Menotte v. Brown (In re Brown)

303 F.3d 1261 (2002)

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Menotte v. Brown (In re Brown)

United States Court of Appeals for the Eleventh Circuit
303 F.3d 1261 (2002)

  • Written by Liz Nakamura, JD

Facts

Jane Brown (defendant) established the Irrevocable Charitable Remainder Unitrust Agreement (ICRUA), funded with the $250,000 Brown inherited from her mother. ICRUA contained a spendthrift provision and provided Brown with a monthly income stream for her life, calculated to amount to 7 percent of the trust’s net worth each year. Brown used those payments to support herself. After Brown’s death, her daughter would receive those same payments for her life, and then the trust corpus would be distributed to four charities. Brown was the trustee of ICRUA, but her powers were limited, and she had no power to invade the trust corpus or alter the amount of the monthly payments. Brown ultimately filed for Chapter 7 bankruptcy and petitioned to have ICRUA exempted from the bankruptcy estate, arguing that (1) the spendthrift provision protected ICRUA from her creditors; or, alternatively, (2) ICRUA was exempt because it qualified as a support trust. Deborah Menotte (plaintiff), the Chapter 7 bankruptcy trustee, challenged, arguing that spendthrift provisions in self-settled trusts like ICRUA were unenforceable against the settlor-beneficiary’s creditors. Both the bankruptcy court and the district court on appeal ruled that the spendthrift provision exempted ICRUA from the bankruptcy estate. Menotte appealed.

Rule of Law

Issue

Holding and Reasoning (Black, J.)

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