The Georgia Supreme Court holds that a trust in which the settlor retains a general power of appointment is part of the settlor's bankruptcy estate even though the trust contained a spendthrift provision and named specific beneficiaries. Phillips v. Moore (Ga., No. S09Q2033, March 1, 2010).
Delmus Phillips created a trust with a spendthrift provision to hold real estate. Under the trust agreement, Mr. Phillips was entitled to receive the income for life, and he had a testamentary power of appointment to distribute the trust corpus to anyone he chose. The trust also named beneficiaries to receive the trust corpus if Mr. Phillips failed to use the power of appointment.
Mr. Phillips filed for bankruptcy. The bankruptcy trustee moved for summary judgment to determine whether the trust corpus was a part of the bankruptcy estate. Mr. Phillips argued that because the trust had a spendthrift provision and named specific beneficiaries, he was not the sole beneficiary of the trust and the trust was not a part of the bankruptcy estate. The bankruptcy court certified to the Georgia Supreme Court the question of whether retaining a general power of appointment meant that Mr. Phillips was the trust's sole beneficiary.
The Georgia Supreme Court holds that the trust is a part of the bankruptcy estate. The court finds that because Mr. Phillips retained "a general power of appointment enabling him to dispose of the trust property to anyone, including his estate or his creditors" he is the sole beneficiary and the spendthrift provision is unenforceable.
For the full text of this decision in PDF, go to: https://www.gasupreme.us/sc-op/pdf/s09q2033.pdf
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