptcy courts usually both determine the law
and find the facts. In deciding a summary judgment motion, though, the Court is limited
to its role of deciding legal questions, not weighing the evidence and resolving factual
disputes, but merely determining whether the evidence favorable to the non-moving party
about a material fact is sufficient to require a trial8 at which the Court would act in its
factfinding role. Summary judgment is inappropriate if an inference can be drawn from
the materials properly submitted either to support or oppose the motion that would allow
5Fed. R. Civil P. 56(c), made applicable by Fed. R. Bankr. P. 7056.
6Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
8Id. at 249-50.
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the non-moving party to prevail at trial.9
2. The Trustee’s theory under the Kansas Uniform Trust Code.
As indicated, the Trustee concedes the anticipatory assignment provision in Trust
A qualifies as a spendthrift provision under K.S.A. 58a-502, part of the Kansas version of
the Uniform Trust Code,10 which authorizes trusts to include such provisions and makes
them enforceable against the creditors of beneficiaries of the trust. However, he points to
another part of the UTC, § 505, which authorizes creditors of either the settlor of a trust
or the holder of a power of withdrawal to reach trust property despite a spendthrift
provision in the trust. As relevant here, K.S.A. 58a-505 provides:
(a) [W]hether or not the terms of a trust contain a spendthrift
provision, the following rules apply:
(1) During the lifetime of the settlor, the property of a
revocable trust is subject to the claims of the settlor’s
(2) With respect to an irrevocable trust, a creditor or
assignee of the settlor may reach the maximum amount that
can be distributed to or for the settlor’s benefit. . . .
. . . .
(b) For purposes of this section:
(1) During the period the power may be exercised, the
holder of a power of withdrawal is treated in the same manner
as the settlor of a revocable trust to the extent of the property
9See id. at 248.
10The Kansas version of the UTC, modified in various ways from the version promulgated by the
National Conference of Commissioners on Uniform State Laws in 2000, became effective on January 1,
2003. See 2002 Kan. Sess. L. ch. 133, § 94. The Kansas Judicial Council produced a version of the
UTC, dated Oct. 9, 2000, with proposed Kansas modifications, and its proposal, together with Kansas and
UTC Comments, is available online at http://www.kansasjudicialcouncil.org/uniformtrust.shtml. The
version the legislature adopted differed in various ways from the Judicial Council’s proposed version.
For example, §§ 503 and 504 were omitted, but part of UTC § 504(b) became K.S.A. 58a-502(d) in the
version the legislature passed.
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subject to the power.11
Contending the Debtor has such a power of withdrawal, the Trustee claims a trial will be
necessary at which the Court will have to determine the maximum amount the Debtor
could distribute to herself under Trust A’s standard of what is “required to provide
adequately for her reasonable support, maintenance and health, taking into consideration
the other sources of funds available to [her] from all sources known to [her].”
The Trustee’s theory fails for two reasons. First, he has overlooked a provision in
the Kansas UTC that prevents her creditors from compelling her to make any distributions
from Trust A. Second, the Debtor’s power as the trustee of the trust to make
discretionary distributions to herself as a beneficiary is not a “power of withdrawal”
under the Kansas UTC.
3. The Trustee’s theory would fail even if Trust A did not include any spendthrift
In 2003, after the Kansas version of the UTC took effect12 and when the will that
created Trust A was filed in Sedgwick County, § 502(d) of the Kansas UTC provided:
“Whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may
not compel a distribution that is subject to the trustee’s discretion.”13 In 2004, this
provision was amended to its present form by adding at the end of it: “even if: (1) The
11K.S.A. 58a-505 was amended in 2004, see 2004 Kan. Sess. L. ch. 158, § 8, but the portions
quoted here were not changed.
12See footnote 11 above.
13See 2002 Kan. Sess. L., ch. 133,§ 41.
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discretion is expressed in the form of a standard for distribution; or (2) the trustee has
abused the discretion.”14 Under either version of the statute, the Debtor’s creditors cannot
compel her to exercise her discretionary power to make a distribution to herself or on her
Even though the Kansas UTC did not take effect until January 1, 2003, and the
Debtor’s husband signed his will in 1994, the UTC can properly be applied to it. K.S.A.
