In re: Rick Reynold

Filing

FILED PER CURIAM OPINION (ALEX KOZINSKI, SUSAN P. GRABER and CHARLES R. BREYER) REVERSED AND REMANDED. FILED AND ENTERED JUDGMENT. [10544596]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

IN RE RICK H. REYNOLDS,

No. 12-60068
Debtor.
BAP No.
11-1433

TODD A. FREALY, Attorney, Chapter
7 Trustee of Estate of Rick
Reynolds,
Appellant,

OPINION

v.
RICK H. REYNOLDS; JOHN M.
CARMACK, Co-Trustee of the
Reynolds Family Trust and CoTrustee 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.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Hollowell, Pappas, and Dunn, Bankruptcy Judges,
Presiding

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2

IN RE REYNOLDS
Argued and Submitted March 7, 2014
Pasadena, California
Filed August 15, 2017
Before: Alex Kozinski and Susan P. Graber, Circuit
Judges, and Charles R. Breyer,* District Judge.
Per Curiam Opinion

SUMMARY**

Bankruptcy
The panel reversed a decision of the Bankruptcy
Appellate Panel following the California Supreme Court’s
opinion answering a certified question regarding whether the
creditors of the beneficiary of a spendthrift trust may reach
the trust distributions.
The panel held that a bankruptcy estate is entitled to the
full amount of spendthrift trust distributions due to be paid as
of the date of the bankruptcy petition. 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. The estate may also reach

*

The Honorable Charles R. Breyer, United States District Judge for
the Northern District of California, sitting by designation.
**

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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IN RE REYNOLDS

3

25 percent of expected future payments from the spendthrift
trust, reduced by the amount the beneficiary needs to support
himself and his dependents.

COUNSEL
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.

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, 391 P.3d 625, 628 (Cal. 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

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4

IN RE REYNOLDS

long as the trust instrument specifies that the funds are for
that purpose. See Carmack, 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, 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.

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IN RE REYNOLDS

APPENDIX

5

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CARMACK v. REYNOLDS
Cite as 391 P.3d 625 (Cal. 2017)

215 Cal.Rptr.3d 749

John M. CARMACK, as Trustee, etc., et
al., Plaintiffs and Respondents,
v.
Rick H. REYNOLDS, Defendant;
Todd A. Frealy, as Trustee in
Bankruptcy, etc., Claimant
and Appellant.
S224985
Supreme Court of California.
Filed 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.

Cal.

625

the trustee, even if they have secured a
judgment against the beneficiary; rather,
creditors must wait until the trustee makes
distributions to the beneficiary.
3. Trusts O12
The law permits spendthrift trusts because donors have the right to choose the
object of their bounty and to protect their
gifts from the donees’ creditors.
4. Statutes O1076
Court interpreting a statute seeks to
ascertain the intent of the lawmakers so as to
effectuate the purpose of the statute.
5. Statutes O1079
Court interpreting a statute begins by
looking to the statutory language.
6. Statutes O1091, 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 O1156
A construction of a statute making some
words surplusage is to be avoided.
8. Statutes O1153, 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.

Question answered.

9. Statutes O1105, 1183, 1242

1. Trusts O141
A ‘‘spendthrift trust’’ is a trust that provides that the beneficiary’s interest cannot be
alienated before it is distributed to the beneficiary.

If the statutory language is susceptible
of more than one reasonable interpretation,
court must look to additional canons of statutory construction to determine the Legislature’s purpose; both the legislative history of
the statute and the wider historical circumstances of its enactment may be considered
in ascertaining the legislative intent.

See publication Words and Phrases for
other judicial constructions and definitions.

2. Trusts O152
Creditors of the beneficiary of a spendthrift trust generally cannot reach trust assets while those assets are in the hands of

10. Trusts O152
The general rule is that principal held in
a spendthrift trust may not be touched by
creditors until it is paid to the beneficiary.
Cal. Prob. Code § 15301(a).

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626

Cal.

391 PACIFIC REPORTER, 3d SERIES

11. Trusts O152
Where trust assets are not protected by
a spendthrift provision, the default rule is
that creditors may reach those assets. Cal.
Civ. Proc. Code § 709.010(b).
12. Trusts O152
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 have the 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 the payments expected to be made to the 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 Witkin, Summary of Cal.
Law (10th ed. 2005) Trusts, § 151 et
seq.

