Frealy v. Reynolds

by
At issue in this case was the extent to which a bankruptcy estate may reach a beneficiary’s interest in a spendthrift trust that consists entirely of payments from principal under the Probate Code of the state of California. The beneficiary claimed that Cal. Prob. Code 15306.5 caps the bankruptcy estate’s access at twenty-five percent of his trust interest. The bankruptcy trustee sought to reach more than twenty-five percent of the beneficiary’s interest under Cal. Prob. Code 15301(b) and 15307, which it argued was not subject to the section 15306.5 cap. The bankruptcy court ruled in favor of the beneficiary, concluding that section 15306.5 establishes an “absolute maximum cap on what is recoverable by a judgment creditor at 25 percent.” The Ninth Circuit Bankruptcy Appellate Panel (BAP) affirmed. To resolve the issue as to whether a bankruptcy estate may access more than twenty-five percent of a beneficiary’s interest in a spendthrift trust such as the one in this case under other sections of the Probate Code, the Ninth Circuit requested that the California Supreme Court exercise its discretion to accept a certified question addressing the issue. View "Frealy v. Reynolds" on Justia Law