58a-1106(a) provides that the Kansas UTC applies to all trusts created before, on, or after
the effective date of the UTC and to all judicial proceedings concerning trusts
commenced on or after its effective date, and that any rule of construction or presumption
the UTC provides applies to trust instruments executed before the UTC’s effective date
“unless there is a clear indication of a contrary intent in the terms of the trust.” In 2004,
in In re Estate of Somers, the Kansas Supreme Court relied on this provision to conclude
the UTC applied to a testamentary trust resulting from a death in 1956.15 Since the UTC
is properly applied to trusts created before the UTC was enacted, any amendment should
likewise apply to trusts created before the amendment’s enactment. Thus, the current
version of K.S.A. 58a-502(d) is appropriately applied in this case, and bars the Trustee’s
claim. Applying this statute to bar creditors from compelling distributions from the trust
is not contrary to anything the Court sees in Trust A, but instead is consistent with the
intent shown by the trust’s spendthrift provision.
142004 Kan. Sess. L., ch. 158, § 7. See K.S.A. 58a-502(d).
15277 Kan. 761, 765 (2004).
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Trust A clearly gives the Debtor discretion to determine amounts to distribute to
herself, and establishes a standard for her to apply in exercising that discretion. Despite
Trust A’s effort to make the Debtor’s distribution discretion “absolute,” K.S.A. 58a-814
somewhat limits the extent of the discretion by requiring her to exercise that power “in
good faith and in accordance with the terms and purposes of the trust and the interests of
the beneficiaries.” Even with that limit, the power remains subject to the Debtor’s
discretion. Consequently, K.S.A. 58a-502(d) clearly bars the Trustee’s effort to have this
Court compel the Debtor to make distributions from Trust A for the benefit of her
4. The Debtor’s discretionary power as the trustee of Trust A to make distributions
to herself as a beneficiary of the trust is not a “power of withdrawal.”
The Trustee’s argument that the Debtor’s authority as the trustee of Trust A to
distribute net income and principal to herself as a beneficiary constituted a power of
withdrawal is not persuasive. A review of the definition of “power of withdrawal” in the
Kansas UTC has led the Court to authorities that demonstrate the argument is wrong. In
2003, when the Debtor’s husband’s will was filed, K.S.A. 58a-103(10) defined “power of
withdrawal” as used in the UTC to mean “a presently exercisable general power of
appointment other than a power exercisable only upon consent of the trustee or a person
holding an adverse interest.”16 Although the provision was later amended (as discussed
16K.S.A. 58a-103(10) (Furse 2005).
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below), the definition remains limited to a “power of appointment.”17 This led the Court
to consider what constitutes a “power of appointment.”
“When there is no law directly on point, Kansas courts turn to the Restatement of
Trusts.”18 General Comment a to § 50 of the Restatement (Third) of Trusts explains why
the Debtor’s authority as the trustee of Trust A is not a power of appointment:
A trustee’s discretionary power with respect to trust benefits is to be
distinguished from a power of appointment. The latter is not subject to
fiduciary obligations and may be exercised arbitrarily within the scope of
the power. . . . (Tax law generally does not categorize powers in this
manner, and even traditional property-law distinctions between fiduciary
powers and powers of appointment may be difficult to draw; this is
especially so because a true power of appointment can be conferred upon
one who is also a trustee, although a power that runs with the office of
trustee is strongly presumed to be a fiduciary power.)19
Under Trust A, the power to make distributions to the beneficiaries was conferred on the
trustee of the trust, not on the Debtor personally. The Debtor was named as the initial
trustee but she could have declined, resigned, or been removed, and a successor trustee
would have been named or appointed, and would have succeeded to the power to make
distributions. In other words, the power ran with the office of trustee, and as indicated by
the Restatement, this means the Debtor’s power to make distributions is a fiduciary
power, not a power of appointment. Other provisions of the Kansas UTC spell out some
17See K.S.A. 2012 Supp. 58a-103(10).
18In re Estate of Somers, 277 Kan. at 767 (citing In re Estate of Sanders, 261 Kan. 176 183
19Restatement (Third) of Trusts, § 50, General Comment a. (2003), available on Westlaw at
REST 3d TRUSTS § 50 (database updated June 2013).
Case 12-11544 Doc# 94 Filed 01/21/14 Page 9 of 15
of the Debtor’s relevant fiduciary obligations: (1) K.S.A. 58a-801 requires her to
“administer the trust in good faith, in accordance with its terms and purposes and the
interests of the beneficiaries, and in accordance with this code”; (2) K.S.A. 58a-802(a)
requires her to “administer the trust consistent with the terms of the trust and solely in the
interests of the beneficiaries”; and (3) because the Debtor’s three children (and their
issue) are secondary beneficiaries of Trust A, K.S.A. 58a-803 requires her to “act
impartially in investing, managing, and distributing the trust property, giving due regard
to the beneficiaries’ respective interests.” Nothing in Trust A suggests the Debtor was
granted a power of appointment rather than a trustee’s discretionary power over trust
benefits. All this means the Debtor’s discretionary power as the trustee of Trust A to
distribute trust property to herself as a beneficiary is not a “power of withdrawal” under
the Kansas UTC.