9th Cir. No. 12-60068, BAP No. CC-111433-HPaD, C.D. Cal. Bankr. Nos. 09-14039MJ, 09-01205-MJ
Finlayson Toffer Roosevelt & Lilly, Jesse
S. Finlayson and Matthew E. Lilly, Irvine,
for Claimant and Appellant.
Law Offices of David W. Meadows and
David W. Meadows, Los Angeles, for Defendant.
The Eroen Law Firm and Robert C. Eroen 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 the
United States Court of Appeals for the Ninth
Circuit observed, the relevant statutory pro-

visions are ‘‘opaque.’’ (Frealy v. Reynolds
(9th Cir. 2015) 779 F.3d 1028, 1029 (Frealy).)
Probate Code section 15306.5 appears to limit the bankruptcy estate to 25 percent of the
beneficiary’s interest; other provisions of the
Probate Code suggest no such limitation. The
Ninth Circuit asked us whether the Probate
Code limits a bankruptcy estate’s access to a
spendthrift trust to 25 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 reach a sum up to 25
percent of any payments that are 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 creditor’s [sic]
claim or legal process before actual receipt
by the beneficiary.’’ Reynolds’s 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 $250,000 from the
trust if he survives Freddie by 30 days. In
addition, Reynolds is entitled to receive
$100,000 a year for 10 years and then onethird 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

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CARMACK v. REYNOLDS
Cite as 391 P.3d 625 (Cal. 2017)

7 of the United States Bankruptcy Code. The
trustees of the Reynolds Family Trust
sought a declaratory judgment on the extent
of the bankruptcy trustee’s interest in the
trust. The bankruptcy court held that under
the California Probate Code, the 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 25 percent of the beneficiary’s
interest where the trust pays entirely from
principal. We granted the Ninth Circuit’s
request.
II.
[1–3] 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 are in the hands of the trustee, even if
they have secured a judgment against the
beneficiary. Rather, creditors must 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
the donees’ creditors. (Canfield v. SecurityFirst Nat. Bank (1939) 13 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], 15301, subd. (a)
[trust 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 themselves beneficiaries. (§ 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

Cal.

627

(§ 15305) and those with restitution judgments (§ 15305.5). In addition, a state or
local public entity can reach trust assets
when the beneficiary owes money for public
support (§ 15306, 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 recourse under three
provisions: section 15301, subdivision (b) (section 15301(b)), section 15306.5, and section
15307. The question here is how much access
to trust principal a general creditor has under these provisions.
[4–9] 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 accord[ ] 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
harmonized, both 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 historical 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
to be 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)

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391 PACIFIC REPORTER, 3d SERIES

Trusts, § 429.) It is common for trusts to
specify that the principal may not be distributed for many years, and liquidating principal may signal that the trust’s purpose has
been fulfilled. We are also mindful that this
case 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 to 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(c)(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 Rest.3d 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.’’].)
A.
We begin with section 15301(b), which provides in pertinent part: ‘‘After 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 a
judgment creditor to petition a court to satisfy the judgment out of the debtor’s trust
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
15305, which provides that creditors with
judgments for child or spousal support may
petition a court to satisfy their judgments out
of disbursements of either income or principal ‘‘as they become due and payable, presently or in the future.’’ (§ 15305, subd. (b).)

Any disbursement from the trust would appear to be due and payable in the sense the
phrase is used in section 15305. 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 not think the Legislature intended
to remove all protections from trust principal
immediately after specifying that spendthrift
provisions are generally valid as applied to
principal. (§ 15301, subd. (a).) Instead, the
Legislature provided the limiting principle in
the introductory clause of section 15301(b):
‘‘After an amount of principal has become due
and payableTTTT’’ (Italics added.) This clause
indicates that timing is critical: section
15301(b) reaches only those amounts which
are presently set to be paid to the beneficiary. 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
the trustee to satisfy the money judgment
out of that principal amount.’’ (§ 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) cases, 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 is that principal held
in a spendthrift trust may not be touched by
creditors until it is paid to the beneficiary.
(§ 15301, subd. (a).) Section 15301(b) adds
that once an amount of 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 assets has effectively vested,
the law no longer has any interest in protect-

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Cal.

