Daily Development for
Wednesday, March 29, 2000
By: Patrick A. Randolph,
Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu
TRUSTS; CREDITOR'S CLAIMS:
A creditor of a trustee can not reach a trust assets on the ground that the
instrument transferring = such assets into trust did not name the trust
beneficiary, notwithstanding = state law requiring such designation.
Legae v. Lackner, No.
98SC593 (Col. March 27, 2000)
Decedent established a
revocable trust with his spouse as sole=20 beneficiary. When decedent died, his
spouse, as a personal representative of the estate, deeded property in the
estate to the = trust, pursuant to provisions in the will providing that the
residuary of the estate "pour over" into the trust. The deed
identified the trustees as = co- trustees of an identified trust, but did not
identify the trust = beneficiary.
Colorado law provides as
follows:
"All
instruments conveying real estate, or interests therein, = in which the grantee
is described as trustee, agent, conservator, executor, administrator, or
attorney-in-fact, or in any other representative capacity, said instruments
shall also name the beneficiary so represented and define the trust or other
agreement under which the grantee is acting, or refer, by proper description to
book, page, document number, or file to an instrument, order, decree, or other
writing which is of public record in the county = in which the land so conveyed
is located in which such matters appear; otherwise the description of a grantee
in any such representative capacity in such instruments of conveyance shall be
considered and held a description of the person only and shall not be notice of
a trust or other representative capacity of such grantee." =A7
38-30-108=20
The trial court had found
that the creditor could not reach the trust, = but the Colorado Court of
Appeals reversed, holding that the literal = language of the statute made the
deed into a deed of fee to the trustee in his personal capacity. On appeal to
the Colorado Supreme Court, held: reversed.
The Supreme Court
concluded that a "literalist" reading of the statute would be
inconsistent with the intent of the legislature in drafting = it. It held that
the statute did not deal with the validity of the transfer by = the trustee,
but instead was a "notice" statute.
The court noted that at
common law a deed to a party as trustee was sufficient to establish the
trustee's capacity, and no designation of = the beneficiary was required. This
created a situation in which parties dealing with the trustee could not be
confident that the trustee had = fully complied with the trust requirements,
thus , if the trustee transferred property to them, they would be liable to a
claim against that by an undisclosed beneficiary. Parties therefore were
reluctant to accept a transfer from a trustee, due to this possibility.
Many states have adopted
statutes indicating that an undisclosed beneficiary cannot challenge a transfer
to a third party by a trustee = on the grounds that the trustee was not in
compliance with the trust = instrument.=20 The court in this case held that
this was the purpose of the Colorado statute as well, even though the intent is
not as explicit. =20
The court held that
judgment creditors cannot show that they relied = upon the trustees ability to
function as trustee in extending credit to the = trustee in his personal
capacity.
Comment: This case is
another example of the reluctance of many courts to recognize judgment
creditors as equivalent to bona fide purchasers.=20 The cases vary in the
interpretation of the precise statutory language, = but they all reflect the
fact that the courts conclude that creditors do = not rely upon the record and
consequently the title clearing function of notice statutes ought not to
benefit them.
Readers are urged to respond, comment, and argue with the daily
development or the editor's comments about it.
Items in the Daily Development section generally are extracted from the
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