Furthermore, K.S.A. 2012 Supp. 58a-103(10) was amended in 2006 to define
“power of withdrawal” to mean “a presently exercisable general power of appointment
other than a power: (A) Exercisable by a trustee and limited by an ascertainable standard
relating to an individuals [sic] health, education, support or maintenance within the
meaning of section 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code of 1986, as
in effect on July 1, 2006; or (B) exercisable by another person only upon consent of the
trustee or a person holding an adverse interest.”20 Under this definition, so long as the
20See 2006 Kan. Sess. Laws, ch. 23, § 1. As explained earlier in discussing K.S.A. 58a-502(d),
K.S.A. 58a-1106(a) makes it appropriate to apply this amendment in this case.
Case 12-11544 Doc# 94 Filed 01/21/14 Page 10 of 15
Debtor’s power as the trustee to make distributions to herself as a beneficiary was limited
by an “ascertainable standard” as defined under the cited portions of the IRC, that power
did not constitute a “power of withdrawal” under the Kansas UTC.
Section 2041(a) of the IRC concerns the federal estate tax and brings into a
decedent’s gross estate any property with respect to which the decedent had a general
power of appointment at the time of his or her death; for that purpose, § 2041(b)(1)
The term “general power of appointment” means a power which is
exercisable in favor of the decedent, his estate, his creditors, or the creditors
of his estate; except that —
(A) A power to consume, invade, or appropriate
property for the benefit of the decedent which is limited by an
ascertainable standard relating to the health, education,
support, or maintenance of the decedent shall not be deemed a
general power of appointment.21
Section 2514 of the IRC concerns the federal gift tax, and specifies that the exercise or
release of a general power of appointment is deemed to be a transfer of property by the
possessor of the power; for that purpose, § 2514(c) defines “general power of
appointment” in terms similar to § 2041(b)(1):
For purposes of this section, the term ‘general power of
appointment’ means a power which is exercisable in favor of the individual
possessing the power . . ., his estate, his creditors, or the creditors of his
estate; except that —
(1) A power to consume, invade, or appropriate
property for the benefit of the possessor which is limited by
an ascertainable standard relating to the health, education,
2126 U.S.C. § 2041(b)(1).
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support, or maintenance of the possessor shall not be deemed
a general power of appointment.22
So both provisions say a power limited by an ascertainable standard relating to the powerholder’s
health, education, support, or maintenance is not a general power of
appointment. IRS regulations interpreting these provisions specify what qualifies as “an
ascertainable standard.” Regulations construing both statutes provide that: “A power is
limited by [an ascertainable standard] if the extent of the holder’s duty to exercise and not
to exercise the power is reasonably measurable in terms of his needs for health, education,
or support (or any combination of them).”23 Under both of these provisions, the Debtor’s
power to distribute Trust A property to herself is subject to an ascertainable standard and
is therefore not a general power of appointment, and consequently, is not a “power of
withdrawal” under the Kansas UTC.
The Court notes that § 60 of the Restatement (Third) of Trusts suggests that the
common law allows creditors of a beneficiary who is also a trustee of a trust to reach that
person’s beneficial interest in the trust.24 This part of the Restatement was the inspiration
for several amendments to the UTC that were proposed in 2004 to prevent this part of the
Restatement from applying in certain situations; one relevant amendment has been
2226 U.S.C. § 2514(c)(1).
2326 C.F.R. § 20.2041-1(c)(2) (current through Sept. 12, 2013), available on Westlaw at 26
C.F.R. § 20.2041–1; 26 C.F.R. § 25.2514-1(c)(2) (current through Sept. 12, 2013), available on Westlaw
at 26 C.F.R. § 25.2514–1(c)(2).
24Restatement (Third) of Trusts, § 60, comment g (2003), available on Westlaw at REST 3d
TRUSTS § 60 (database updated June 2013).