CARMACK v. REYNOLDS
Cite as 391 P.3d 625 (Cal. 2017)

ing them (except as provided in section
15302, as explained below).
The legislative history points the same
way. The provisions at issue date from the
Law Revision Commission’s 1986 proposed
revisions to the Probate Code. (See Selected
1986 Trust and Probate Legislation (Sep.
1986) 18 Cal. Law Revision Com. Rep. (1986)
pp. 1321–1479 (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 the prior statutory framework while largely continuing existing law. (1986 Report, supra, at pp. 1221–
1222, 1302–1306.) Prior California statutes
had not made clear that spendthrift provisions were valid as applied to principal,
though case law generally suggested they
were. (Id. at p. 1302; see Seymour v. McAvoy
(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 we give ‘‘substantial weight’’ (Van Arsdale v. Hollinger (1968)
68 Cal.2d 245, 249, 66 Cal.Rptr. 20, 437 P.2d
508, overruled on other grounds in Privette v.
Superior Court (1993) 5 Cal.4th 689, 21 Cal.
Rptr.2d 72, 854 P.2d 721), notes that the
drafters sought to codify the validity of
spendthrift provisions as applied to trust
principal in section 15301, subdivision (a)
(section 15301(a)). (1986 Report, supra, at p.
1302.) But the drafters also sought to clarify
that once principal was due and payable,
creditors could reach it both ‘‘in the hands of
the trustee and after payment to the beneficiary.’’ (Id. at pp. 1302–1303.) 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 the beneficiary’s
support or education, the amount the beneficiary actually needs for either purpose may
not be reached by creditors until in the
hands of the beneficiary. Section 15302 explicitly provides that it does not apply where
creditors seek access under sections 15304
through 15307, but section 15302 does not
exclude orders under section 15301(b). Sec-

629

tion 15302 thus provides limited continued
protection to former trust assets where the
donor specifically intended the distribution to
support the beneficiary. This protection encourages donors 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 turn to sections 15306.5 and
15307. Both provisions are exceptions to the
general validity of spendthrift provisions as
applied to trust principal established by section 15301(a). Section 15306.5, subdivision (a)
(section 15306.5(a)) provides that any judgment creditor can petition a court to order
the trustee to satisfy the judgment out of
payments to which the beneficiary is entitled.
But those orders are limited to ‘‘25 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
(§ 15306.5, subd. (c)). Section 15307, for its
part, provides: ‘‘Notwithstanding a restraint
on transfer of a beneficiary’s interest in the
trust under Section 15300 or 15301, any
amount to which the beneficiary is entitled
under the trust instrument TTT in excess of
the amount that is or will be necessary for
the education and support of the beneficiary
may be applied to the satisfaction of a money
judgment against the 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 the 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 are these two provisions to be reconciled?
One possibility is that section 15307 is only
meant to apply to income, not principal. It is
true that the Law Revision Commission titled this provision ‘‘Income in excess of

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391 PACIFIC REPORTER, 3d SERIES

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., 54 West’s
Ann. Prob. Code (1991 ed.) foll. § 15307, p.
562 (West’s Annotated Code) [‘‘Section 15307
permits an ordinary creditor to reach income
under limited circumstances.’’]; 13 Witkin,
Summary of Cal. Law (10th ed. 2005) Trusts,
§ 155 [‘‘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, ch. 820, § 40) and therefore cannot
have any bearing on the interpretation of the
statute (58 Cal.Jur.3d (2017) Statutes, § 177).
Moreover, section 15301(a), which applies
only to principal, specifically refers to section
15307, and section 15307 provides that it
applies ‘‘[n]otwithstanding TTT [section]
15301.’’ Both references would be unnecessary if section 15307 only applied to income.
(See also 1986 Report, supra, at p. 1305
[§ 15307 applies ‘‘notwithstanding a restraint
on transfer of income or principal in the
trust instrument’’ (italics added) ].) In any
event, excluding principal from section 15307
would not resolve the tension between sections 15306.5 and 15307 for income. We thus
conclude that section 15307 applies to both
income and principal, as its text plainly says.
The bankruptcy trustee suggests that section 15307 serves a different purpose from
section 15306.5 by setting a higher bar for
creditors than section 15306.5. Under this
theory, general creditors have ‘‘automatic’’
access to 25 percent of beneficiaries’ trust
interest under section 15306.5, 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 the cap would
be equitable and would not cut into the beneficiaries’ support or education needs.
The bankruptcy trustee’s theory might reflect sensible policy and may find some support in the Law Revision Commission’s unelaborated comment that section 15307 applies
‘‘under limited circumstances.’’ (West’s Ann.

