![\"Leni,](\"http:\/\/fresnolawyerblog.com\/wp-content\/uploads\/2010\/06\/Leni-beneath-Monte-Fossa-della-Flec1.jpg\" "\\"Fresno")
<\/a><\/p>\nThis is a terrible decision on policy grounds, as the court expressly permitted the two brothers to manipulate a legal entity to commit fraud on the creditor.\u00a0 Here are the facts in more detail.<\/p>\n
\u201cIn April 2004, Elizabeth Miller established the James F. Miller Irrevocable Trust (the James Trust) for the benefit of her son, James.\u00a0 She named her other son, Jerry, sole trustee.\u00a0 The James Trust is a discretionary trust under which Jerry has absolute discretion to make distributions for James and James\u2019s qualified spouse.\u201d<\/p>\n
\u201cThe James Trust contains a spendthrift provision and gives Jerry, as trustee, the complete discretion to terminate the trust by distributing the entire principal to the beneficiary for any reason.\u201d<\/p>\n
After forming the trust, Elizabeth transferred property to the trust.\u00a0 The principal asset of the trust was \u201ca residence located in Islamorada, Florida\u201d with a value greater than $1 million.<\/p>\n
In 2007, Kresser obtained a judgment against James for $1,019,095. Elizabeth died on September 10, 2007.\u00a0 \u201cWhen Kresser was unable to collect on his judgment from James he brought proceedings supplementary against them and impleaded Jerry, as trustee of the James Trust.\u00a0 Kresser asserted that he was entitled to execute on the James Trust\u2019s assets . . . because James exercised dominion and control over all of the trust assets and over Jerry, as trustee.\u201d<\/p>\n
The trial court found in favor of the creditor.\u00a0 The trial court \u201cset forth a detailed account of James\u2019s significant control over the James Trust and over Jerry, as trustee.\u00a0 The trial court found that Jerry had almost completely turned over management of the trust\u2019s day-to-day operations to James.\u00a0 James controlled all important decisions concerning the trust assets, including investment decisions. ” <\/strong><\/p>\n “Jerry never independently investigated these decisions to determine whether they were in the best interest of the trust, and some of the decisions have turned out to be unwise.\u00a0 The trial court concluded that Jerry simply rubber-stamped James\u2019s decisions and \u2018served as the legal veneer to disguise James\u2019s exclusive dominion and control of the Trust assets<\/strong>.\u2019\u201d<\/p>\n It\u2019s remarkable that a court of appeal would have interest in reviewing this decision.\u00a0 Even more remarkable, the trial court was reversed on appeal.\u00a0 In ruling against the creditor, the court of appeal held that \u201cthe James Trust does not give James any express control over distributions of the assets.\u00a0 Jerry, as trustee, has sole discretion to distribute income or principal to James, or to terminate the trust.\u201d<\/p>\n Said the court of appeal, \u201cwhile we agree that the facts in this case are perhaps the most egregious example of a trustee abdicating his responsibilities to manage and distribute trust property, the law requires that the focus must be on the terms of the trust and not the actions of the trustee or beneficiary<\/strong>.\u00a0 In this case, the trust terms granted Jerry, not James, the sole and exclusive authority to make distributions to James.\u00a0 The trust did not give James any authority whatsoever to manage or distribute trust property.\u201d<\/p>\n That\u2019s the court of appeal saying form matters more than substance, and adding that, \u201cWe\u2019ll ignore what\u2019s really going on if you right it down properly.\u201d<\/p>\n Stated the court, \u201cIn this case, James may ask Jerry for as many distributions as he because Jerry has sole discretion to make distributions, he may also choose to deny James\u2019s requests at any time, and James would have no recourse against him unless he were abusing his discretion as trustee.\u201d<\/p>\n \u201cUntil Jerry makes a distribution to James, Kresser and other creditors may not satisfy James\u2019s debts through trust assets.\u00a0 Accordingly, the trial court erred in invalidating the James Trust\u2019s spendthrift provision and allowing Kresser to reach trust assets before they have been distributed to James.\u201d<\/p>\n