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adopted in Kansas.25 The UTC Comment to the 2004 Amendment of §§ 504(e) and
103(11) noted the approval of § 60, comment g of the Restatment (Third) of Trusts, and
indicated the Restatement’s rule might apply as supplemental common law in states that
had adopted the UTC.26 Then the Comment said: “The drafting committee has concluded
that adoption of the Restatement rule would unduly disrupt standard estate planning and
should be limited.”27 To further this conclusion, the committee recommended adding a
definition of “ascertainable standard” to § 103 that ties it to the meaning of that phrase
under §§ 2041(b)(1)(A) and 2514(c)(1) of the Internal Revenue Code and amending the
definition of “power of withdrawal” to clarify that a power exercisable by the trustee that
is limited by an “ascertainable standard” is not such a power.28 The Comment explains:
The purpose of this amendment is to preclude a claim that the power of a
trustee-beneficiary to make discretionary distributions for the trusteebeneficiary’s
own benefit results in an enforceable claim of the trusteebeneficiary’s
creditors to reach the trustee-beneficiary’s interest as provided
in Section 505(b). . . [T]he amendment to “power of withdrawal” is being
made because of concerns that Restatement (Third) of Trusts Section 60,
comment g, otherwise might allow a beneficiary-trustee’s creditors to reach
the trustee’s beneficial interest.
Rather than adding a new definition of “ascertainable standard” and incorporating
25As explained earlier in discussing K.S.A. 58a-502(d), K.S.A. 58a-1106(a) makes it appropriate
to apply the relevant Kansas amendment in this case.
26National Conference of Commissioners of Uniform State Laws, Uniform Trust Code (Last
Revised or Amended in 2010), at 93, (original approved in 2000, but latest version dated Jan. 15, 2013),
available online at www.uniformlaws.org/shared/docs/trust_code/utc_final_rev2010.pdf.
28Id. at 93-94.
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it into the definition of “power of withdrawal,” the Kansas legislature simply put the
“ascertainable standard” language and references to the Internal Revenue Code directly
into the Kansas UTC’s definition of “power of withdrawal.”29 Therefore, like the model
Uniform Trust Code, the Kansas UTC has adopted the view that so long as a trusteebeneficiary’s
power to make discretionary distributions to himself or herself is limited by
an ascertainable standard (as defined for purposes of § 2041(b)(1)(A) and 2514(c)(1) of
the Internal Revenue Code), the trustee-beneficiary’s creditors cannot reach the trustee’s
beneficial interest in the trust, rejecting the contrary result proposed by the Restatement
(Third) of Trusts § 60, Comment g, in that situation.
5. The Debtor’s authority as the trustee of Trust A should not be subject to the
Court’s interference unless she misinterprets or abuses her discretion.
Section 50 of the Restatement (Third) of Trusts provides another reason the Court
is not willing to accept the Trustee’s theory in this case. It states:
(1) A discretionary power conferred upon the trustee to determine
the benefits of a trust beneficiary is subject to judicial control only to
prevent misinterpretation or abuse of the discretion by the trustee.30
The Trustee has not suggested the Court should interfere with the Debtor’s determination
of her benefits as a beneficiary of Trust A on the ground she has misinterpreted or abused
her discretion,31 but instead that the Court should determine in the first instance the
29K.S.A. 2012 Supp. 58a-103(a)(10); see also 2006 Kan. Sess. L. ch. 23, §1.
30Id. at § 50(1).
31Indeed, the Trustee’s statement of additional facts in his response to the Debtor’s summary
judgment motion includes the assertion “As to Trust A, the debtor takes out only the dividend income
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maximum amount the Debtor could distribute to herself for her support, maintenance, and
health. The Restatement indicates this is not a proper reason for a court to interfere with a
trustee’s discretionary power to determine a trust beneficiary’s benefits.
Because (1) the Trustee overlooked K.S.A. 58a-502(d), (2) his assertion that the
Debtor has a “power of withdrawal” under Trust A is wrong, and (3) he has not identified
anything else that might override K.S.A. 58a-502(d) or render the spendthrift provision of
Trust A unenforceable, § 541(c)(2) of the Bankruptcy Code allows the spendthrift
provision to operate and prevent the Debtor’s beneficial interest in Trust A from
becoming property of her bankruptcy estate. The Debtor’s creditors could not reach that
interest, and neither can the Trustee. The Debtor’s motion for summary judgment will
therefore be granted.
For the reasons stated, the Debtor’s motion for summary judgment is hereby
granted, and the Trustee’s effort to reach her beneficial interest in Trust A is rejected.
Pursuant to Federal Rule of Bankruptcy Procedure 9021, this judgment will become
effective when it is entered under Rule 5003.
# # #
each year.” Dkt. no. 84 at 3. This indicates the Debtor has been restrained in exercising her discretion.
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