Prob. Code, supra, 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 15307 contains the same
reference to section 709.010 of the Code of
Civil Procedure as does section 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 15307 reflects a drafting error. Before the 1986 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. (1985) p. 596
(1985 Report).) The second provision was
former section 859 of the Civil Code, which
allowed creditors to reach the ‘‘ ‘surplus’ ’’
beyond the beneficiary’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 TTT shall be accumulated, added to, and become 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. (1985 Report, 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 50 percent for support creditors. (1985 Report, supra, at pp.
597–599, fn. 392, quoting former § 709.010.)
So, where former section 859 applied, general
creditors were capped at 25 percent of periodic payments to beneficiaries.

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Cal.

CARMACK v. REYNOLDS
Cite as 391 P.3d 625 (Cal. 2017)

The Commission’s original proposal reworked those provisions into the current
framework. Former section 867 of the Civil
Code was the basis for proposed section
15300. (1985 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 625.) Former section
859 of the Civil Code formed the basis for
proposed section 15307, though section
15307’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 15307, 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
the 50 percent cap. (1985 Report, supra, at
pp. 630–631.) 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 the first time section 15306.5. (1986 Report, supra, 18 Cal. Law Revision Com. Rep.
at p. 1339; see Stats. 1986, 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. 633, with 1986
Report, supra, at p. 1340), nor did the Commission clarify the 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

631

reestablishes that same 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 15307 without apparent limitations on
the 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), the aggregate of
all orders for satisfaction of money judgments against the beneficiary’s interest in
the trust may not exceed 25 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,’’ the language of section
15306.5(f)—‘‘all orders for satisfaction of
money judgments’’—is not limited to orders
under section 15306.5. One possibility, therefore, is that section 15306.5(f)’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 15306.5(f) as this case
involves only the 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(b). As explained above,
section 15306.5 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 be made to’’ the 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

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632

Cal.

391 PACIFIC REPORTER, 3d SERIES

15306.5(f)’s cap to 25 percent of any individual expected distribution.
[11] By contrast, section 15301(b) makes
clear that spendthrift protections do not apply to distributions of principal that have
become due and payable. Where trust assets
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
[‘‘ ‘ ‘‘A specific provision relating to a particular subject will govern in respect to that
subject, as against a general provision, although the latter, standing alone, would be
broad enough to include the subject to which
the more particular provision relates.’’ ’ [Citation.]’’].) Applying section 15306.5(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.)
[12] In sum, after an amount of principal
has become due and payable (but has not yet
been distributed), a creditor can petition to
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 beneficiary’s support or education and the beneficiary needs the distribution for those purposes (§ 15302). 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 the payments expected to be made to the beneficiary, reduced by the amount other creditors
have already obtained and subject to the
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 beneficiary

and that the 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 not already been
paid to the beneficiary, as well as $2,500 from
each of the nine anticipated payments (a total
of $22,500) as they are paid out. If the creditor were not otherwise able to satisfy the
remaining $17,500 balance 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 the remainder of that year’s
principal distribution ($7,500), as the court in
its discretion finds appropriate, until the
judgment is satisfied.
CONCLUSION
We conclude that a bankruptcy trustee,
standing as a hypothetical judgment creditor,
can reach a beneficiary’s interest in a trust
that pays entirely out of principal in two
ways. It may reach up to the 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 beneficiary’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 the benefit of, the beneficiary,
reduced to the extent necessary by the support needs of the beneficiary and any dependents.
We Concur:
Cantil-Sakauye, C.J.
Werdegar, J.
Chin, J.
Corrigan, J.
Cu´llar, J.
e
Kruger, J.

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