Murphy v. Felice (In re Felice)
494 B.R. 160
Bankr. D. Mass.2013Background
- Ernest J. Felice seeks a declaration that his beneficial interest in the Family Trust is not property of his estate due to a spendthrift clause.
- Murphy, the chapter 7 trustee, contends the spendthrift clause is unenforceable and that Mandalay Drive is property of the estate regardless of the clause.
- Mandalay Drive is held in the 1981 Trust and later funneled through a 2001 Realty Trust into the Family Trust; the structure forms an estate-planning sequence.
- The 2001 Deed purported to transfer Mandalay Drive into the 2001 Realty Trust; merger doctrines and trust terms are used to evaluate title and control.
- The Family Trust contains a spendthrift clause restricting transfer by beneficiaries and shielding trust assets from creditors, subject to state-law enforceability.
- The court analyzes whether the Family Trust is self-settled and whether Ernest’s control over the trusts defeats the spendthrift protection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Mandalay Drive property of the debtor's estate? | Murphy argues pervasive control subjects assets to estate. | Felice asserts spendthrift clause excludes it under 541(c)(2). | Mandalay Drive is not estate property. |
| Is the Family Trust spendthrift clause enforceable against creditors? | Murphy contends self-settledness defeats protection. | Felice contends clause is enforceable; trusts are interrelated, not self-settled. | Spendthrift clause is enforceable; trust not self-settled. |
| Do Ernest's roles and powers give pervasive control to defeat the spendthrift clause? | Murphy posits unilateral control through dual-trust positions threatens protection. | Felice argues shared control and lack of unilateral power negate pervasive control. | Ernest lacks pervasive control; protection remains intact. |
Key Cases Cited
- Butner v. United States, 440 U.S. 48 (U.S. 1979) (federal law governs bankruptcy estate while state law governs trust validity)
- Patterson v. Shumate, 504 U.S. 753 (U.S. 1992) (nonbankruptcy law determines enforceability of spendthrift provisions)
- State Street Bank & Trust Co. v. Reiser, 7 Mass.App.Ct. 633 (Mass. App. Ct. 1979) (pervasive control standard for reaching trust assets)
- ITT Commercial Finance Corp. v. Stockdale, 25 Mass.App.Ct. 986 (Mass. App. Ct. 1988) (trustee's power to amend/revoke is central to reachability of assets)
- Markham v. Fay, 74 F.3d 1347 (1st Cir. 1996) (touchstone: trust instrument overall must give debtor power to eliminate others' interests)